5.1

Kate borrowed $100,000 from the local bank on 30 June 2018 to be repaid over five years, at an interest rate of 10% pa. Interest is to be paid annually in arrears on 30 June (first payment being due on 30 June 2019). The purpose of the loan is to invest $50,000 in shares yielding very good dividends and to on-lend $50,000 to her brother Nicholas, at an interest rate of 4% pa.

What amount can Kate claim as a deductible interest expense, assuming that she paid $10,000 in interest to the local bank on 30 June 2019?

A. $10,000

B. $7,000

C. $5,000

D. $8,000

5.2

Which of the following statements describes characteristics that are LEAST likely to indicate that a business exists?

A. The taxpayer's activities are well organised

B. The taxpayer expects that the expenses from the activity will be greater than the income derived from the activity over time

C. The activities of the taxpayer are sustained, and regular.

D. The production from the activity is well in excess of domestic

5.3

A and B carry on business as partners. The partnership derives an income of $50,000 and incurs deductions of $30,000 (excluding A's salary). The partnership agreement provides for a salary of $25,000 to A and thereafter profits and losses to be equally shared. What is the s90 net income/loss?

A. Loss of $5,000

B. Loss of $2,000

C. Net income of $20,000

D. Net income of $25,000

5.4

Ed is a foreign resident (non-resident) of Australia who works as a geologist for a large oil exploration company. During the current year he was located in the United States surveying potential oil deposits in the Gulf of Mexico. He was paid $75,000 for this work. In addition, Ed earned $15000 in rental income duing the year from an investment property he owns in Brisbane. Ed has 24,000 shares in Telecom France and he received $3,000 in dividends from the French company during the year. Telecom France has no income-earning operations in Australia. What is the total amount of income earned by Ed that has an Australian source for the current year of income?

A. $93,000

B. $18,000

C. $78,000

D. $15,000

5.5

Which of the following statements gives the MOST correct definition of a repair for the purposes of s 25-10 of the Income Tax Assessment Act 1997?

A. To be a repair the item must be brought back to an identical condition to what it was originally.

B. Where an item is in perfectly good order and it is replaced this will be a repair.

C. Repair involves the restoration or replacement of subsidiary parts of an item.

D. Regular cleaning of an office building would be considered to be a repair.

5.6

During the income year ended 30 June 2019 Nicholas received salary and wages income of $35,000, interest income of $3,000, a net capital gain of $5,000, an exempt compensation payment of $23,000 and commission income of $4,000. What is Nicholas's ordinary income that is assessable for the year ended 30 June 2019?

A. $42,000

B. $47,000

C. $38,000

D. $35,000

5.7

Noel is a solicitor (lawyer) who operates his own business in Toowoomba providing legal advice to businesses. He has four employees. He incurred the following expenses during the current year of income.

- A set of law reports containing all decided cases relevant to commercial law purchased for $3,600 on 1 November 2018. The reports will be used in the firm for many years to come.

- An annual payment of $250 for a weekly commercial law newsletter paid on 4 February 2019.

- Professional indemnity insurance premium (for one year) of $3,500 paid on 1 July 2018.

- Travelling costs of $400 paid to a prospective employee to attend an employment interview during the 2018/2019 financial year. The prospective employee flew from Sydney to Toowoomba and Noel reimbursed the costs of the travel.

- Morning teas provided to employees during the 2018/2019 year cost $1,700.

What is the total amount that is deductible under s 8-1 of the ITAA97 for the above expenditure during the 2018/2019 financial year?

A. $9,450

B. $4,150

C. $5,850

D. $3,750

5.8

Which of the following expenses would NOT be deductible under the second positive limb of s 8- 1 of the ITAA97?

A. Legal expenses incurred by a company carrying on a retail business.

B. An employee claiming a work-related expense.

C. Salary and wages paid to employees by a primary producer carrying on a business.

D. Public liability insurance incurred by an individual carrying on a consulting business.

5.9

Under a contract of employment Jill Smith, a sales consultant, received the following employment benefits in 2019/2020: salary of $90,000; entertainment allowance of

$3,000; and the sole use of a fully maintained company car with an estimated benefit of $10,000. Jill's employer pays the necessary fringe benefits tax. What will be the total amount on which Jill will be assessed?

