Taxation Law Exam - Taxation Law Calculations and Analysis

This document provides a comprehensive solution to a taxation law exam, addressing several key areas of Australian taxation. The solution begins with the calculation of taxable income for a partnership firm, including adjustments for non-deductible expenses and depreciation. It then proceeds to calculate the tax payable by a company, considering its share of partnership income and setting off previous year's tax losses. The document also includes the distribution of trust income among beneficiaries. The second part of the solution delves into Goods and Services Tax (GST) calculations, outlining the transactions subject to GST, and provides a Business Activity Statement (BAS) with detailed calculations of GST payable or refundable. The final section addresses capital gains tax (CGT), calculating capital gains on the sale of assets, subdivided blocks, and a house and land. It also covers fringe benefit tax (FBT), identifying items subject to FBT and providing justifications based on Australian taxation provisions.

TAXATION LAW EXAM

Question: 1
a) Calculation of taxable income of partnership firm
Particular Amount
Accounting profit for the year 385000
Adjustments for non-deductible expenses
Speeding fines 5000
Movement in provisions 55000
Taxable income of partnership 445000
John family trust (60%) 267000
Electrical Pty ltd. (40%) 178000
Depriciation on shelves:
Prime cost method: cost of shelves – salvage value / useful life = 20000 – 0 / 2 = 10000.
b) Calculation of tax payable by Electrical Pty ltd.
Share of partnership income = 178000
Interest on capital = 5000
Setting off previous year’s tax loss (5000)
Taxable income 178000
Up to 18200 0
18201 – 37000 3572
37001 – 90000 17225
90001 – 178000 32560
Tax payable 53357 + 2% Medicare levy = 56917
c) Distribution of trust income
Share of partnership profit = 267000
Interest received on loan = 50000
Interest on capital = 5000
Carry forward loss (25000*60%) (15000)
Taxable income of trust as partner= 307000

Distribution of trust income among beneficiaries
Rachel = 102333
John = 102333
John (son) and Kim = 102333
John = 51166
Kim = 51167
As all the beneficiaries are adults, then there income can be individually assessed in order to
reduce tax liability.
Rachel tax liability
102333 + 250000 = 352333.
Question 2
a) As per the Australian Taxation system, the Goods and Service Tax is basically implied on the
sale and purchase of goods and services only. It applies to most goods and services but with
some exempted goods such as foods, certain medical, healthcare and some educational services.
The standard rate of the GST on general goods and services are 10% along with that the same
rate is applied on the goods which are imported from the foreign. GST (goods and services tax)
is a type of consumption tax. The Australian government applies it on the sale of goods and
services. GST isn’t paid by businesses instead, it’s charged to consumers in the price of goods,
and collected by businesses, making it an indirect tax. Businesses are then responsible for
reporting it to the government (Murphy, 2019).
From the above transaction the GST in implied only on the following transaction and that
include:
 Receipt from the sales of the general goods in which the company deals regularly and is
also cover under GST goods and services criteria.
 Payment for the purchase of general goods from the supplier which is also included in the
GST tax law.
 And the last imported goods from the Thailand. It is because the goods which are
imported from the outside Australia GST payment on import goods @10%.
b)
All Goods Pty Ltd.

Business Activity Statement
For the year ended 31st March 2021
Particulars Amount ($)
Receipts on supplies made by the business:
Sales of general goods 440000
Total sales 440000
GST payable on the sales of general goods @ 10% $44000
Payment for purchase of goods and services:
Purchase of general goods 180000
Purchase on imported goods on Thailand 55500
GST refundable on purchase of general goods @10% (a) 18000
GST refundable on the imported goods @ 10% (b) 5550
Total GST refundable (a) + (b) $23550
Calculation of Net GST payable/ Refundable
Particulars Amount ($)
GST payable on the sales of general goods @ 10% $44000
Less Total GST refundable $23550
Net GST payable to the Australian Government $20450
Question 3
Part A
a) Calculation of capital gain
Particular Amount
Selling price of Yacth $45000

