HI6028 Taxation Theory: Tax Liability, GST, and Partnerships

This assignment solution for HI6028 Taxation Theory, Practice and Law covers various aspects of Australian taxation. It identifies and explains key Commonwealth taxes, including income tax, superannuation tax, customs and excise duties, and capital gains tax. It also includes a calculation ...Read More

Student Number: (enter on the line below)
Student Name: (enter on the line below)
HI6028
TAXATION THEORY, PRACTICE AND LAW
SUPPLEMENTARY ASSESSMENT
TRIMESTER 1, 2021
TIME ALLOWED: 4.5 hours
All answers must be submitted within this time frame. Late submissions are not
accepted.
Assessment Weight: 50 total marks
Instructions:
 All questions must be answered by using the answer boxes provided in this paper.
 Completed answers must be submitted to Blackboard by the published due date
and time.
Submission instructions are at the end of this paper.
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of
knowledge of the key topics covered in this unit
HI6028 Online Supp T1 2021

Question 1 (7 marks)
What are the key commonwealth taxes levied in Australia? Explain at least four taxes and the key
features of these taxes.
ANSWER: ** Answer box will enlarge as you type
The most significant of Commonwealth taxes levied in australia are:
1. Income taxes for individuals and companies: It is the most significant form of taxation in
australia which is collected by the federal government through ATO. Australia maintains a lower
tax burden in cmparison to the other wealthy countries. Australia makes use of progressive tax
scale system for taxing indivdiual snad companies.
2. Superannuation taxes: It taxed in australia by ATO at three points which are contribution
received by the superannuation fund, income on the investment earned by the fund and the last
is the benefit paid by the fund. In Australia, every employee is required to pay minimum level of
superannuation to its employees in order to ensure workers have enough moneyset aside for
their retirement.
3. Customs and excise duties: It is the primary source of taxation which is easy to administer and
is also less likely to attract negtaive attention in contrast to the other direct form of taxation. The
rules applying to customs duty in Australia are very complex and the importers are required to
seek advice for every case. The excise duty is paid by the manufacturer at a flat rate. The
applicable rate of excise might increase twice a year in order to reflect inflationary changes.
4. Taxes on capital gains: It is imposed on the capital gains which is realised on the sale of assets
and for the taxation purpose the list of assets which are subjected to CGT are very broad. CG are
included in taxpayer’s assessable income and therefore taxed at each taxpayer’s applicable
income tax rate.
Question 2 (7 marks)
Nick is working for an Indian mining company in an Australian city. Nick is a single resident who
does not have private health insurance. He earned $120,000 and has a $ 15,000 deduction during
the 2020/2021 income year. Calculate his tax liability (income tax, medicare levy, medicare levy
surcharge (if applicable) and low and middle income tax offset for the 2020/2021 income year.
ANSWER:
Income earned = $120000
Less: Deductions = $15000
HI6028 Online Supp T1 2021

Total taxable income = $105000
Computation of tax liability on $105000
No tax on income between $1 - $18,200 $0
19c for every dollar between $18,201 - $45,000 $5092
32.5c for every dollar between $45,001 - $120,000 $19500
Income tax payable $24592
Medicare levy payable @2% of total taxable income $2100
Income after tax & Medicare levy (105000 – 24592 - 2100) $78308
Marginal tax rate 32.5%
Medicare levy surcharge @1% on total taxable income $1050
Question 3 (11 marks)
Ronald runs his own public relations business. During the year he incurred the following
expenses:
(a) salary costs of $350,000;
(b) travel expenses of $7,000 for travel between home and work;
(c) travel expenses of $3,000 for travel from a client's premises to his home;
(d) $1,500 on a new suit to impress his clients;
(e) $700 on membership of the local sports club where he entertains clients;
(f) $8,000 in meal expenses on entertaining clients.
Required:
State whether the above would be allowed as allowable deduction against assessable income.
Provide a justification for your argument based on statute and case law
ANSWER:
a) Salary costs of $350,000
Salary expenses is deductible under section 8-1 of ITAA97 as it is necessarily incurred in respect
to carrying out the business in order to gain or prduce assessable income and also does not fall
into any of the Negative limbs of Section 8-1.
b) Travel expenses of $7,000 for travel between home and work
Since the expense is incurred pertaining to travel between home and work, then these expenses
are not deductible as it is being incurred in order to put him in the position to gain or produce
assessable income instead of being incurred in gaining or producing assessable incoem Lunney.
HI6028 Online Supp T1 2021

