TABL2751 Tutorial Questions

o 22500-18000-2000 = 2500 QUESTION 8 Question is looking for capital vs income  Compensation: 100,000  Contract: 15% of operations  Potential Revenue Lost: 150000 Material Facts:  Taking up 15% of the manufacturing capacity, 100K compensation, and lost potential revenue of 150K  Capital vs Income NEED TO ASK IF IT AFFECTS THE PROFIT MAKING STRUCTURE IS KEPT INTACT, THEN IT IS CONSIDERED INCOME Compensation paid or when profit making structure is impacted  15% is not significant  The compensation in this case is a substitute for income However, if for example the contract cancellation caused the business to go bankrupt, then the cancellation would be considered capital. In this scenario, it is likely that the company will be able to continue operations and not be significantly affected despite the contract being cancelled.

1. Cash Basis: 492K 2. Accruals Basis: 500K QUESTION 3  Cash prize won in a lottery lacks commercial element and relies on good luck and fortune  Cash prize won in an art competition by a professional artist would be considered an ordinary income and is engaged in the business of a “professional artist”  so joining an art competition would be considered in relation to their income producing and business activities o Parallels to Stones case.  A house provided to a security guard rent free, which is situated on the employer’s premises is not considered ordinary income but rather a fringe benefit o Section 15-2 o 21-A WEEK 3 TUTORIAL QUESTIONS  Capital Gains Discount: o Individuals: 50% o Companies: None o Superfunds: 1/3  33.33%  There are 13 CGT events o Event starts on the date of contract  If no contract  the d ate of the change in ownership  Must apply discounts at the VERY END when you do the method statement (step 3)  When doing questions o Find capital gain/loss o Exemptions o Discounts QUESTION 1 For the following sections, all references are directed towards the ITAA97 Act. House:  Mr and Mrs Smith has sold their primary place of residence for $820,000 on 1 st March 2023. Under s108-5, this property is considered a CTG asset and the transaction a CTG A1 disposal event under s104-10. The property was not utilised to generate income and the house was the primary place of residence for the Smith family up until the point of sale. Thus, under s118-110, the house will be exempt to capital gains tax. o S108-7 – Joint Ownership o S110-35 – Incidental Costs  Capital Proceeds: $820,000 – s116-20  PAY ATTENTION TO “AND, OR” IN THE LEGISLATION o Cost Base: $200,000 s110-25  Cost base o Incidental Costs:  $2000 + $10,000 + $20,000 = $32,000  Total Capital Gains: $820,000 - $232,000 = $588,000

 Step 1: NA  Step 2: $9700-$5000 = $4700  Step 3: o Vacant Land: $113,000/2 = $56,000 o Painting: $15,730/2 = $7865 o CAB Share: $1400/2 = $700  ABC Share: $4700  Total Net Capital Gains: $69,265 Ask about what is the 3 rd element mean in reduced cost base s110-55? QUESTION 2 Melanie has sold shares from Dog Ltd for $14,000 on the 1 st of June 2023. Since she is not considered a “share trader”, the receipts of the transactions will not be considered ordinary income according to ordinary precepts under s6-1. Under s100-25, the shares are considered a CGT asset and the sale is considered an A1 Disposal of a CGT asset under Subdivision 104-10. Since the shares were purchased in 2013, this exceeds the 1 year threshold and thus will be subject to a 50% discount under s115-25 and s115-100. Capital Proceeds: $14,000 Cost Base  Acquisition Cost: $6,000  Incidental Costs: 0 Capital Gains: $8000  Discountable Melanie has sold shares from Cat Ltd for $18,000 on the 1 st of June 2023. Since she is not considered a “share trader”, the receipts of the transactions will not be considered ordinary income according to ordinary precepts under s6-1. Under s100-25, the shares are considered a CGT asset and the sale is considered an A1 Disposal of a CGT asset under Subdivision 104-10. Since the shares were acquired on the 1 st of July 2022, the duration of ownership of the shares do not exceed 12 months and thus will not be subject to a 50% discount under s115- 25. Capital Proceeds: $18,000 Cost Base:  Acquisition Cost: $10,000  Incidental Costs: 0 Capital Gains: $8000  Not discountable

