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 taxpayers 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 As 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 Nicholass 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. Jills 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