Advanced Income Tax Law Assessment - Finance Module, Semester 2

This document provides a detailed solution to an Advanced Income Tax Law assessment, covering several key areas of income tax. The solution includes comprehensive calculations for individuals, addressing Div 6AA and net tax payable, and inter vivos trusts, including beneficiary entitlements, legal disabilities, and trustee tax obligations. It also covers partnership net income allocation, reconciliation of taxable income for a small business entity, and franking account preparation. Furthermore, the solution includes calculations for average income, primary production tax, and assessable superannuation contributions, providing a complete overview of various tax-related scenarios. The solution is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

Advanced Income Tax Law
Assessment

Q1.1.9.
(Comprehensive calculation for a prescribed person)
Ron Veldhuis is aged 16 and is currently studying full-time at high school whilst living with his
parents.
During the 2017/18 tax year, Ron received the following amounts: $
Gross Wages from part-time job (PAYG tax withheld $800) 4,700
Gross Interest received on fund given by his parents (TFN withheld $4,900) 10,000
Income Distribution from Estate of Late Aunt 7,500
Income Distribution from Family Trust (tax paid by Trustee $1,500) 6,000
Unfranked Dividend from shares in QQQ Ltd (these were bought with funds from previous
Family Trust distributions) 1,200
Required:
(a) For the purposes of Div 6AA, how much excepted assessable income has Ron derived?
Div 6AA, Ron’s Assessable Income
Wages 4700
Income Distribution from the Estate of Late Aunt 7500
Total Excepted Assessable Income is $12200
(b) For the purposes of Div 6AA, how much eligible assessable income has Ron derived?
Assessable Income all Unearned Income
Unfrank Dividend 1200
Family Trust Income 6000
Gross Interest 10000

Total Assessable Income $17200
(c) Calculate net tax payable by Ron for the 2017/18 tax year.
Gross Wages 4700
Interest 10000
Unfranked Dividend 1200
Family Trust 6000
Estate Income 7500
Tax on Expected assessable income in Nil
Tax on Div 6AA 17200 X 45% 7740
Less :- Low Income Offset 0
Add:- Medicare Levy 29400 X 2% 588
Less:- $100 Credit (1500 + 4900) 6400
PAYG Tax Withheld 800
Tax Payable 1128
The following questions are based on the material in Chapter 2:
Q2.2.15
(Comprehensive, inter vivos trust)
The Alberts Family Trust, an inter vivos trust, had the following beneficiaries:
Candy (aged 45; entitled to 40% of trust income)
Dandy (aged 30; bankrupt; entitled to 35% of trust income)
Landy (aged 17; entitled to 20% of trust income)
The remainder of each year's income was to be retained or distributed at the Trustee's discretion.
During the 2017/18 tax year trust income was $195,000.
A discretionary amount of $7,000 was paid to Landy (this amount was in addition to Landy’s
entitlement under the Trust Deed).
The trust also had losses of $15,000 in the 2016/17 tax year. These were to be met out of the trust
income. Landy also received interest of $38,000 during the 2017/18 tax year from investments
given to him by his parents.
Landy is single and is not covered by private health insurance.

Required:
Complete the following table (covering all beneficiaries) nominating:
 Name of the BENEFICIARY
 Whether or not the beneficiary is PRESENTLY ENTITLED
 Whether or not the beneficiary is under a LEGAL DISABILITY
 WHO IS ASSESSED on each amount
 Which sections of the Act apply to make the income assessable
 The amount retained or distributed.
Beneficiary Presently
entitled?
(Yes/No)
Legal
disability?
(Yes/No)
Who is assessed?
(Beneficiary or
Trustee)
Section(s)
Applicable
Amount $
Candy Yes No Beneficiary Section 97 72000
Dandy Yes Yes Trustee Section 98 63000
Landy Yes No Trustee Section 98 43000
Balance No N/A Trustee Section 99A 2000
Total $180000
a. Calculate tax payable by the trustee on behalf of Dandy, Landy and the balance of
trust net income.