In additin to this, it will be considered as a private expense and also none of the rules of the
expception to the general rule appear to be applied here.
c) Travel expenses of $3,000 for travel from a client’s premises to his home
Such type of travel expenses will constiture as the travel between the alternative workplace and
the home and is considered to be incurred in respect to gaining or producing the assessable
income. The tax payer is in the position to gain or produce the assessable income and as such
they would meet with the needs of section 8-1 of ITAA97.
d) $1,500 on a new suit to impress his clients
This expense will not be deducted in accordance with the section 8-1 as it is not being incurred in
respect to gaining or producing assessable income but on the other hand, it is being put by the
tax payer to gain or prodce the asseessable income. Along with this, it would constitute a private
or domestic expense and fall within the negative limbs of s 8-1 of ITAA97.
e) $700 on membership of the local sports club where he entertains clients
The expense of $700 incurred by Ronald on a local sports club in which he entertains clients will
not be deducted as per section 26-45 ITAA 1997 which denies the deductions pertaining to the
recreational club expenses. As such it is also deductible under section 8-1 of ITAA 1997 due to
the s 8-1(2)(d).
f) $8,000 in meal expenses on entertaining clients
Prima facie, the business meals mainly incorporates an ntertainment expense for which
deduction cannot be claimed irrespective of the fact whetehr the business transcation or
discussion have actually taken place with reference to Div 32 ITAA97 section 31-10(2). However,
in case if the food is provided at an in-house dinning facility or considered it as a fringe benefit,
then in that case, it would be deductible with referenec to section 8-1, section 32-30 and section
32-30, Items 1.1-1.3. Coopers case- football player.
Question 4 (7 marks)
How are the general law and tax law definitions of a ‘partnership’ different ? explain what the
difference is important?
ANSWER:
HI6028 Online Supp T1 2021

The general law defines the partnership as the relationship which exist between people carrying
some common business objective which is generally profit. On the other hand, from the income
tax purpose the partnership is defined under s 995- 1 (1) of income tax assessment act of 1997.
Under this the partnership is defined as an association of person other than a company carrying
the business as partner. In addition to this, they are also in receipt of ordinary and statutory
income jointly or the limited partnership. Both these definitions of the partnership are different
from one another. This is particularly because of the reason that both these contain different
elements.
The major difference between the general law and taxation law of partnership is that the general
law is the traditional partnership which is formed when two or more parties agree to carry the
business as partners. On the other hand, income tax law further extend the definiaton of general
law by adding the “in receipt of income jointly”. This purpose of tax law exist only with the
purpose of tax. Whereas on the other side the general law does not recognize the tax law
partnership.
In addition to this, the general law of partnership does not recognize sthe tenancy within
common or joint or part ownership of property. Only the receipt of income jointly from the
investments if carried on business is outside from the definiation of the partnership under the
general law.
In against of this, there are number of legal consequences in the general law of partnership.
While in against of this, in the tax law partnership is not governed by the terms of written
agreement and the other members of tax law partnership will not be coming under the same
fiduciary obligation.
On the other hand, under general law of partnership is formed when two or more entities
commence carrying the business as partners. In against of this, a tax law partnership come into
existence from the time a perosn jointly commende on activity from which the partners will
jointly receive.
Question 5 (11 marks)
Bebel Sports is a large sports retailer. It purchases ‘tennis racquets’ for $110 for each from A2Z
Sports Goods, a large manufacturer of tennis products. Bebel Sports plans to sell the tennis
racquets at a 200% mark-up to its customers. In January last year, it purchased 100 racquests.
However, in April, it discovered that 10 of these racquets had design faults and it returned them
to the manufacturer and obtained a full refund. Explain the GST consequences of this
arrangement for both parties.
HI6028 Online Supp T1 2021

ANSWER:
In the present case, wherein the company identified that 10 racquets had design faults and they
were returned to the manufacturer and obtained full refund. Hence, as per the GST
consequences when the consumer returns the goods to the company it is not considered as
cancellation of the original sales. Hence, in this case the company is not eligible to take any of
the action and will not be in position to claim the money back. On the other hand the original
sale of the good is not being cancelled. In addition to this, there will not be any change within
the GST obligation for the original sales of the product. Hence, in the present case there will not
be any adjustment required to be conducted by any of the party. Hence, in the present case,
both Beble Sports and A2Z Sports goods will not have to make any of the adjustment relating to
GST paid and received. The major reason pertaining to the fact that in the present case the
goods are not being sold to the consumers and thus, this not involve any of the GST receivable.
Question 6 (7 marks)
Who must lodge tax returns? What is an assessment ? Why are assessments important?
ANSWER:
The lodge tax is being defined as the getting back the taxes which are being paid. Even though
the person has earned the new tax free threshold and paid tax on the income during the year
then they are eligible to lodge a tax return. Under the Australian taxation if the person has
earned more than $18200 within their past financial year then they are required to lodge a tax
return. In against of this in case the perons earns more than the tax free threshold the they
definitely need to lodge the tax retrun and the income tax is calculated on how much the money
the person has made above the tax free threshold.
The amount which is subject to the taxation under the particular statue requires the analysis of
the situation of the taxpayers and all the legal provision which applicable to them. The notive of
assessment highlgihts the amount of tax which the person owe on the taxable income. In
addition to this the credit taken for tax already paid within the income year is also highlighted.
Further the assessment of tax which needs to be paid or refund is also highlighted within the
assessment.
Hence, the assessment are important to be analysed because it provides a informaiton of any
excess of private health reduction or the refund applicable. In addition to this, the notive of
assessment is important in order to check the fact that everything is correct. In addition to this,
the tax assessment is very important to identify the job of determining the value of something
like property, and is used to property tax. Hence, the word tax assessment is being used in
different manner but in general it refers to as the tax liability which is owed by the taxpayer.
HI6028 Online Supp T1 2021

END OF SUPPLEMENTARY ASSESSMENT
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HI6028 Online Supp T1 2021