ASSESSMENT 1

Q1. Responsibilities of Tax Agents

Jack and Jill recently decided to divorce and advised their tax agent. John Horner was the tax agent for both Jack and Jill and prepared their income tax returns for the past 10 years. While Jack and Jill were in the process of divorcing, John was still preparing both their 2017 tax returns and providing information to divorce lawyers and other parties. When preparing their latest tax returns, John realises that if he claims a tax offset for Jill, this would prevent the claiming of an offset by Jack.

The Tax Practitioners Board’s Code of Professional Conduct sets out the professional and ethical standards required by tax practitioners. Identify and explain the core principles John may have breached, if any. State and explain at least 2 examples. (TASA, Code of Conduct, Conflict of Interest).

Q2. Australian Tax Law

Rules for determining how much income tax an individual taxpayer should pay can only be found in the Income Tax Assessment Act 1997. Discuss whether this statement is correct and state any other Acts that may be applicable, if any. (Rules and principles). 

Q3. Legal Environment

Briefly explain the purpose of s51 (ii) of the Constitution. State where the sources of taxation law are derived from. (Constitutional considerations, powers).

Q4. Foreign Income

Peter Hewitt is 28 years of age and is a resident Australian tax payer. He lives in a house with his wife and kids in Balmain. He earns $100,000 each year as a teacher at Liverpool Boys high school. He has just inherited a residential unit located in Germany from a rich uncle that passed away and received $25,000 in cash as a gift for being a good nephew. The German unit earns $45,000 in net rental income per year. Peter is unsure if he has to declare any of amounts received in his Australian tax return. Briefly explain whether Peter must include any of these items in his tax return & why. State what happens if he pays foreign tax in Germany in relation to his Australian tax return.

Q5. Allowable Deductions

Penny Jones just started operating a new coffee shop and consequently purchased a new oven for $2,200 (including GST), incurred electricity of $440 (including GST) and a fine of $120 she received while travelling to a supplier. She wants to know if she can claim all of these amounts as a business tax deduction. (She does not elect to use SBE concessions).

Q6. Tax Offsets

What is a tax rebate or tax offset? List 2 types. 

Q7. Tax Accounting

You are the tax accountant for Crown Cars Pty Ltd, a large car reseller. You have been asked to review the 30 June financial accounts for this year. During the review, you notice the following items had been claimed as a tax deduction. Write a short note to the directors explaining the correct taxation treatment.

A. Provision for long service leave $67,000

B. Provision for bad debts of $8,600 (estimate provided by the accounts receivable department but no legal action has been entered into.)

Q8. Income Tests

HELP repayments are calculated based on a % of the repayment income. How is repayment income calculated?

Q9. FBT

What work related items are exempt from FBT

Q10. GST

Jason owns 10 residential houses which he rents out throughout the year to university students. He charges $550 in rent for each house. He incurs $660 (incl GST) for an electrician to repair a few power points. He is registered for GST.

Explain whether Jason has to add GST to rental fees and whether he can claim the $60 GST.

Q11. Tax Administration

List 3 sources of information you would request from a client for evidence, where the client is an employee, had one bank account earning interest and wished to deduct $500 spent on a compulsory employee uniform.