Question 1:
Consider each of the following independent transactions in the case of Oz Furniture Ltd, a
retailer of furniture. The company’s annual turnover is $40 million making it a small business
entity.
During the 2021 income year, the company purchased the following assets for exclusive use
in the business:
Item Date of
acquisition
Estimated effective life Cost
(a) Desktop
computer
13 July 2020 4 years $2 800
(b) Motor vehicle 9 September
2020
8 years $80 000
(c) Copyright 1 December
2020
20 years * $100 000
(d) Commercial
Building
1 June 2021
construction
completion date
40 years $6 million
*The period that the copyright ends.
Required:
Calculate Oz Furniture Ltd’s decline in value (i.e. depreciation) claim under Division 40
ITAA97 in respect of the abovementioned assets for the year ended 30 June 2021. Please
round all calculations to the nearest whole dollar.
Oz Furniture Ltd wishes to maximise its deduction and so please use the depreciation
method that will maximise the deduction that can be claimed.
For any assets not eligible for depreciation claims under Division 40, please calculate
what deductions are available.
5 marks
Question 2:
Sally Richards is a resident individual who earned a gross salary of $38,000 and received a
fully franked dividend of $10,500 for the year ended 30 June 2021. The fully franked
dividend had $4,500 in franking credits attached to it.
Sally had PAYG tax instalments (PAYG) of $7,000 taken out of her salary income. Sally has
no dependants and is not entitled to any dependant tax offsets/rebates (other than the franking
credit offset). Sally does not have any private health insurance.
Required:
What is Sally’s net tax payable/refundable (including Medicare levy if applicable but
ignoring any tax offsets other than the franking tax offset) for the year ended 30 June
2021? 4 marks
Question 3:
Michelle is a dentist who is registered for GST and who accounts for GST on a cash basis.
During the most recent quarterly tax period her total receipts from dental services she supplied
equalled $55,000. Michelle paid for the following expenses during this same tax period:
Practice rent of $6,820; electricity and gas of $2,200; liability insurance costs of $4,400 and
staff salaries of $21,000. Michelle has also spent $3,300 on electrical repairs in this period but
only 1/3 of these repairs were to her business office. The other 2/3rd were electrical repairs to
her family home. All amounts shown include GST (where applicable).
Required:
What is the likely net GST result of this tax period? Will it result in an amount payable
to the ATO or an amount refundable? Please explain your calculations and give any
relevant references. 4 marks
Question 4:
Abel is a full-time staff member of ‘The Wildlife Room’ pet store company. In addition to his
daytime work, Abel is required by his employer to work from home on a regular basis. This
work from home consists entirely of managing the extensive paperwork of the business and
maintaining the software program used to run the business. The work from home does not
involve seeing any clients and Abel does not sell any pets from his home. ‘The Wildlife
Room’ has agreed for Abel to establish and maintain a home office, which Abel has done for
all of the 2021 tax year.
Abel lives in Camperdown (a suburb of Sydney) and his residence consists of two bedrooms,
one bathroom, one lounge-room and one kitchen. Abel lives on his own and so he uses the
so-called ‘second bedroom’ solely and exclusively for this ‘home office’. The area made up
of the ‘second bedroom’, used for his home-office represents approximately 1/5th of the total
living space in the house area. Abel’s employer acquired standard office furniture to furnish
the space, including a desk, chair, lamp, filing cabinet, printer and other general office
supplies. Abel did not pay at all for these office furniture items and the employment
agreement provides that once Abel’s employment ends that these items are to be returned to
the employer. Abel does not install any signage to suggest from the street front that the office
is present. Abel also continues to use the laptop and phone that his employer provides.
No clients or colleagues visit the home or home office and there is no available space for car
parking if clients were to visit the premises.
Abel works from home 5 days per week. Abel uses the office space for his employment only
and no personal effects are stored in the ‘second bedroom’ except for a piano that remains in
one corner.
For the year ended 30 June 2021, Abel advises you that his home electricity expense totalled
$3,000 and that the house insurance bill was $1,500 and the council rates were $3,000. Abel
also advises you that he paid $15,000 in home mortgage interest and that his water rates
totalled $1,600.
Required:
a) Is Abel eligible to claim a deduction for a proportion of occupancy expenses in
relation to the home office space?
b) Is Abel eligible to claim a deduction for a proportion of running expenses in
relation to the home office space?
c) What impact does the home office space have on the CGT main residence
exemption?
d) How would your answer to (a) change if Abel was self-employed and did see clients
at his home from time to time but still only used his ‘second bedroom’ for his
business activities?
7 marks
Question 5:
Blue Star Telecommunications Ltd (a large business taxpayer) is a telephone retailer that buys
and sells mobile phones and phone accessories to customers across its stores throughout
Western Australia.
The company provides you with the following information for the year ended 30 June 2021:
$
Gross sales 6 400 000*
Purchase of trading stock 3 900 000
Opening stock (as at 1 July 2020) 345 000
Closing stock (as at 30 June 2021) 220 000**
*Included in the gross sales is a sales transaction for $15,000 which was recorded at
cost price. This $15,000 in sales was to relatives of the directors and the market value
of the goods sold was estimated to be $25,000.
**Included in the closing stock amount of $220 000 shown above are mobile phones
costing $20 000 that were purchased from a supplier in China. At 30 June 2021, these
mobile phones are currently on board a ship from China. The terms of the shipment are
FOB destination.
Required:
What amounts are assessable/deductible to Blue Star Telecommunications Ltd in
respect of the above transactions for the year ended 30 June 2021?
6 marks
Question 6:
Ray Barnett had operated a small news-agency in Goulburn for 10 years. When he
sold the business on 30 June 2020 he did not receive enough sales proceeds to pay out the
business loan outstanding and so as at 30 June 2020, he still owed $200,000 to his Bank.
Ray asks you to prepare his tax return this year and he tells you about the loan and that for the
year ending 30 June 2021, he was still charged interest of $16,000 on that loan.
Ray also tells you, that for the year ended 30 June 2021, his only source of income was some
franked dividends from a few investments. Ray tells you he received $28,000 in fully franked
dividends for the year ended 30 June 2021.
Required:
Advise Ray on whether he is entitled to claim a tax deduction for the $16,000 interest
paid for the year ended 30 June 2021 and also as to what his taxable income is likely to
be for that year.
