BFA391 Taxation

Question 1


Each of parts (a) to (g) below contain separate statements that you are required to answer separately. For each statement indicate whether it is TRUE or FALSE and briefly explain your reasons with reference to legislation, case law or rulings (as appropriate).


  1. An employer will only be liable for FBT on a fringe benefit they provide to their employee, where the benefit is provided in respect of employment.

[2 marks]


  1. Benefits received by employees through frequent flyer programs, that arise from employer-paid expenditure (e.g. the employer paying for the employee’s work-related flights), are assessable income, as they are convertible into free flights.

[2 marks]


  1. Carol is an employee of an accounting firm. As a condition of employment, she must adhere to the employer’s dress code, which requires her to wear professional attire to work (that is not a uniform). Carol can claim a deduction for the cost of the conventional clothing, as it is an unavoidable cost associated with earning a salary, and because there is no private use benefit.

[2 marks]


  1. The timing of when a taxpayer can access their superannuation is dependent on when they reach their preservation age.

[2 marks]


  1. As confirmed in FCT v Western Suburbs Cinemas Ltd, the cost of replacing a subsidiary part of an asset using a different material to the original will always be considered a loss or outgoing that is capital in nature and not deductible as a repair under section 25-10 ITAA97.

[2 marks]


  1. f) Income or gains from illegal activities, such as insider trading or theft are not assessable as they are not income according to ordinary concepts, and there is no statutory provision that operates that bring them into assessable income.

[2 marks]


  1. g) Consideration is one of the elements of a taxable supply and it is a defined term in the ‘GST Act’.

[2 marks]

[Total for Question 1: 14 marks]


Question 2


Jim (a 35 year old Australian resident individual) works as a flight attendant for Qantas. He had private health insurance with hospital cover (the excess for the policy is $500) for the entire 2020/21 income year.


Jim’s 2020/21 PAYG payment summary (from Qantas) contained the following:


Gross salary                                                                                          $115,000

On-call allowance (for taking extra shifts at short notice

when other staff are sick and unable to work)                                          $2,200

Total tax withheld (PAYG credits)                                                         $22,000



Jim also received the following amounts from his Australian share investments in 2020/21 (all companies that Jim owns shares in are Australian resident companies, which are liable for company tax at 30%):


Fully franked dividend from APA Group                                                    $150

Unfranked dividend from Coles Group Limited                                         $200



Jim also had a capital gain of $700 from the sale of Mirvac shares (The contract date for the sale of the shares was 29 April 2021 and Jim had acquired the shares on 23 January 2021). He also has a $200 carried forward loss from the disposal of an antique clock that occurred on 20 June 2021. Jim purchased shoes that are half a size larger than those he normally wears. He needs these on flights as he regularly experiences swelling of his feet due to cabin pressure. His employer-supplied uniforms were washed once a week for 48 weeks in 2020/21 (separately to any other clothing)


Larger size shoes                                                                                          $250

Laundry costs                                                                                                    ?


Jim was concerned that he had not completed a first aid course for five years and on 1 June 2021, he completed a one day first aid course and paid the fee of $300 on the same day. He has not sought reimbursement from Qantas in 2020/21.




Calculate Jim’s tax payable (or tax refund) for the 2020/21 income year including all applicable levies, surcharges and credits/offsets. Provide calculations as well as references to legislation or case law where appropriate. In your answer, refer to the correct treatment of all amounts (items) referred to in the facts and an explanation for any item not included in the calculation.


[Total for Question 2: 17 marks]


Question 3


Karen is employed by Tasmanian Timber Furniture as a salesperson, and she received the following benefits in the 2020/21 FBT year:



On 1 April 2020 Karen’s employer purchased a car that cost $59,000 and provided it to Karen for his use. Karen is allowed to take the car home at the end of each work day and there is no restriction on her use of the car for private purposes. Karen contributes $75 per month towards the car expenses. Karen determined that from when she started using the car on 1 April 2020 until 31 March 2021 the total kilometres travelled were 30,000 km (18,000 km of these were for business travel).


