Text Book Multiple Choice Quiz Answers

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Topic: Sources of Taxation Law and The

Taxation Formula
Following is a set of questions designed to assess your understanding of the topic 'Australian
Tax Regime'.
Instructions:
You will be presented with 10 questions.
For each question, select your answer, then click on Submit Answer to record your
response.
Once you have submitted your answer, you will not be able to change your response.
You must complete all questions.
You may only attempt this quiz once.
Progress through the quiz by pressing the Next button that appears on the left of the screen.
1. Application of the doctrine of precedent

» True/False Question
An accountant providing tax law advice may only state a likely outcome of how the
Commissioner of Taxation interprets precedents.
[A*]
True
[B]
False
=> See Sadiq et al, Principles of Taxation Law 2018 (Thomson Reuters, 2018) at para(s)
[1.50] for further reading.
2. Commonwealth power to tax

» Multiple Choice Question
What is significant about s 51(ii) of the Australian Constitution?
(A*)
This section provides that the Commonwealth has power to make laws with respect to
taxation, but not so as to discriminate between States or parts of States.
(B)
This section provides that laws imposing taxation “shall deal only with the imposition of
taxation” and “shall deal with one subject of taxation only”.
(C)
This section provides that customs and excise duties can only be imposed by the
Commonwealth.
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3. Commonwealth power to tax

Which section of the Australian Constitution is responsible for there being separate Acts for
imposing income tax and for setting out the rates of income tax?
(A*)
Section 55
(B)
Section 51(ii)
(C)
Section 81
4. Court hierarchy
Which is the final court of appeal in Australia?
(A)
Federal Court
(B)
Supreme Court
(C)
Federal Magistrates Court
(D*)
High Court
5. Income tax formula

In which section of which Act is the formula to calculate income tax liability located?
(A*)
s 4-10 of ITAA 1997
(B)
s 6-5 of ITAA 1997
(C)
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s 21A of ITAA 1936
(D)
s 6-23 of ITAA 1997
6. Tax laws
Under the self-assessment system taxpayers are responsible for interpreting the tax law and
applying it to their transaction when they complete a tax return.
[A*]
True
[B]
False
7. The burden of tax

Australia imposes personal income tax on the family unit or couple.
[A]
True
[B*]
False
8. Constructive receipt
Betty provides her employer with instructions to pay one-quarter of her salary each fortnight to
her elderly parents. Is Betty taxed on this component of salary that is paid to her parents?
(A*)
Yes
(B)
No
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9. Burden of tax
Partnerships and trusts pay income tax on their taxable income.
[A]
True
[B*]
False
10. Tax rates

The applicable rates of income tax are set out in?
(A)
The Income Tax Assessment Act 1936
(B)
The Income Tax Assessment Act 1997
(C*)
The Income Tax Rates Act 1986
(D)
The Tax Administration Act 1953
11. Tax-free threshold

The tax-free threshold for a foreign resident for the year ending 30 June 2018 is?
(A*)
$0
(B)
$6,000
(C)
$18,200
(D)
$80,000
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12. Medicare levy

Which of the following entities are liable to pay the Medicare levy?
(A*)
Australian resident individual for tax purposes
(B)
Foreign resident individual for tax purposes
(C)
Australian resident company
(D)
Foreign resident company
(E)
Trust
(F)
All of the above
13. Medicare levy

Andrea has a taxable income of $46,750 and is unmarried. What is Andrea’s Medicare levy
liability for the year ending 30 June 2018? Do not consider the Medicare Levy Surcharge.
(A*)
$935
(B)
$467.50
(C)
$500
(D)
$701.25
14. Medicare levy

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Andrea (35 years) has a taxable income of $24 000 and is unmarried. What is Andrea’s
Medicare levy liability for the year ending 30 June 2018?
Do not consider the Medicare Levy Surcharge and use the current phase-in thresholds in
Table 3.2.
(A)
$480
(B*)
$234.50
(C)
$360
(D)
$701.25
15. Higher education debts

A taxpayer is able to reduce and/or avoid repayment of their Higher Education Loan
Program debt by having multiple rental properties which generate losses and therefore
reduce taxable income.
[A]
True
[B*]
False
16. Income tax formula

Which of the following statements is not correct?
(A*)
Section 6-5 Income Tax Assessment Act 1997 ensures that foreign residents are taxed on all
their income
(B)
Section 6-5 Income Tax Assessment Act 1997 ensures that Australian tax residents are taxed
on all their income
(C)
Tax rates are applied to taxable income.
(D)
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Assessable income excludes exempt income.
[3.140] & [3.150] for further reading.
17. Income tax rates

