HI6028 Taxation Theory, Practice and Law

HI6028 Taxation Theory, Practice and Law
Instructions:
This assessment consists of five (5) questions (with sub-sections).
Answer all questions in the answer boxes provided in this paper.
Assessment Weight:
This assessment accounts for 50 total marks.
Question 1 10 marks
Question 2 10 marks
Question 3 10 marks
Question 4 10 marks
Question 5 10 marks
Total marks 50 marks
HI6028 Online Supp T1 2020

Question 1 (10 marks)
With reference to relevant legislation and case law, determine if the following scenarios give
rise to income for tax purposes:
a) John is a pensioner and swapping his surplus free range eggs valued at $150 (for the
year) with his neighbour Alex for surplus vegetables grown in his home garden. (5
marks)
ANSWER: ** Answer box will enlarge as you type
As given in task this is a bater transaction as here in this case no money is transferred
at all. Exchange of one item or service against another item or service is regarded as
bater transaction. Barter transactions in Australia are taxable and deductible also for
taxation purposes to same extent as some other cash transactions or
credits transactions. Thus here in this case if there is any profit due to swapping his
surplus-free range eggs with Alex for surplus vegetables grown would be taxable. However
as this purchase is personal purchase/exchanges then as per provision of income tax this
is deductible for taxation purposes as well as GST credit not be claimed in this case, whether
such purchase is made in Australian currency.
b) David is a builder and helping John at weekends to build his home, doing so on the basis
that David can have John’s caravan towed trailer (which cost him $10,500 on 1 January
1997) when John move into his current home. Assume the value of the David’s work was
$11,000 and the caravan had a market price of $12,000 when John handed it over on 1
January in the current income year. (5 marks)
ANSWER:
Tax liability in hands of David:
Market Price of Caravan towed trailer: $12000
Value of David's work: $11000
Profit occurred due to this exchange = $12000 - $11000 = $1000
Thus as per the provision of income tax act, $ 1000 being the net deemed profit would be
taxable in the hand of David.
Question 2 (10 marks)
With reference to relevant legislation and case law, discuss whether the following receipts
are assessable or exempt income. Give reasons.
a) Lucas is a full-time student and received a scholarship of $3,000 per annum from XYZ
Engineering Solutions, conditional upon Lucas agreeing to accept employment with XYZ
Engineering Solutions for at least three years after graduation. (7 marks)
ANSWER:
As stated in ATO discussion paper, Item 2.1A of Sec 51-10 of Income
Tax Assessment Act 1997 states that scholarship, grant, tuition
benefit or education benefits is excluded from taxes if it is provided
to full-time student. Thus, according to the relevant provisions of the
Income Tax Act, in case a student (full-time) receives any
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scholarship amount from an enterprise and such scholarship amount
is totally for student's education then such amount would be
exempted while computing income tax in hands of student/receiver.
b) Remuneration of $600 earned for part-time services as a member of the Australian Army
Reserve. (3 marks)
ANSWER:
As per relevant provision of Income tax act, remuneration or pay received for
whether part time or full time services as member of Australian Army Reserve is fully
tax free there is no tax liability will arise of such income. Therefore in given case
Remuneration earned for part time services as a member of Australian Army Reserve
will be fully exempt.
Question 3 (10 marks)
Silvia is a teacher employed by SCHE Education at their Melbourne campus. She lives in
Pakenham with her family on the outskirts Melbourne about 60 kilometres from the
campus. Silvia only attends the campus on Thursdays and Fridays when she takes her classes
and the remaining three days a week she works from home. She prefers to work from home
because she dislikes the long commute and because she feels that she can research more
effectively from home. She only sees students in her office at the campus on Thursdays and
Fridays. All student contact on the other days is via email.
Silvia’s home office and work library occupies 20% of the total space in her home. Her
outgoings in relation to her home for the current financial year are as follows:
 Rent – $31,200
 Electricity and heating costs – $1,600
 Cleaning lady – $2,500
 Home telephone (10% of which is for university use) – $2,000
 Mobile telephone bill (50% of which is for university use) – $1,250
Required:
Calculate how much of the above outgoings are a deductible expense for Silvia.
ANSWER:
Deductible expenses: On direct expenses, 100% exemption is given for deductible tax
and for indirect expenses this is given by 10%.
Particulars Amount (In $)
Rent 624
Electricity and heating costs 32
HI6028 Online Supp T1 2020