o Characteristic of Payment : The payment was a lump sum singular and was not ongoing  Thus, according to the 3 criteria, despite the payment being a singular non-reoccurring lumpsum, the outgoing is unlikely to affect the capital structure and revenue generation structure of the company because they can continue to sell glue whether they bought and sold the trees or not. Thus, it is not considered capital Notes: Could even consider it as an extra-ordinary transaction  Coolings caase Judgement Debt of $1,000,000  It is part of your ordinary business because there is always the possibility that companies will do things like this  The payment has not been incurred yet and so they cannot deduct it  The $1,000,000 would be deductible under the hands of the liquidation creditor  The $100,000,000 is only POTENTIAL and thus is not deductible QUESTION 2 A) Outgoings associated with travelling to Rockhampton for her job interview valued at $400 does not satisfy the first positive limb as the outgoing was not incurred in the course of an income producing activity but incurred to attain employment. Parallels can be seen within the FCT v Maddalena case whereby travel expenses incurred by the soccer sportsman travelling to a new club were rejected as deductible expenses. B) Relocation costs of $3500 will not satisfy the first positive limb either as this outgoing is not incurred in gaining or producing assessable income.  expenditure is incurred too early C) The purchase of compulsory doctor scrubs to “wear” satisfies the first positive limb because the scrubs are a necessary component that they must use and wear when conducting their income earning activities. a. The outgoing is unlikely to be capital in nature since it is a reoccurring expense every few months b. Not an outgoing for private matters but rather for the professional duties of carrying out their role at work c. The use of the scrubs to produce ordinary income from work is not exempt income d. There is no provision that prevents the deductibility of this outgoing e. Also under 34-20  it is occupation specific and protective clothing and thus is considered deductible D) The cost of telephone calls to check on patients valued at $120 satisfies the first positive limb because doctors have an obligation for the duty of care of their patients and it may extend to ensuring that they are feeling okay around the clock. These expenses are directly related to their role as a doctor and contribute directly to their income production activities. a. The outgoing is unlikely to be capital in nature since it is a reoccurring expense b. Not an outgoing for private matters but rather for the professional duties of carrying out their employment as a doctor doing their job to their highest possible capabilities c. The use of the telephone to produce ordinary income from work is not exempt income d. There is no provision that prevents the deductibility of this outgoing As long as the expense is work related, it is deductible

2.5% × 156 365 ×$ 12,500 = $ 134 FCT v Western Suburbs The interest payable of $800 for the 2 weeks that the business is closed to floor replacement will be deductible under s8-1. ????  Cant claim division 40 if you don’t have the construction cost for the house or building itself – Need to make sure it is separated from land because land is not deductible CLASS DISCUSSION QUESTIONS 1. Deduction can be claimed for the donation since Surf Life Saving Australia is a deductible gift recipient but the raffle tickets cannot be deductible under TR 2005/13 Example 22. 2. The fine is not deductible because it is not incurred in the process of gaining assessable income under s8-1. Similarly, under s23  you cannot claim deductions for fines and penalties 3. S8-1 A briefcase is deductible and a handbag that performs the same function is also deductible a. S40-80(2) <$300 if it is an exclusive business item 4. . a. Sales: $1450000 b. OP stock 22: $50,000 c. Purchases: $600,000 d. Closing stock: $70,000 e. Replacement: $40,000 You can only use different methods to calculate closing stock. You cannot change opening stock. Once you calculate it. That’s it Purchases is deductible COGS is not deductible Difference between opening and closing stock will either be assessable income s70-35 or allowable deduction under WEEK 8 TUTORIAL: NOTES  Partnership: Profit sharing arrangement

Rental Property $2650 $2650 Employment Income $60,000 Taxable Income $53,650 $76,650 QUESTION 2 Trusts  An arrangement between a settlor, trustee and beneficiaries. o Relationship between people and property whilst a partnership is a relationship between people.  Settlor creates the trust + conditions  Trustee: manages the trust  Beneficiaries: Receive the funds from the trust o Settlor transfers property to trustee o Trustee manages and administers the property for + on behalf of the beneficiaries o Companies are often the trustees because they have perpetual succession. o Trusts are isolated from creditors “corporate veil” and thus are safe in the case that the company liquidates.  Settlor can impose conditions upon who gets money and when and when a condition is met, the individual is “presently entitled”. o You have legal right to the money o E.g. if wife remarries, do not give her money but if wife does not remarry, give her $1,000,000 a year  if she does not marry she is presently entitled to the money each year.  Money that is to be distributed is called “net income of the trust” QUESTION A  Need to look at question first and set out what you need to do o Each distribution – beneficiaries 1. Would the B or T be liable for tax 2. What amount will be taxed 3. What tax rates will apply 4. Ensure – relevant provisions Net Income of the trust  95 ITAA36: Net income is in relation to a trust estate is the total assessable income of the trust estate (calculated as of the trustee were a taxpayer in respect of that income and were a resident) LESS allowable deductions 2 Types of Income  Trust law income o Generally the accounting profit  Tax law income o Net income of the trust o Tax treatment of certain things are different from accounting treatment  E.g. CGT allows 50% discount but accounting treatment is different