Tax payable by Trustee on behalf of Dandy:
Dandy is assessed under s.98 of ITAA36 being presently entitled but under legal disability. Thus, trustee will be assessed
for Dandy at Individual rates. Dandy will be entitled to take credit of tax paid by trustee u/s 100 (2).
Tax on Dandy Income 3572 + (63000 – 37000) x 32.5% 12022
Less:- Low Income Tax Offset 445 (63000 – 37000)*1.5% 55
Add:- Medicare Levy (63000 x 2%) 1260
Tax Payable 13227
Tax payable by Trustee on behalf of Landy:
Trustee assessed u/s 98 (2) ITAA 1936 n $7000. Landy is also entitled to receive 36000$ as present entitlement on which
trustee is required to pay tax.
Tax on Landy Income 43000 at division 6AA rates 19350
Less:- Low Income Tax Offset Not Applicable for Division 6AA 0
Add:- Medicare Levy (43000 x 2%) 860
Tax Payable 20210
Tax payable by Trustee on balance of trust net income:
Taxable Income (195000 – 15000) 180000
Less:- Share of Beneficiary (72000+63000+43000) = (178000)
2000
tax on Taxable Inome 2000 s99A 900
Add Medicare Levy 2000 x 2% 40
940
1. Calculate tax payable by Landy (only).

Landy is assessed for interest earned on investment made by parents and distributions made by the trust. Landy is
entitled to take credit of tax paid by the trustee.
Tax on Landy Income 43000 + 38000)
(43000+38000) X 45% 36450
Add:- Medicare levy (81000 x 2%) 1620
38070
Less: tax paid by the trustee under s 100 (20210)
Tax Payable 17860
The following questions are based on the material in Chapter 3:
Q3.3.3
(Allocation of Partnership Net Income)
Sue, Prue, Lou and Emmet operate a transport company in the ratio 4:3:2:1.
Their assessable income for the 2017/18 tax year amounted to $780,000 while they had
$300,000 of deductions.
Their partnership agreement states that all profits and losses are to be shared in the ratio
4:3:2:1 after adjusting for partner’s salaries, travel allowances and interest on capital.
The following data was extracted from their financial records:
Interest on Capital
Sue $ 12,000
Prue 15,000
Lou 5,000
Emmet 3,000
Partner’s Salaries

Sue 65,000
Prue 50,000
Emmet 20,000
Travel Allowances
Sue 4,000
Emmet 6,000
Required:
Based on the above information, complete the table calculating each partner’s share of
partnership net income under the terms of the partnership agreement.
Sue Prue Lou Emmet Total $
Interest on capital 12000 15000 5000 3000 35000
Partners’ salaries 65000 50000 - 20000 135000
Travel allowances 4000 - - 6000 10000
Share of Adjusted Net Income 120000 90000 60000 30000 300000
Total $ 201000 155000 65000 59000 480000

The following questions are based on the material in Chapter 4:
Q4.4.21
(Reconciliation of taxable income)
Trash Converters Limited, a small business entity, has prepared an income statement for 2017/18:
$ $
GROSS PROFIT 1,624,000
Add: OTHER INCOME
Unfranked Dividend 2,300
Fully Franked Dividends (company tax rate 30%) 7,700
Net Dividends from Spain - note 1 32,000
Gain on Sale of Shares - note 2 2,000 44,000
TOTAL OPERATING INCOME 1,668,000
EXPENSES
Depreciation - note 3 34,000
Fringe Benefits Tax 48,000
Payroll Tax 46,900
Superannuation - note 4 75,000
PAYG Instalments Paid - note 5 92,000
Other Deductible Expenditure 965,000 1,260,900
NET PROFIT 407,100
Note 1 The dividends from Spain have had $8,000 of tax withheld.
Note 2 Shares sold during the year were acquired in 1984 as an investment.
Note 3 Decline in value deduction is calculated as $28,000.
Note 4 Superannuation includes an amount of $30,000 paid to a director's spouse. This
$30,000 amount is deemed to be excessive.
Note 5 All of the PAYG tax instalments relate to the current year.
Required:
a. Complete the table reconciling net profit with taxable income for the 2017/18 tax year.
b. Calculate net tax payable by the company for the 2017/18 tax year. (For the purpose of
this exercise, assume a 27.5% small business entity company income tax rate, as per
chapter 4.3 of your textbook).
4 a. and 4 b.