A. $103,000

B.$93,000

C.$13,000

D.$90,000

5.10

For the year ended 30 June 2020, Masher Ltd, a resident manufacturer, reported an operating profit of $750,000 in its Financial Accounts. In preparing the financial statements, the accountant incorporated information that $30,000 had been written off the goodwill arising from the acquisition of a business in 2010. Which of the following statements about this is LEAST correct?

A. Goodwill is a capital asset

B. Goodwill is an intangible asset

C. Goodwill cannot be deducted under s8-1

D. Goodwill is deductible under s40-880

6.1

Kate is registered for GST. She made a taxable supply and received a sale price of $1,540. What is the value of the taxable supply?

A. Nil

B. $1,540

C. $140

D. $1,400

6.2

Which of the following statements about the taxation of trading stock is LEAST correct?

A. Purchases of trading stock are treated as income for tax purposes

B. Confidential documents held by a research company are not trading stock under s70-10

C. For the purposes of s70-35, trading stock should always be valued at cost

D. For the purposes of s70-35, the taxpayer can give trading stock a closing value at either cost, market selling value or replacement value

6.3

Which of the following statements about GST registered entities is MOST correct:

A. They must have annual turnover above the threshold of $75,000

B. They charge GST on taxable importations, if they have any

C. They charge GST on their GST-free supplies, if they have any

D. They charge GST on their input taxed supplies, if they have any

6.4

Daniel purchased a new rental property on 3 July 20018 and immediately rented it out earning $520 per week in rental income. He paid the following amounts in relation to the property:

$

Purchase price

400,000

Stamp duty on purchase

3,500

Legal fees to transfer title to him

1,300

Interest paid on loan to purchase the property

28,000

Loan establishment costs

700

Extension to main bedroom

14,000

Rates paid to local council

1,500

What will be Daniel's cost base of the rental property for CGT purposes based on the above expenditure?

A. $449,000

B. $447,500

C. $446,800

D. $418,800

6.5

Which of the following statements in relation to goods and services tax (GST) is LEASTcorrect?

A. GST is a consumption tax.

B. GST is levied on the income of a taxpayer.

C. GST is a tax on final consumption.

D. GST is similar to value added taxes applied in other countries.

6.6

Which of the following are NOT CGT assets?

A. Trading stock held by a retailer.

B. A main residence held by an individual.

C. A right to free speech enjoyed by an individual.

D. A depreciating asset held by a manufacturer.

6.7

Kate, an Australian resident individual for taxation purposes, received an unfranked cash dividend of $7,000 from Unity Ltd on 25 June 2019. What amount should she include in her assessable income as a result of receiving the dividend?

A. $3,000

B. $4,000

C. $7,000

D. $10,000

6.8

An item of depreciating plant is purchased on 1 July at a cost of $10,000. It is depreciated at 40% on the diminishing balance basis and is used 80% for business purposes. What amount is deductible in the second year of ownership?

A. $4,000

B. $3,200

C. $2,400

D. $1,920

6.9

Assume a corporate tax rate of 30%. Consider the following situations. Which would involve a franking debit entry?

A. A company pays income tax of $300.

B. A company paid a $35,000 cash dividend franked to 80%.

C. A company receives a dividend of $700, which has a franking percentage of 10%.

D. A company pays a PAYG instalment of $600.

6.10

Miss Jones lodged a tax return in July 2019 but was unhappy when her taxable income was assessed by Australian Tax Office as being higher than she had stated in her tax return. She is determined to dispute that assessment. Which of the following statements is MOST correct?

A. Miss Jones must lodge her objection within 3 years of the service of notice of assessment of the original assessment.

B. Miss Jones must lodge her objection within 60 days of the service of notice of amended assessment.

C. Miss Jones may lodge her objection by contacting the ATO and verbally explaining her reasons for disputing the assessment.

D. All the available answers are correct.