You calculate tax liability through 7 steps and can be found in the ITAA97 s4-10(3)  Taxable Income * Rate – Tax Offset Turnover of company is <$50M and less than 80% of income is passive income  thus the company is a base rate entity entitled to a reduced tax rate of 25%  Passive income is investment income In company law, dividends must be paid out of profits  but no specification what type of profits  Thus, 80% franked dividends means that 80% come from after tax profit and 20% comes from accounting profits  Franked dividends are a type of statutory income Under s44(1)  you need to include dividend income from all sources if you a resident  if non-resident only taxed on dividends from Australian sources To Calculate Assessable Income NOTE: ADD ALL ASSESSABLE INCOME BEFORE DEDUCTIONS AND OFFSETS Trading Stock  considered statutory income  Beginning of Income Year Trading Stock: $900,000  Deductions for purchases of trading stock ($8,000,000)  s8-1  Closing Stock > Opening Stock = $250,000  Assessable Income s70-35(2) Taxable Income  Taxable Income from business o Provision of $120,000 is not deductible o $20,000,000 - $3,200,000 - $1,500,000 - $1,300,000 - $8,000,000 + $250,000 o = $6,250,000  James Flood v FCT o Deductibility of holiday provisions o Provision is not incurred  merely expenditure that is expected  Incurred  definitely committed yourself to a liability  e.g. Phone bill or rent  E.g. You start eating a packet of nuts before paying  Trust Income: 10% * $1,900,000 = $190,000  s97(1)  Total Expenses: 14M  6.8….M  Beta Ltd Dividend o Fully franked dividend of $200,000  30% tax o $200,000

 Alpha Ltd Dividend o Partly franked dividend of $90,000 of 80%  25% tax o Frankable Distribution: $72,000 o Maximum Franking Credit: $72,000 * 0.25/(100% - 25%) = $24,000 Total Offsets:  Franking Credits   Total Tax Refund: $799,786 Franking Accounts  Franking Accounts tracks the credit/debits in the account that they can pass onto their investors  Events that generate a franking credit in a franking account o Payment of company tax instalment  will give credit equal to the amount of tax paid o Receipt of dividends  Amount of dividend received * Adjusted amount o Liability to pay Franking Deficit tax e.g. You have credit card and limit is 5000 but you spend 5800  charge penalty interest o Carry forward surplus  amount of surplus carried forward  Events that give rise to franking debits o Company receives a tax refund o Payment of franked dividend  Constructing the Franking Account o E.g. At 28/7/2022 you can only pay franking credits up to 750,000 Date Item/Event Credit Debit Balance Section Number 1/7/2022 Carried Forward Surplus 350,000 350,000 S205-40 28/7/2022 Payment of Tax Instalment 400,000 750,000 205-15(1) 1/10/2022 Final Payment of Tax 480,000 1,230,000 30/Sept/2023 Payment of Tax 600,000 31/Dec/2023 Payment of Tax 600,000 31/March/2023 Payment of Tax 600,000 30/June/2023 Payment of Tax 600,000 1/10/2023 Tax Refund 799,785 If account is in deficit at the end of the period  you need to pay franking deficit tax DISCUSSION QUESTIONS 1) No tax payable because the income is below the tax threshold  imputation credits of $1,333 a. 25/75*1333 b. Base rate entity gross up factor is 1/3 c. NEED TO WRITE IF NO DEDUCTIONS i. Because there are no deductions, assessable income is = to taxable incom WEEK 10 TUTORIAL TUTORIAL NOTES  For a supply to be a taxable supply 6 elements must be present (s9-5) o There is a supply of g/s or anything else

