Question 1
What is the basic income tax payable for an Australian resident individual with taxable income for the 2016-17 income year of:
(i) $15,000?
(ii) $40,000?
(iii) $100,000?
(iv) $300,000?
Question 2
What is the basic income tax payable for a foreign resident individual with taxable Australian income for the 2016-17 income year of:
(i) $15,000?
(ii) $40,000?
(iii) $100,000?
(iv) $300,000?
Question 3
Fred, an executive of a British corporation specialising in management consultancy, comes to Australia to set up a branch of his company. Although the length of his stay is not certain, he leases a residence in Melbourne for 12 months. His wife accompanies him on the trip but his teenage sons, having just commenced college, stay in London. Fred rents out the family home. Apart from the absence of his children, Fred's daily behaviour is relatively similar to his behaviour before entering Australia. As well as the rent on the UK property, Fred earns interest from investments he has in France. Because of ill health Fred returns to the UK 11 months after arriving in Australia. Discuss residency and source issues.
Question 4
Jenny is an accountant who works in Hong Kong. She is single and lives in Hong Kong with her parents. Until April 2016 her work does not involve travel. At that time she accepts an offer from her employer to travel temporarily to Australia to provide business advice to large numbers of former Hong Kong residents setting up businesses in Melbourne, Sydney and Brisbane. Jenny enters Australia on 25 April 2016. She intends to spend three months travelling between the three cities, staying in various motels. Her employer asks her towards the end of her three months to take up a position in Sydney for a further nine months. In early July, she leases a serviced executive apartment for nine months near her workplace in Sydney. The apartment is her home base during her stay here. She freights more clothing and some personal effects to Australia. Her parents visit her on two occasions. Although based in Sydney, her commitments require some limited travel. On average, Jenny travels at least once a week to meet clients outside Sydney. Is Jenny a resident of Australia for tax purposes?
Question 5
Discuss whether the following are likely to be "ordinary" income:
(a) Salary received by an employee.
(b) Compensation received by an injured worker for loss of salary because he was unable to work for four weeks.
(c) A Christmas present received by a daughter from her mother.
(d) Proceeds from selling the copyright to a book. The recipient was an employee accountant who wrote a novel in her spare time over a number of years.
(e) Proceeds from selling the copyright to a book, where the recipient is in the business of writing books and selling his copyright.
(f ) Profit realised on the sale of shares that have been held for a number of years, primarily for their capital growth.
(g) Unemployment benefits from the Government to an unemployed person.
(h) A freelance photographer won an industry award for one of his photographs amounting to $4,000.
(i) Payment received for sales of pottery. The sales relate to items that has been made as part of a hobby, however expenses are in excess of $1,000.
(j) $200 received as an award for the best painting in a local art exhibition. The painter paints two or three artworks a year, which she displays at home or gives as gifts to family.
Question 6
Indicate any amounts from these transactions that is assessable income for the 2016/17 tax year.
(a) Frida is a resident taxpayer employed by Sharpe Office Supplies. She received a gross salary of $60,000. This was paid into a bank account held by her husband Ray.
(b) Frida did not take any annual leave during the 2016/17 tax year. She had accrued 5 weeks' annual leave as at 30 June 2017 which has a value of $6,000.
(c) Frida won $3,500 from her share of a Powerball syndicate with her work colleagues.
(d) In April 2017, Frida received $1,500 cash as a prize for employee of the month.
(e) In May 2017, Frida also received a holiday to Fraser Island valued at $4,000 as a reward for attaining the highest sales figures at work.
(f) In July 2016, Frida received a wedding gift from her work colleagues worth $750 to celebrate her marriage to Ray.
(g) In January 2017 Sharpe Office Supplies reimbursed Frida $3,000 of self-education costs upon the successful of her work-related logistics course.
(h) Samantha Storey owns an apartment in Adelaide held as an investment which she leases to tenants and derives rental income. During the 2016/17 tax year, Samantha received rent totalling $19,000 from tenants who leased the property from September 2016 until May 2017.
(i) On 18 January 2017 Samantha received $700. This was the tenant's reimbursement towards cleaning the carpets and walls following damage from a New Year's Eve Party.
(j) On 10 December 2016, the tenants started a fire in the kitchen by accident. While the damage was contained to one part of the kitchen, Samantha received a cheque from her insurance claim, which covered:
- $1,000 for a new replacement stove.
- $3,000 for deductible repairs to the bench top and walls.
Question 7
Mick Viduka a resident taxpayer holds shares in several Australian companies as investments.
The following transactions relate to distributions from these companies:
- On 1 August 2016, Mick received a cheque for $5,600 being a fully franked dividend from ABC Ltd.
- On 15 November 2016, Mick received a cheque for $1,800 being an unfranked dividend from DEF Ltd.
- On 20 December 2016, Mick received a statement from GHI Ltd that a fully franked dividend of $3,500 had been used to acquire an additional 350 shares (Mick participates in the company's dividend re-investment program).
- On 17 February 2017, Mick was advised that he has received 300 shares from JKL Ltd from a bonus share issue. The market value of JKL shares on that date was $10 per share.
- On 24 June 2017, MNO Ltd declared an unfranked dividend of 10 cents per share. Mick holds 14,000 shares in MNO and received the dividend when it was paid on 9 July 2017.
