BASED ON TAXATION IN NEWZEALAND:

Q10. Which of the following transactions is fully deductible as a business expense in the year ending 31 March 2020? Assume that each of the transactions occured during the year ending 31 March 2020, and each taxpayer has a 31 March balance date.

1. Legal costs of $16,000 for purchasing a new business

2. Legal costs of $8,000 relating to collecting Bad debts.

3. Costs of $8,000 for building a new deck and barbeque area in a residential rental property

4. Costs of $10,000 for a fine imposed by government for breaching a resource consent a dumping toxic waste.

Q.11. Which of the following criteria is not relevant when determining if a taxpayer has commenced a business:

a. The commitment of time, money and effort to the activity.

b. The tax treatment of that activity by other similar taxpayers.

c. The time it will take for the taxpayer to make a profit from the activity.

d. The taxpayers own intention

Q.12. The following income is taxed in New Zealand:

a. A non-residents winnings from the New Zealand lotto.

b. A non-residents income from any superannuation scheme established in New Zealand

c. A non-residents dividends from an Australian resident company

d. A non-residents scholarship received from the New Zealand Dairy Board

Q.13. According to the Privy Council decision in the Mitsubishi case, expenditure may be deductible under the following circumstances:

a. Only when actual payment has been made or loss has actually been suffered.

b. When a legal obligation to pay has arisen, even if the amount is uncertain.

c. When a legal obligation to pay has arisen, provided that the amount can be accurately estimated.

d. When the taxpayer makes a commitment to pay the amount regardless of whether there is formal contract to do so.

Q.14. Which statement best describes whether a taxpayer is in business and therefore caught for tax under s CB1.

a. A taxpayer must state that they have the intentin to make a profit; be in an activity that does make a profit and is not illegal activity.

b. A taxpayer must be in an activity that is capable of being commercial; is a legal activity and one that is clearly not able to be a hobby as well.

c. A taxpayer must meet all the tests that are set out in Grieve v CIR; be in an activity that could be legal or illegal and must make a profit in every year that they are in business.

d. A taxpayer must be carrying out a commercial activity, whether it is legal or illegal; clearly have the intention to make a profit based on objective testing even if they fail to make a profit.

Q15. A magazine publishing firm incurred legal costs during the 2017 18 tax year as follows: $4,200 for renewal of their office lease, $2,000 for defending a claim for unfair dismissal brought by an ex-employeee, and $300 for the preparation of board resolutions for approving annual accounts. Which of the following statements is correct when explaining the deductibility of these charges for income tax purposes?

1. Some of the expenses are deductible revenue expenditure under s DA 1 and other items would be non-deductible capital expenditure under s DA2(1).

2. All the expenses will be deductible revenue expenditure for the firm because the amounts received will be treated as taxable income in the hands of the solicitors.

3. All expenses will be non-deductible because they relate to capital expenditure.

4. All expenses will be deductible regardless of whether they are of a revenue or capital nature.