o A payment or some other consideration (payment) is received for the supply  including barter transactions o The supply is made by an entity (Either a company, partnership, sole trader, non-profit org) that is registered or required to be registered for GST  If business not registered  cannot charge GST o The supply is made in the course of an enterprise (commercial activities that is part of ordinary course of the taxpayer’s business) that the supplier carries on; o The supply is connected with Australia o The supply is not a GST-free or input taxed supply  Anyone making a taxable supply has a liability to charge GST on that supply. S9-5  Non-assessable income non exempt  GST collected by businesses  Only registered businesses get government contracts  Output tax is the GST charged to customers on supply  Input tax is the GST paid to suppliers on purchase  Creditable Acquisition  any good that you purchase that you use in your business QUESTION 1 Amount GST – Output Tax Notes Receipts: (GST Inclusive) $1,400,000 $127,273 Total Output Tax 127,273 Expenses (GST Inclusive) GST Input Tax Credit $ Staff Wages $190,000 0.00 1 Purchases of Trading Stock $700,000  claim 1/11 $63,636 Purchase of 3 Self- Service Cash Registers at $20,000 $60,000 $5,455 Payment to contractor $6,000 545 2 Total ITC’s (1) Employee does not constitute an enterprise, hence services they provide are not taxable supplies a. As such, wages can not be a creditable acquisition sec 11-5 9b) GSTAA (2) As a non-employee, the contractor is a separate supplier who per the facts is registered for GST a. He has provided a service that meets the requirements of a taxable supply b. The service has been acquired by Handy Hardware as part of their business and consideration has been provided c. Therefore it is a creditable acquisition After comparing input taxes with output taxes (Output tax > Input tax), the excess of $57,637 must be remitted to the ATO with the BAS return QUESTION 2  A) Under s9-10, a purchase of a photocopier is considered a supply of goods and since the supply is made in the furtherance of enterprise in s9-5, it will be taxable supply subject to GST o GST Amount: $5000 *1/11 = $454.545

o Before you do this question  you need to write  assuming that the accounting practice is registered and the supplier in which the photocopier is also registered, then the purchase will be a creditable acquisition in which GST will be calculated as 1/11 of the price  B) Under s38-7, medical services are GST-free and thus the chiropractor fees will not be subject to GST o Companies providing GST free-supplies must be registered  In a chiropractor, they will have bought many beds equipment etc. that are creditable acquisitions  No gst charged on sales/services but can claim ITCs on purchases acquired to provide the services  C) No GST will be charged on the sales/services but the health insurance company can claim ITC on purchases acquired to provide their services o Under s38-55, private medical insurance payments are GST-free  D) The goods must be exported within 60 days after the customer paid for the goods o Under s38-185, exports are GST-free and thus the goods worth $77,000 exported to Japan will not be subject to GST QUESTION 3  A) First define what an ITC is o Then say  assuming the supplier of the fac machine and the accounting partnership are registered for GST then the fax machine will constitute as a creditable acquisition and the business will be entitled to a ITC of 1/11 of the acquisition which will be $100  A) Under s11-1, input tax credits are entitled in the case that a creditable acquisition is made. Fax machines purchased by a partnership of accountants will be eligible for input tax credits as the purchase was made in the furtherance of enterprise under s11-5 o The input tax credits will be: $1,100*1/11 = 100  my answer  B) First consider: Is the dentist registered for GST and is the daughter registered for GST  2 nd  Is the mobile phone used in the practice o The purchase of the phone does not satisfy the requirements to be classified as a taxable supply under s9-40. The purchase was made for domestic purposes and was not made in the carrying on of a business  no creditable purpose. Thus, there will be no input tax credits available. QUESTION 4  A) The contributions to Samantha’s superannuation fund will be taxed at a rate of 15% and not be eligible for FBT tax under s58W  B) No QUESTION 5  A fringe benefit  non cash remuneration (in addition to salary and wages) provided to employee and/or associates by employer after the 1/7/86  Fringe benefits tax year: 1 st April  31 st March  Otherwise deductible reduction

 Type 1 FBT: Creditable acquisitions of a business  Type 2: GST free supplies and Input tax supplies B) Payment of professional journal is exempt from GST C) $4000 relocation expenses paid for an employee and his family to move interstate  exempt from GST Because the government wants to encourage the mobility of the workforce. Employer will get a deduction for this expense and a deduction for the FBT they will be paying D) GST free because the health services are GST free E) Gym membership GST free F) CLASS DISCUSSION QUESTIONS (1) PRACTICE QUESTION 5 FBT 