- On 27 June 2017, Mick received a cheque from PQR Ltd dated 21 June 2017 for $700.
The cheque is for an unfranked dividend, but Mick forgot to bank the cheque until 19 July 2017.
Mick does not have any other assessable income or deductions.
Calculate Mick's taxable income for the 2016/17 tax year.
Calculate Mick's net tax payable or refundable for the 2016/17 tax year.
Question 8
For each of the following resident individual taxpayers, state whether there are any amounts that would1,900 for an electricity account for his business premises.
(b) Ian pays his home electricity bill of $700. He operates his business from his shop premises, but sometimes attends to some paperwork and planning in his living room while watching television.
be treated as deductions. Give reasons.
(a) Ernie pays $ (c) Janice purchases a computer for her business costing $3,400.
(d) Fiona pays $ 750 for her home phone bill. She has kept records estimating that 60% of her calls relate to her business.
(e) Stan pays $200 every week to have his home cleaned as he is too busy operating his business. He does not conduct his business from home but Stan argues that if he didn't hire a cleaner, he would not be able to run his business properly.
(f) Rita pays a total of $ 12,000 in child care fees which enables her to continue her full-time job as a radiologist.
(g) Tara pays $ 2,400 for a yearly train ticket which enables her to travel from her home to work each day.
(h) Nicole pays $6,000 per year in board to her parents. She takes a lot of work home from her job and completes it at a desk in her bedroom.
(i) Stu is employed as a legal assistant. He is currently studying law at the University of Western Australia, and during the year has paid $7,900 for course fees and textbooks.
(j) Ron is employed as an engineer. He hates his job and is currently studying towards a diploma in accounting. During the year he paid $1,420 in course fees and textbooks.
Question 9
For each of the following resident individual taxpayers, state whether there are any amounts that would be treated as deductions. Give reasons.
(a) Stefan conducts business as a tax agent. He runs his practice from a room at home. The room has a separate entrance and covers 20% of the total floor of Stefan's house. The property costs Stefan a total of $18,000 per year in rent.
(b) Jo conducts business as a barrister. She rents chambers in the city, but chooses to work 2 days out of 5 from an office that she has set up at home. Jo does not see clients at her home, but her 'office' accounts for 15% of the floor space of her home.
Costs associated with her home include $12,000 interest on mortgage, $1,500 of rates and $600 of insurance.
Annice is employed as a lawyer with a large firm. She takes home a substantial amount of work which she completes in a devoted room in her apartment. The room accounts for 24% of the floor space in her apartment.
Annice has calculated the decline in value cost for furniture and equipment in the room and also estimates that 17% of the calls from her home telephone are work related.
During the year she incurred the following expenses:
Rent $15,000
Decline in Value of Computer, Chair and Desk 2,700
Cleaning and Pest Control 1,200
Telephone 2,000
(d) Don is employed as a teacher. He prepares lessons and marks tests each week from a room at home. While the room accounts for 15% of the total floor space of his home, the room also doubles as a toy room for his children.
During the year he incurs mortgage interest and rates totalling $23,400.
He also incurs a decline in value of $1,800 on carpet and blinds in the room where he works along with electricity costs of $800 (he estimates that 20% relate to the room).
(e) On 1 July 2016, Russell incurred costs of $1,750 purchasing and establishing a shelf company to operate his take-away food business that is a small business entity.
(f) On 8 November 2016, Cherene incurred costs of $1,890 purchasing and establishing a shelf company to operate her retail clothing store.
(g) On 21 June 2016, Mack ceased operating his car detailing business. On 8 September 2016, Mack incurred legal expenditure of $3,680 relating to the winding up of the business. He did not derive any assessable income from the business during the 2016/17 tax year.
(h) On 18 August 2016, Wilf incurred costs of $27,500 examining the feasibility of establishing a juice bar in Westfarm shopping centre. He subsequently commenced business in April 2017.
(i) Janelle travelled to Los Angeles for 4 days and nights for work related purposes only. She retained vouchers and receipts verifying that she had incurred $2,800 of travel expenses but had not prepared a travel diary.
(j) Shaun travelled to Hobart for 4 days and nights for work related purposes only. He had received a travel allowance of $1,000. The reasonable amount determined by the ATO for this travel was $805. Shaun did not retain any records of his costs but spent all of the $1,000 on meals and accommodation.
Question 10
Penni Hale is employed as an interior designer. During the 2016/ 17 tax year, she received a gross salary of $75,000 and a car allowance of $3,000 from her employer (PAYG tax withheld of $18,730). Penni has private hospital cover. During the course of the year, Penni used her 1,300cc Kia for a number of trips to clients, suppliers and trade shows. A logbook disclosed 44% business use. Odometer readings show a total of 35,200 kilometres travelled during the year.
Paym ents made by Petui included:
Registration and Insurance $1,100
Tyres 430
Petrol 2,300
Loan R epayments (interest S600) 3,600
Car Washes 200
Parking Meters (at client's premises) 400
Taxi Fares to clients offices while her car was being serviced 80
The vehicle originally cost $16,000 and has an opening adjustable value of $13,000. Penni calculates depreciation of the car using the prime cost method over 8 years.
(a) Determine the maximum deduction available to Penni for car expenses.
(b) Calculate Penni's taxable income for the 2016/17 tax year.
(c) Calculate tax payable for Penni for the 2016/ 17 tax year.