Tax Law Practice Exam Paper
There are TWO (2) Problem Questions. Students will need to answer ALL questions. Your answer to each question attempted should commence on a new page and be appropriately numbered.
The examination is worth 50% of the marks available in this subject. The contribution each question makes to the total examination mark is indicated on the paper.
This examination is an open book examination.
This examination is expected to take approximately 2 hours of working time. You are advised to allocate your time accordingly. Your answer file may be submitted at any time before the due time. Please allow time to complete the submission process. Please submit your file in PDF or Word format. Please name your file as follows: EXAM_subject number_student number e.g. EXAM_54000_12345678
Word Limit
There is a recommended word count of approximately 1000 words for each question, and a mandatory maximum word limit of 2000 words in total, overall for the answer file. This means that you can write either more or less than 1000 words for each question, however you must comply with the mandatory maximum overall word limit of 2000 words. A ten percent (10%) leeway on the maximum word limit is permitted. Your answer can consist of a word count less than the imposed word limit. References are not included in the word count.
Important Notice – Exam Conditions and Academic Integrity
In attempting this examination and submitting an answer file, candidates are undertaking that the work they submit is a result of their own unaided efforts and that they have not discussed the questions or possible answers with other persons during the examination period. Candidates who are found to have participated in any form of cooperation or collusion or any activity which could amount to academic
misconduct in the answering of this examination will have their marks withdrawn and disciplinary action will be initiated on a complaint from the Examiner.
Exam answers must be submitted via Turnitin. Staff may ask that a student undertake an oral test to ensure they have completed the work on their own and to assess their knowledge of the answers they have submitted.
References to cases, legislation and tax rulings
For the purpose of answering the exam questions, students are not required to include footnotes or AGLC referencing in their exam answer. Students should use brief in-text referencing in the body of their exam answer. Any reference to cases may be cited with the case name, and brackets may be used (e.g. Brent). Examiners will assume that all references to sections, sub-sections or paragraphs of sub- sections (e.g. s 8-1) are references to the Income Tax Assessment Act 1997 (Cth), unless otherwise specified. References to any other legislation should be made clear and can afterwards be abbreviated (e.g. Income Tax Assessment Act 1936 (Cth)) (‘ITAA36’). References to tax rulings may also be abbreviated (e.g. TR93/30)
A bibliography is not required for this assessment task.
Structure
• Make sure you follow the HIRAC methodology (see “Concise Guide to Answering Tax Law Problem Questions” and “Example illustrating HIRAC methodology” on Canvas)
• Use separate headings for each relevant key issue eg, ““Is the [$y] amount/benefit received, included in the taxpayer’s assessable income?”, “Is the [$x] expense deductible to the taxpayer under s8-1?”
Document type, formatting and font
• Students must submit their exam answers as a Word or PDF file. Other file types will not be assessed.
• Please name your file as follows:
EXAM_subject number_student number e.g. EXAM_54000_12345678
• In their answer, students should clearly specify which question they are addressing (e.g. Question 2). Students should also make use of headings throughout their answers.
• Students should use Times New Roman or Arial font, size 12, and the paragraphs should be double or 1.5 spaced.
• Make sure you proofread your response & correct any spelling/grammar errors before handing it in
• Don’t forget to attach a completed UTS Law Assignment Cover Sheet for Online Submissions to the front of your response.
Question 1 (25 marks)
In 2019 Kate purchased an investment property in the Blue Mountains for $700,000. (Kate paid a 10% down payment and borrowed the balance of the purchase price from BigBank at market rates.) Kate also paid transfer (stamp) duty of $50,000 and legal fees of $2,000 in relation to the purchase. At the time of the purchase, the property was already rented out to tenants who continued to live in the property following the purchase. During the 2020/21 year of income, in relation to the property, Kate received rent of $40,000, and incurred the following expenses: council rates of $2,500, water rates of $500, insurance premiums of $1,000 , agent’s fees of $7,000 and $40,000 interest on the loan. Kate also arranged to use the property herself as a holiday home for four (4) weeks during the year, as she enjoys bushwalking in the Blue Mountains.
Kate is also a potential beneficiary of the Smith Family Trust (SFT), an Australian resident trust. The beneficiaries are Bob and his wife Bernice, and their two children, Kate (30 years) and Kim (25 years). Bob, Bernice, Kate and Kim are Australian residents for tax purposes. The trustee is a close family friend, Mercy. The SFT trust deed provides that:
“the Trustee may distribute all or any of the trust income to such one or more or all of the beneficiaries Bob, Bernice, Kate or Kim in such proportions as the Trustee shall in their unfettered discretion determine”.
During the 2020/21 year, the trust estate earns income calculated under trust law principles of $275,000. Mercy, the trustee, allocated the trust law income under a trustee resolution made on 27 June 2021 as follows:
Beneficiary: Share:
Kate 40%
Kim 20%
Bob 30%
Bernice 10%
SFT’s tax law income (net income calculated under s95 ITAA36) for the 2020/21 income year was $284,000.
Required:
Advise Kate regarding the income tax implications arising from the above facts. In your answer make sure you refer to any relevant cases, legislative provisions, tax rulings and principles of tax law. (25 marks)
Question 2 (25 marks)
BagCo Ltd (BagCo) is a large company which sells synthetic handbags in a wide range of designs. The company accountant, Alan, is in the process of preparing income tax returns for the company and staff, and seeks advice on the following matters:
BagCo owns commercial premises in a busy retail-shopping mall. The premises are currently leased out to a company that operates a computer store. The tenant has complained for a while about how the air conditioning unit in the store is not working properly, and has regularly requested BagCo to have it fixed. BagCo eventually agrees and arranges for a technician to have a look at it. In order to fix it, the technician replaces the compressor part in the air conditioning unit and issues BagCo an invoice of $700.
BagCo employs Alan as the accountant for the business. Alan is occasionally required to travel from the head office to retail store premises to consult with store managers. Afterwards he travels back to the head office to write up a report. During the year, he incurs travel expenses of $3,000 in travelling from head office to retail store premises and back to the office.
Due to the nature of his work, Alan is required to stay up to date with the latest changes in accounting standards. Alan pays $800 per year to attend weekly update seminars held by a professional accounting organisation. Alan was recently on holiday in Brisbane when he became aware of a work-related accounting seminar being held in Brisbane. The cost of the seminar was $300. Alan also incurred $500 on the return airfare to Brisbane and $700 for his accommodation.
BagCo does not reimburse Alan for any of these expenses.
During the 2021/22 year, BagCo’s CEO Brenda, wins an award for “Best CEO” which includes $1,000 cash prize and a brand new washing machine valued at $3000. The “Best CEO” prize is a renowned award in the industry which is awarded annually by Channel Nine.
In the 2021/22 income year, BagCo received a dividend of $30,000 franked 50% from another Australian resident company HatCo Pty Ltd. (Assume 30% corporate tax rate for imputation purposes)
Required: Advise BagCo, Alan and Brenda regarding the income tax implications arising from the above facts in relation to the 2021/22 income year. In your answer make sure you refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.
(25 marks)