Taxation Questions and Answers

Sandra is a cosmetic surgeon. She migrated from Edinburgh, Scotland to Brighton, Australia on 1 February 2019 to work at ‘Fabulous Faces’, a surgery specialising in facial cosmetic surgery. Between 1 July 2018 and 30 June 2019, Sandra received the following amounts: 

Salary of $80,000 from Edinburgh Royal Hospital for surgical work completed up to 31 December 2018. 

Fully franked Commonwealth Bank dividends of $3,000, received in June 2019.

Salary of $50,000 from Fabulous Faces for the period between March and May 2019.

Sandra also attended the annual cosmetic surgeon’s workshop and received a certificate of completion. She paid the registration fee of $1,500 herself and was not reimbursed by her employer

Required: 

Advise Sandra what her taxable income is for the 2018-2019 financial year In your response give reasons and refer to sections of legislation and cases, where relevant

You must answer both A and B

Theo purchased a truck for $67,000 to use in his business. The truck was purchased on 1 September 2017. The truck is used only for business purposes and Theo is not using the Small Business Entity method of depreciation. The effective life of the truck at the time of its acquisition was seven years. The accountant has advised that he should use the diminishing value method when calculating his depreciation claim

Required A

Advise Theo how much he can claim for depreciation for the year ended 30 June 2018. In your response give reasons and refer to sections of legislation and cases, where relevant.

and

On 1 July in the current income year, Cassie borrowed $100,000 and purchased a block of land for $120,000. Cassie intended to build a house suitable for herself, her partner and their children to live in. Soon after Cassie received an offer of $270,000 for the land. The sale, and settlement, took place in May of the same (current) income year. Cassie’s interest expense was $15,000. Assume there are no other costs associated with the purchase of the land.

Required B

Advise Cassie whether there is a capital gain or loss as a result of the above transactions – and the amount of that gain or loss, if any. In your response give reasons and refer to sections of legislation and cases, where relevant. 

Jing is an accountant at Barrier Reef Tours Australia and has included the following in the company’s Profit and Loss account.

a) accrued wages;

Question 2

b) advertising;

c) bad debts provision;

d) hire–purchase payments;

e) interest;

f) insurance of plant and equipment;

g) printing and stationery;

h) provision for long-service leave;

i) repairs;

j) tax-related expenses.

Required

For each of these items of expenditure: state whether the item is an allowable deduction and for those items which are allowable deductions, state the relevant statutory provision under which the deduction will be claimed (i.e. whether the item satisfies the requirements of s8-1, or whether a specific provision applies). In your response give reasons and refer to sections of legislation and cases, where relevant

Pretty Petals is a medium sized business with florist outlets across Australia. Pretty Petals is a company that aims to expand and become the leader in its field. It competes aggressively for customers with businesses that it sees as competitors. Fleur Florists is a popular family run floristry business, with several generations of Fleur family members working in it. Fleur Florists opens a shop a few streets away from Pretty Petals’ main outlet in Sydney’s CBD. After facing several years of fierce price wars and expensive marketing campaigns, the owners of Fleur Florists agree to sell their business to Pretty Petals. Being family run, Fleur Florists has no staff. It does have wellmaintained mobile cool room and flower sorting and arranging equipment. It also has a long lease and a large customer base on its books. The owners agree to sell Fleur Florists as a going concern to Pretty Petals; and agree that following the sale they would not to operate a floristry business in that district for at least 3 years. They operate the business until the date of change of ownership, having assisted Pretty Petals in taking over their lease. Immediately after the sale, Pretty Petals (whose purpose was to remove all competition) closes Fleur Florists and invites all its customers to Pretty Petals’ store a few streets away. Having no use for the cool room and flower sorting and arranging equipment, Pretty Petals sells them.

Required

Advise whether this sale would qualify as the sale of a going concern for GST purposes. In your response give reasons and refer to sections of legislation and cases, where relevant.

You must answer both A and B

Juice Pty Ltd is a resident company. It has two resident shareholders. One, Peter owns one A class share in the company and is on a marginal tax rate of 45%. Assume the after-tax distributable profit of Juice Pty Ltd is calculated as follows:

Profit (including income) $200,000

Income $100,000

Tax @ 30% $ 30,000

Franking credits $ 30,000

After-tax income $ 70,000

After-tax profit $170,000

Required A

Disregarding the Medicare levy, calculate the after-tax effects for Peter if he receives as a distribution a dividend of $85,000 franked to 50% In your response give reasons and refer to sections of legislation and cases, where relevant

AND

Sapo is both a doctor and a partner in Health Well medical practice. He receives $100,000 income from the medical practice in the current financial year. For the past four years, Sapo has also made leather sandals for sale at his local market He has not yet made a profit from selling the sandals. In the current financial year Sapo has sold $15,000 worth of sandals but incurred expenses totalling $17,500. Sapo wishes to offset the $2,500 loss against his income from Health Well.

Required B

Advise Sapo whether he can offset the loss. In your response give reasons and refer to sections of legislation and cases, where relevant.