Jana is a foreign tax resident who is in Australia on a working holiday for 12 months. She
holds a subclass 417 Visa allowing her to work during the 12 months she is here. For the
current income tax year she has received $45,000 in assessable income and has $4,000 in
allowable deductions. What is her primary tax payable in this amount for the current income
year?
(A*)
$6,850
(B)
$13,325
(C)
$8,150
(D)
$14,625
Topic: Residence and Source

Following is a set of questions designed to assess your understanding of the topic 'Residence
and Source'.
Instructions:
response.
1. Residency
Bill was born in Australia and resided in Australia all his life. For a period of seven weeks in
the year of income he was present in Hong Kong on business for his employers. His wife and
children remained in Australia where he maintained a home. Can Bill claim that during the
period of seven weeks he was a resident of Hong Kong?
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(A*)
No
(B)
Yes
[4.40] - [4.120] for further reading.
2. Individual resident - domicile

By travelling to Australia and living here for more than 6 months a person will automatically
have a domicile of Australia.
[A]
True
[B*]
False
3. Individual resident
Bob has established that he has an Australian domicile. However, the Commissioner is
satisfied that Bob’s permanent place of abode is outside Australia. Is Bob a resident
for Australian tax purposes?
(A)
Yes
(B*)
No
4. Partnership residence
What test is used to determine whether a partnership is a resident of Australia for taxation
purposes?
(A)
Domicile test for partnerships
(B)
Incorporated test
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(C)
183-day test for partnerships
(D*)
None of the above
5. Individual - resident
Allan Rich, an Australian citizen, has been living in Singapore for the past three years. Allan
owns an apartment in Singapore, has no family ties in Australia and does not intend to return
to Australia in the near future. Is Allan a resident of Australia for tax purposes?
(A)
Yes
(B*)
No
Marie is a marine biologist. She comes to Australia for five months to conduct research on the
Great Barrier Reef but actually stays seven months to complete it. She stays in a hostel and
uses credit cards for living expenses. Her husband and children stay home in America. Marie
also helps run the family business by using the internet in Australia. Marie’s research is often
interrupted because she has to frequently communicate with her husband about their
emerging business problems. Eventually she goes home to America for a week to sort out a
major business issue. Is Marie a resident of Australia during her seven-month stay?
(A)
Yes
(B*)
No
7. Residence of company
Shipping Co Ltd is a shipping company that was incorporated in America. An Australian

resident holds the majority of shares in Shipping Co Ltd. He had the power to remove the
three directors resident in America and no resolution has effect without his approval. Shipping
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Co’s main business activity is the preparation of contracts for shipping which is undertaken by
the Australian resident shareholder. In which country is Shipping Co Ltd a resident?
(A*)
Australia
(B)
America
(C)
Both A and B
8. Services
In determining the source of remuneration for services rendered, which factor(s) can be
relevant?
(A)
The place where the relevant services are performed
(B)
The place where the remuneration is payable
(C)
The place where the relevant contract is made
(D*)
All of the above
9. Bonus paid for overseas work

Joseph is a resident for Australian tax purposes and was employed in Indonesia (by an
Indonesian resident company) for 18 months supervising company operations. His work
proved highly profitable to the company which, after termination of his Indonesian
employment, gave him a $10,000 bonus payable in Melbourne. Where is the bonus sourced?
(A)
Australia
(B*)
Indonesia
(C)
Both A and B
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10. Royalty payments

Kate Knowles is a resident of New Zealand who receives royalty payments, as a result of
licensing a design in Australia, from Design Co Ltd which, for tax purposes, is a resident
company of Australia. Where are the royalty payments sourced?
(A*)
Australia
(B)
New Zealand
(C)
Both A and B

James was born in Albania and is a qualified computer programmer. He is married to Janet
and they have three young children. James and his family migrated to Australia on 9
November 2017. James and his family intend to live permanently in Australia. In relation to
James’ residence of Australia for tax purposes which of the following statements is correct?
(A)
James is a resident of Australia under the Super fund rule from 1 July 2017
(B*)
James is a resident of Australia under the 183 Day Rule
(C)
James will not become a resident of Australia as he must have a domicile of origin in Australia
(D)
James is a resident of Australia from 1 July 2017 under the Domicile Rule
12. Source of Income

Mark is a non-resident of Australia for tax purposes and derived the following income
amounts in the current income tax year:
 $57 000 in salary and wage income from working in Adelaide, Australia and $60 000
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from working in London, England.

