Question 5 (10 marks)

Julian and Jenna carry on a partnership business and for the income year ended 30 June, the partnership net income was $38,000, as returned by their accountant. However, included in the deductions was a salary of $12,000 paid to Julians wife (who is not a business partner). The Commissioner disallows all but $2,000 of this amount.

Required:

1. What authority, if any, does the Commissioner have in disallowing the claim for salary? (2.5 marks)

ANSWER:

2. What course of action, if any, is available to the partners in disputing the assessment? (2.5 marks)

ANSWER:

3. Will Julians wife be required to pay tax on $2,000, or $12,000, for the current income year. Why? (2.5 marks)

ANSWER:

4. On what basis should future salary payments be made to Julians wife? (2.5 marks)