Australian Taxation Law Exam with Solutions - Desklib

This article provides solutions to the questions related to calculating taxable income, tax payable, franking account, fringe benefits, and preparing business activity statement under Australian Taxation Law. It also explains the legal aspects and legislations related to business activity statement.

Exam LAW511 Australian
Taxation Law

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
a. Calculating the Partnership’s taxable income.........................................................................3
b. Calculating the A1 Manufacturing Pty ltd tax payable...........................................................3
QUESTION 2...................................................................................................................................4
Part A..........................................................................................................................................4
Part B...........................................................................................................................................5
QUESTION 3...................................................................................................................................6
Preparing the business activity statement...................................................................................6

QUESTION 1
a. Calculating the Partnership’s taxable income
Net profit 150000
Less
Doubtful debt 35000
long service leave 20000
Net profit/ (loss) or the taxable income/ loss 95000
With the help of the question provided it is clear that some of the adjustments are not being
address within the profit and loss statement of the partnership firm. Hence, with regard to this
adjustment have been addressed and after that the company is having the net profit of $95000.
Thus with this it can be stated that the taxable income for the partnership firm is $95000 and the
tax will be charged over this net income for the company for the year June 2021. With regards to
the adjustment the accountant show that provision for doubtful debt and long service leave has
not been recorded. Hence it will be deducted from the net profit as earlier it was not deducted.
Thus, now it has been clear from the net income and the actual taxable income for the company
has been calculated. The tax rate will be applied on this net income and then only the tax liability
will be calculated.
b. Calculating the A1 Manufacturing Pty ltd tax payable
A1 manufacturing share in profit 38000
Add
interest 45000
interest on 50000 5000
Less
Loss on partnership 74000
Net income for A1 Manufacturing Pty ltd 14000
With regards to the calculation of A1 manufacturing Pty Ltd tax payable it is clear that
A1 manufacturing Pty Ltd is having 40% profit sharing within the total profits. Hence according
to this 40% of $95000 is $38000. After that the interest over the loan provided to partnership will

be added that is $45000 and $5000. Further loss on partnership will be charged from the partners.
Hence according to this 40% of $185000 will be $74000 which is The Loss for A1
manufacturing Pty Ltd. Hence this will be deducted from the total income of A1 manufacturing
Pty Ltd. Thus after deducting it the net income for A1 manufacturing Pty Ltd came to $14000.
With the help of the taxable income for an individual resident the taxable income from 0 to
$18200 is nil. Hence on the basis of this, income tax will not be charged over the income of A1
manufacturing Pty Ltd because it is falling within the categories where no tax is being charged.
QUESTION 2
Part A
Franking account
Date Transaction Dr ($) Cr ($) Balance
1 July Opening balance 12000 12000 CR
1 July Received unfranked dividend 10000 22000 CR
5 august Paid dividend franked 70% 10500 11500 CR
15
September
Received fully franked dividend 25000 36500 CR
28
February
PAYG instalment paid 40000 76500 CR
25 March Dividend franked to 60% 9000 67500 CR
15 May Company made a loan deemed to be
dividend
23000 44500 CR
10 July PAYG instalment paid 40000 84500 CR
With the help of the franking account it is clear that this account is very crucial in order to
analyse the taxation for the company with regards to shareholder receiving dividend from the
company in order to text of set for the paid tax by the company over its income. Along with this
the franking account also record the total amount of tax paid by a franking entity which can be
passed to the members of franking credit. In accordance to the income tax assessment Act 1997
it is clear that making of ranking account is very essential. This is necessary because it provides
the list of all the liability to pay the franking deficit text and the liability to pay over franking

Texas and clear all the franking payments. Thus it outlines the net text to be paid by the company
and the shareholders.
Part B
A
With regards to the payment for the estimated cost of electricity used in home workshop
amounting to dollar 5500 will not be treated as the fringe benefits. This is particularly because of
the reason that this electricity is for home workshop and not related to the business expenses.
Thus this benefit will not be treated as a fringe benefit for the company senior manager.
B
To the loan at the interest rate of one percent will not be treated as the Fringe benefit
because the company is not having any policy of providing the loan to the employees at lower
rate of interest. The loan amount of dollar 45000 will not be treated as the fringe benefit because
the person has taken it for their personal use and not for official purpose.
C
The car being provided by the company for the private used will be treated as the fringe
benefit. This is particularly because of the reason that company is providing the benefit to the
employee for the personal use only. Hence it will be treated as the fringe benefit because it is
provided to the senior manager by the company at their wish.
D
Along with this the company paid for the relocation expenses for moving the senior
manager from Katherine to Darwin and it cost to them $5000. Thus this will also be treated as
fringe benefit because the company wanted to move the senior manager from one place to
another and the cost of moving will be borne by the company only. Hence the fringe benefit is it
correctly being treated.
According to the case of state of Queens Land versus Commonwealth of Australia it was
stated that fringe benefit with respect to the employee can be provided with anytime during the
year of tax and it is necessary to be provided with respect to the year of tax only. Also within this
case it was stated that this fringe benefit can be provided to the Employees only a long with the
associate of the employer and the person other than the employer who is an associate of the
employer. Other than this no other person can be eligible for the fringe benefit.
Fringe benefit calculation

In case of car provided for personal use
Total cost * 20 %
= 45000 * 20 %
= 9000
QUESTION 3
Preparing the business activity statement
Total sales 163000
GST on sales 16300
Net sales after GST 146700
Total purchases 77000
GST on purchase 7700
Net purchase after GST 69300
Net GST payable 8600
With the help of the above calculation it is clear that the business activity statement is a
statement which helps the company in reporting the tax obligation. This assist the company in
order to analyse the GST, PAYG and other different fringe benefits being applicable and paid by
the business. With the help of the above calculation it is clear that these GST on the sales was
16300 where as the GST on purchase was 7700. In the net GST payable is 8600 that is the
difference of GST on sales and GST on purchase. Along with this, with regards to the legal
aspects and legislations the BAS that is business activities statement is a tax reporting
requirement which is mandatory by the ATO that is Australian taxation office. It is very
necessary for the companies to submit the BAS with the ATO before they due dates for the final
submissions otherwise the financial penalties will be levied over the company. According to the
law defined by ATO the types of taxes which are being paid with help of business activities
statement includes GST, Pay As You Go, fringe benefits, luxury car tax, wine equalization tax
and many other different tax. According to the law the business activity statement can be
submitted either monthly quarterly or annually.