 $600 in interest income from investing his Australian salary with his bank in England.
Based on this information what amount should Mark include in his Australian tax return as
assessable income?
(A)
$60,000
(B*)
$57,000
(C)
$57,600
(D)
Nil
(E)
$600
Topic: Introduction to Ordinary Income

Following is a set of questions designed to assess your understanding of the topic
'Introduction to Ordinary Income'.
Instructions:
response.
1. Ordinary income
Amounts that are ordinary income may also be statutory income.
[A*]
True
[B]
False
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2. Categories
Which of the following is not a common category of income?
(A)
Income from personal services
(B)
Income from property
(C)
Income from business
(D*)
Income from a scheme under Part IVA of ITAA 1936
(E)
None of the above
3. Capital gains
A capital gain is not ordinary income.
[A*]
True
[B]
False
4. Reporting obligations
Which of the following receipts would not be considered ordinary income?
(A)
Cash
(B*)
Cartons of cigarettes
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(C)
New car
(D)
Transferrable holiday
5. Characteristics of ordinary income

A lump sum payment will always be considered capital and not ordinary income in the hands
of the entity receiving it?
[A]
True
[B*]
False
6. Characteristics of ordinary income

A taxpayer receives instalment payments for the sale of a house (ie a capital asset). How are
the instalment payments to be categorised?
(A*)
Capital gain
(B)
Ordinary Income
(C)
Both A and B
7. Ordinary income
Which of the following amounts is not classified as ordinary income?
(A)
Fees received by an accounting firm
(B)
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Rent received in relation to a lease
(C*)
Reimbursement of a work related expense
(D)
Proceeds from the sale of a house by a married couple carrying on a renovation business
8. Constructive receipt
Harry works as a taxation specialist in a large accounting firm. He is paid on a monthly basis.
One month, he asks his employer “for the next two months, don’t pay me, pay my wife
instead”.
This salary is ordinary income in the hands of Harry’s wife.
[A]
True
[B*]
False
9. Principle of “mutuality”
Membership fees given to a tennis club from its members are subsequently refunded. The
refunded fees given back to the members are assessable income of the members.
[A]
True
[B*]
False
10. Ordinary income

What elements must be present for an amount to constitute ordinary income under s 6-5 of
ITAA 1997?
(A*)
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Benefit must be cash or cash convertible; it must have a nexus with an income earning
activity; benefit must not be in the nature of capital.
(B)
Benefit is cash or cash convertible and income according to ordinary concepts.
(C)
Nexus with an income earning activity.
(D)
Must not be statutory income and must not be capital.
11. Ordinary income

Which of the following statements is NOT correct?
(A*)
Receipts from illegal activities are not ordinary income.
(B)
Where a non-cash amount received by an employee is not convertible into money it
is generally not income according to ordinary concepts.
(C)
Income will generally exhibit periodicity, recurrence and regularity.
(D)
Windfall gains are not generally considered to be assessable income.
(E)
Mutual receipts are not generally considered to be income according to
ordinary concepts.
Topic: Income from Personal Services and

Employment
Following is a set of questions designed to assess your understanding of the topic 'Income
from Personal Services and Employment'.
Instructions:
response.
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1. Jury attendance fees

Sally is required to attend a jury sitting at the Supreme Court for a week. She receives a jury
attendance fee of $450, which she pays to her employer because she received her normal
income while on jury duty. Does the $450 form part of Sally’s assessable income?
(A)
Yes
(B*)
No
2. Restriction of a right
Nancy Twist, a famous Australian actress who recently starred in a Hollywood production,
receives A$3million from a film production company in return for her agreeing not to work on
any film sets for the next 18 months. How is this payment classified?
(A*)
Capital
(B)
Assessable income
3. Prize
Would a prize in a literary competition won by an editor of a newspaper constitute assessable

income?
(A*)
Yes
(B)
No
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4. Personal services income

Which of the following are examples of personal services income?

(Select more than one, if appropriate.)
[A*]
Salary and wages
[B*]
Income of an accountant practising as a sole practitioner
[C*]
Income of a lawyer practising as a sole practitioner
[D]
Income received by a large construction company for work performed by its employees.
[E]
Income generated from holding shares in a company
5. Income from personal exertion

Section 15-2 of ITAA 1997 can apply to personal services income and income from business
but not income from property?
[A]
True
[B*]
False
6. Return-to-work payments
Susan works as an accountant for PMK. She quits because she is unhappy with the
management of the firm. The firm would like to re-employ Susan and offers her a one-off
payment of $40,000 on top of her salary if she agrees to be re-employed by PMK. How
should the payment of $40,000 be classified?
(A)
Ordinary income
(B)
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Section 15-2 of ITAA 1997
(C*)
Section 15-3 of ITAA 1997
(D)
All of the above
7. Income from personal services - inducement payment

