Question One

The Fiji ITA imposes a general tax on income plus a number of specific taxes. Some of the specific taxes have names, some dont. As a general proposition, income, or any particular instance of income, will only be subject to tax once. (The Act, in other words, solves the problem of double tax that can result from having both a general tax and specific taxes.) Income classified as exempt (s.20) is exempt for all purposes. It is not subject to the general tax on income and it is not subject to any specific taxes.

The Facts:

X is an engineer and New Zealand national. He is employed by Road Builders (Fiji) Ltd (RBco). The job description requires X to supervise the construction of roadworks undertaken by the company throughout Fiji. X is required to live on-site.

(Note: X is currently classified as a resident for Fiji tax purposes.)

Below is some more detailed information concerning Xs sources of income for the tax year.

Remuneration Package from employment with RBco

Sign on fee 25,000

Annual salary 100,000

Annual travel allowance 5,000

Standard employer contribution to FNPF 6,000

Free on site housing

Free use of company car after hours

Free meals at company on-site canteen

X also received a bonus of $10,000. This was a voluntary payment by RBco.

Other income

Interest on term deposit with ANZ Suva 1,000

Dividends from Unit Trust of Fiji 6,500

Dividends from Fiji Pte Ltd (a private Fiji co) 3,000

Required:

What tax (if any) will each of the above listed items be subject to?

Create 4 columns as shown below.

Allocate each item to one of the 4 columns.

With each item include in brackets reference to any relevant section/s.

In the case of specific taxes, include reference to the name of the specific tax.

In the case of exempt income, include reference to the Part and paragraph in the regulations.

Income Tax s.8	various specific taxes	FBT Part 4	exempt income

Question Two

(A) Tui Mawi is a middle aged male and resident of Fiji. Tui is a well known jazz guitarist and singer. For most of his life Tui has made a living as a musician.

For all of 2021 Tui carried on his trade at a tourist resort owned and managed by Hiltonco. The deal between Tui and Hiltonco was detailed in a contract headed Musical Services Agreement. The agreement ran for one year starting January 1 and required Tui to perform 6 nights per week at the companys resort. The contract price was $72,800, with payments of $1,400 due weekly. The contract explicitly established that Tui was not an employee of Hiltonco but a third party contractor.

(Tui in fact received a weekly payment from Hiltonco of $1,330 following a deduction of 5% per the IT (Collection of Provisional Tax) Regs 2016, regulation 3(2). Tui himself also made advance payments per ITA s.110. All of this is merely tax collection. A matter of payment as distinct from liability. In this question we are not concerned with tax administration issues.)

On Jan 1 2021, Tui purchased a new guitar specifically for use in his Hiltonco engagement. The guitar cost $5,000. Tui purchased the guitar with a personal loan from Bankco. The loan principal was paid down over the year together with interest on the outstanding balance. Aggregate interest payments for the year were $500. Each month the guitar strings required replacement at a cost of $60.

In his private life Tui is a kind and generous gentleman. In November 2021 he donated $2,500 to the Fiji Red Cross Society.

In 2020 (not a typo) Tui did something unusual. For the first time in his adult life he stopped performing. Instead he tried his hand at being a concert promoter. A partnership was formed between Tui and his brother Red Mawi. The partnership agreement provided for profits and losses of the firm to be split between the two partners 50/50. Tui and Red trading as Island Concerts organised a number of concerts and musical events throughout 2020. Overall the business was not a success and incurred a loss for the year of $55,000. In December 2020 the firm was dissolved and Tui returned to his traditional life as a musician as we have earlier heard.

Required:

Calculate Tuis chargeable income and Income Tax for the year 2021. Explain the calculation using headings and section references.

(B) Tui Mawi as we know has a brother Red Mawi. Here is Reds story.

Like his brother, Red is talented and for much of his life has made a living as a musician. Following the failure of the concert promotion business in 2020, Red also returned to performing music. Red signed a one year contract with Novotelco. This was a contract of employment. The contract required Red to perform 6 night per week at a resort property owned by Novotelco for a one year term starting Jan 1, 2021. The contract provided for a weekly wage of $1,400 to be paid weekly. The contract required the employee (Red) to provide his own musical instrument. Red in fact purchased a new guitar for use in his job on Jan 1, 2021. The guitar cost $5,000 and was financed by a Bankco loan with annual interest of $500. The guitar strings needed to be replaced every month at a cost of $60.

Red, like his brother Tui is a generous individual. In November 2021, Red also made a donation of $2,500 to the Red Cross. (I like their name joked Red.)

Red in fact received a weekly payment (wages) from Novotelco of less than the contractually agreed $1,400. There were deductions for the employees contribution to FNPF and deductions for PAYE per s.111 and the related Regs. The weekly PAYE deduction was $156.92. The aggregate PAYE deduction for the year was $8,160.

Heres the question.

Reds tax liability for the year is more than Tuis tax liability for the year. What explains this? Refer to all relevant sections.