Tasmanian Timber Furniture incurred the following expenses (excluding depreciation) in relation to the car in the 2020/21 FBT year:


Petrol and oil                 $7,000

Registration                      $700

Insurance                      $1,200


School fees

Karen’s two children are enrolled at a local private school, and the total fees of $22,000 per year ($11,000 per child) are paid by Karen’s employer during the 2020/21 FBT year.




  1. Calculate the Fringe Benefits Tax liability of Karen’s employer in respect of these two benefits, assuming that they wish to legally pay the least amount of fringe benefits tax possible.

[6 Marks]


  1. Calculate the reportable fringe benefit amount (if any) that will be included on Karen’s 2020/21 payment summary.

[3 Marks]

[Total for Question 3: 9 marks]




Question 4


Henry (an Australian resident for tax) is 16 years old, and he is the sole beneficiary of the Herald Trust (‘the Trust’). Tania is the trustee of the Trust. In 2020/21, the net trust income of the Trust was $60,000 (this amount includes a net capital gain of $10,000 to which the trustee has applied the 50% CGT discount). Henry is presently entitled to 70% of the net trust income of the Trust.


For the 2020/21 tax year Henry’s total income from employment was $14,000. He also has a carried forward capital loss of $700 from the sale of company shares in the previous tax year. On 22 July 2020, Henry donated $500 to the Salvation Army (this organisation is a deductible gift recipient).


a)             With reference to relevant law, briefly explain how the net income of the trust to which Henry is presently entitled will be taxed.

[2 marks]


b)             Calculate the tax payable/refundable for Henry, and for Tania (who has no other income or deductions). Include in your answer the section(s) under which the taxpayers are assessed.


 [8 marks]


[Total for Question 2: 10 marks]





Question 5


Which one of the following statements in relation to the CGT main residence exemption is TRUE?


  1. A capital loss from a disposal event that happens to a taxpayer’s main residence dwelling is disregarded.


  1. Companies can claim the main residence exemption.


  1. A taxpayer and their spouse can each claim a full main residence exemption for two separate dwellings that they own.


  1. Section 118-140 ITAA97 allows a taxpayer who is changing main residences to treat both dwellings, that they have an ownership interest in, as their main residence for up to 12 months.

[Total for Question 5: 2 marks]


Question 6


Which one the following statements is TRUE?


  1. The marginal tax rates for Australian resident individual taxpayers ensure that personal income tax is progressive.


  1. The Goods and Services Tax (GST) is a progressive tax.


  1. If there is a conflict between a provision in the ITAA97 and the Commissioner’s view, it is the Commissioner’s view that prevails.


  1. Capital Gains Tax (CGT) is an indirect tax.

[Total for Question 6: 2 marks]




Question 7


Which one the following statements is TRUE?


  1. Where an asset is in perfectly good order and it is replaced, this will not be a repair.


  1. To order for a repair to be deductible under s 25-10 (ITAA97), any work undertaken on an asset must be done using identical materials to the original materials in the asset.


  1. A repair does not involve the restoration of an asset to its former character.


  1. Repair involves the replacement of an entire asset.


[Total for Question 7: 2 marks]




Question 8


Which one the following statements is TRUE?


  1. Where a taxpayer is entitled to the Low Income Tax Offset (LITO) and there is a negative amount as a result of applying LITO, the taxpayer will receive a refund of tax.
  2. The calculation of the Medicare Levy Surcharge is the same as the calculation of the Medicare Levy.
  3. If a CGT event happens to an asset of a partnership, the capital gain or loss is not included in the calculation of net partnership income.


  1. Employers cannot claim a deduction for the amount of FBT they pay.


[Total for Question 8: 2 marks]




Question 9


Which one the following statements is TRUE, in relation to the Goods and Services tax?


  1. Taxi drivers are required to register for GST irrespective of their GST turnover.


  1. The rate of GST included in the price of a good or service depends on the category of the good or service being supplied.
  2. A taxpayer who only makes input taxed supplies can claim input tax credits in respect of their creditable acquisitions that are in the course of making these supplies.


  1. All food is within the GST-free category.
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