Less Purchasing price of the Yacth $25000
Net Gain (A) $20000
Cost on Improvement of asset $35000
Total ownership cost (B) $35000
Capital Gain (A) – (B) ($15000)
Justification: Capital gains tax, in the context of the Australian taxation system, is a tax
applied to the capital gain made on the disposal of any asset, with a number of specific
exemptions, the most significant one being the family home. Moreover, the provisions apply to
some disposals, one of the most significant of which are transfers to beneficiaries on death, so
that the CGT is not a quasi-estate tax. CGT operates by treating net capital gains as taxable
income in the tax year in which an asset is sold (Fitzpatrick, 2019).
b) Calculation of capital Gain
Particular Amount
Sales proceed from the half portion vacant blocks $300000
Less Appreciate value of the half vacant blocks $200000
Net capital gain $100000
Justification: As in the given question, the actual purchase price of the two portions of
the blocks is not identifiable that’s why the appreciate value of the vacant block is $200000. And
also, as per the Australian tax system the capital gain is calculated by subtracting the appreciate
value of the property from its selling price which became net gain in the case of subdivided
blocks. And in order to calculate capital gain, the extra cost the client bear to attain the property
ownership is being subtracted from the net gain. As the increase in the value of the asset is not an
extra cost that’s why the capital gain of the Sam’s is $100000. In the case of subdivided blocks,
whether it is subdivided or not, a sale may be subject to tax on the capital gain if it appreciates in
value (Lanis and et.al., 2020).
c) Calculation of capital gain
Particular Amount

Selling price of the house and land (A) $850000
Purchase price of the land $80000
Add Extra cost for building house on the land $550000
Total purchase price (B) ($630000)
Capital Gain (A) – (B) $220000
Justification: Under the Australian Taxation system, if the clients buy vacant land and
build house on it then the extra cost of building the house is consider as extra cost which must
include in the total purchase price of the land and the house. In Australia, the CGT is calculated
by treating net capital gains as taxable income in the year the asset was sold or disposed of. If
you have held that asset for more than 12 months, the gain is first discounted by 50% for
individual taxpayers, or by 33.3% for superannuation funds (Johnston, 2017).
Part B
In the Australian Tax System, Fringe Benefit tax is paid by the employer to its
government on the specific benefits that is basically provided to the employees of the company
along with their families and other association. FBT is separate to income tax and is calculated
on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for
the FBT year and lodge an FBT return. Employers can generally claim an income tax deduction
for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally
claim GST credits for items provided as fringe benefits (Braithwaite and Reinhart, 2019).
A fringe benefit is a payment made by an employer to its employee but in the form other than
salary and wages. For the benefit of fringe, the employees of the company must current, future
and past relation and employment, director of the company and beneficiary of the trust that work
in the particular business. In the given situation, the items of the Electrical Services Pty. Ltd.
subject to fringe benefit tax are as follow:
a) Payment to an employee for an estimated cost of electricity which they have used in their
home workshop. It is because this is a reimbursement of expense incurred by the
employee on behalf of company.
b) Fringe benefits includes the discounted loan given to the employees for self-living
intention and in this the loan is provided with no interest and also for home purchase

which they rent it out. So, as the intention of the clients does not match that’s why they
are not liable for this benefit.
c) Paying an employee’s medial fees is a fringe benefit as per the Australian taxation
provision that’s why they are liable for this benefit.
d) Providing food from the inhouse kitchen on the workplace for an afterwork course is not
subject to fringe benefit.
e) Providing gifts to the employees is subject to fringe benefits because fringe Benefit Tax
is a tax that employers pay on certain non-cash benefits they provide to their employees,
their employee’s family and/or other associates, that may be included as part of their total
remuneration package.
f) Paying the amount to employees for attending the Christmas party is not subject to fringe
benefit.
g) Provision of car to the employees is liable for fringe benefit whether the employee use it
or not.

REFERENCES
Murphy, K., 2019. Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity (CTSI), Research School of Social Sciences,
The Australian National University.
Fitzpatrick, K., 2019, February. The Australian Taxation Office's approaches to aggressive tax
planning. In Centre for Tax System Integrity Third International Conference
on'Responsive Regulation: International perspectives on taxation'. Canberra, 24-25 July
2003.. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The
Australian National University.
Lanis, R. and et.al., 2020, October. Does the Australian Taxation Office disclosure of
information impact the costs of tax aggressiveness: evidence from the Tax Laws
Amendment (2013 Measures No. 2) Act 2013 over the period 2015-2018. In Australian
Tax Forum (Vol. 35, No. 4).
Johnston, V., 2017. An Australian road transport carbon price: a comparative
analysis. Australian Taxation Research Foundation, research study. 50.
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University