$ $
Net Profit per income statement $407100
Add:
Franking Credits $3300
Foreign Tax – Spain $8000
Accounting Depreciation $34000
Superannuation $30000
PAYG instalments $92000 $167300
$574400
Less:
Decline in Value $28000
Accounting Gain on Shares $2000 $30000
Taxable Income $544400
Tax on Taxable Income $149710
Less:
Franking Tax Offset $3300
PAYG Instalments $92000
Foreign Income Tax Offset – tax paid $8000 $103300
Tax Payable $46410
Q5.4.27

(Franking Account)
Rudimentary Pty Ltd, a corporate tax entity, has the following transactions for the 2017/18 tax
year:
Date Transaction $
30/06/17 Balance Nil
15/10/17 PAYG Instalment Paid 14,000
15/12/17 2016/17 Tax Refund Received 9,500
12/03/18 Fully Franked Dividend Received 3,500
08/05/18 Fully Franked Dividend Paid 7,000
Note – the benchmark franking percentage is 100%.
Required: Prepare the franking account for the 2017/18 tax year.
Date Transaction Debit Credit Balance
(state if DR or CR)
1/7/17 Opening Balance - - -
15/10/17 PAYG Instalment Paid 14000 14000 CR
15/12/17 2016/2017 Tax Refund Received 9500 - 4500 DR
12/3/18 Fully Franked Dividend Received
(3500*30/70) 1500 6000 DR
8/5/18 Fully Franked Dividend (700*30/70) 3000 - 3000 CR

The following questions are based on the material in Chapter 5:
Q6.5.1
(Average Income)
Ernie Wombat is a primary producer who commenced business in 2012/13. The following data
relates to Ernie’s first 6 years of trading:
Year Assessable Income Deductions
2012/13 $ 32,000 $ 15,000
2013/14 35,000 20,000
2014/15 31,000 39,000
2015/16 42,000 21,000
2016/17 45,000 22,000
2017/18 51,000 25,000
 All assessable income and deductions are from primary production.
 The deductions do not include any amounts that may be deductible for losses of previous
years.
Required:
a. Calculate Ernie’s taxable income for each tax year.
b. Calculate Ernie’s average income for each tax year.
Tip: A $0 taxable income year is counted as a year for average income calculation
purposes.
Year Taxable Income Average Income Notes (if any)
2012/13 32000-15000=17000 - Average income Not Applicable
2013/14 35000-20000=15000 - Basic Taxable Income of year
1>Year2
2014/15 -8000 7500 15000+0/2
2015/16 (42000-21000) =21000 9333 (21000-8000)+15000+0/3

2016/17 23000 12750 15000+0+13000+23000/4
2017/18 26000 15400 15000+0+13000+23000+26000/5
Q7.5.5.
c
Rikki Teabridge had the following income during the 2017/18 tax year:
Net Business Income from Primary Production $35,000
Gross Wages from part-time job at local supermarket $20,000
 Rikki’s average income was $20,000.
 Rikki had no other assessable income or deductions.
 PAYG tax of $2,000 was withheld from Rikki’s wages.
 Rikki is covered by adequate private health insurance.
Required:
Complete the following statement showing Rikki’s tax payable for the 2017/18 tax year
including any averaging adjustment.
Notes/Workings (if any)
Tax on Average Income (NPP $35,000+ PP20000) = $55,000
Tax on 20000 (20000-18,200 [Tax Free Part]) 1800
1800*19% 342
Comparison of Tax Rate 342/20000*100 1.71%
Gross Averaging Amount
Tax on $ 55000 @ ordinary
rates $9,422