An amount received as an inducement to break a strike is assessable income.
[A*]
True
[B]
False
8. Bonus
Harriet Hault, a famous netball player, receives the following amounts from her club: a
$10,000 bonus for having played well this season, a $15,000 bonus for being selected to play
on the Australian team at the next international netball championships and $8,000 prize
money from a radio station for being the best and fairest. Which of these constitute
assessable income?
(A)
$10,000 bonus and $8,000 prize
(B)
15,000 bonus and $8,000 prize
(C)
$8,000 prize only
(D*)
$10,000 bonus, $15,000 bonus and $8,000 prize
[6.20]-[6.50], [6.70], [6.110] – [6.120] for further reading.
9. Income from personal services - expert advice

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Jane Dowling, a resident of Australia, was paid $4,500 for expert advice given to the
Australian Government while she served as a member of a Royal Commission inquiry. Does
this amount constitute assessable income?
(A*)
Yes
(B)
No
10. Non-cash benefit

Albert Meeks is a volunteer lifeguard who saves a teenager from drowning. The teenager’s
parents are grateful and offer Albert $100 cash. Albert refuses the money but later accepts a
pair of sports shoes valued at $200. What amount could be regarded as income?
(A)
$100
(B)
$200
(C*)
None
[6.90] - [6.100] & [6.130] for further reading.
12. Employment Termination Payments

Debbie voluntarily resigned from her employment during the current income year. As she had
worked for her employer for 20 years (commencing in 1993), they paid her a lump sum of
$15,000 as a gesture of goodwill and appreciation of service (golden handshake). Which of
the following statements in relation to this lump sum payment is most correct assuming
Debbie has reached her preservation age?
(A*)
$15,000 will be assessable income with an offset limiting the rate of tax to 15%.
(B)
$15,000 will be assessable income with an offset limiting the rate of tax to 30%.
(C)
$15,000 will be assessed at the highest marginal tax rate of 45%
(D)
The entire $15,000 will be exempt.
(E)
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5% of the $15,000 will be included in assessable income and taxed at marginal rates.
Topic: Fringe Benefits Tax

Following is a set of questions designed to assess your understanding of the topic 'Fringe
Benefits Tax'.
Instructions:
response.
1. Exempt benefits
An employer provided a laptop computer to an employee who regularly visits clients and
requires the computer to produce and update work reports between client visits. The
employer anticipates there may be incidental personal use of the laptop computer and does
not have a written policy restricting this use. Is the employer required to pay FBT for the
laptop?
(A)
Yes
(B*)
No
2. Classification of fringe benefit

An employer (XYZ Ltd) owns and uses a car in its business operations. The company allows
its managing director to travel in the car for both business and private use. The managing
director has his licence suspended for 3 months as a result of a drink driving offence. The
company provides the services of a chauffeur to the managing director and the chauffer
drives the same car at the managing director’s direction for both business and private
purposes during this time. The car travels 6,000kms during this period and the company is
invoiced for $10,000 for the chauffer’s services. What category of fringe benefit does the
taxable value of the $10,000 fall into?
(A*)
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Residual fringe benefit
(B)
Car fringe benefit
(C)
Expense payment fringe benefit
(D)
All of the above
[7.20] - [7.90], [7.100] & [7.280] for further reading.

An employer pays the cost of QANTAS Club membership for all employees who travel
interstate or overseas more than twelve times a year. Club membership entitles the employee
to access all of QANTAS’s airport lounges when they are travelling. Each membership costs
the employer $470 per employee per year. What category of fringe benefit does the Club
membership fall into?
(A*)
Exempt fringe benefit
(B)
(C)

The employer is a large property development company. The company has recently
developed a large parcel of land into 80 house and land packages. Nearly all of the house
and land packages are sold to members of the public at market price. The company sells two
of the packages to employees at below market price. What category of fringe benefit arises
on these facts?
(A*)
Property fringe benefit
(B)
In-house fringe benefit
(C)
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5. Corporate credit cards

An employee is provided with a credit card which, while issued to the employer, the employee
is able to use. The employee uses the card to pay for fuel for a car provided by his employer.
What category does the employer’s fringe benefits tax obligations fall under?
(A)
(B)
(C*)
Car fringe benefit
(D)
None of the above
[7.90] & [7.100] - [7.110] for further reading.
6. Classification of fringe benefits

Bill is a sole trader carrying on a computer repair business and has four employees. Bill and
the employees consume morning and afternoon tea during working days on the business
premises. The spouses of the employees sometimes stop at the office and consume morning
and afternoon tea as well. What categories of FBT arise on these facts?
(A)
Entertainment fringe benefit, minor fringe benefit
(B)
Residual fringe benefit, entertainment fringe benefit and minor fringe benefit
(C*)
Exempt fringe benefit, minor fringe benefit
7. Superannuation
A superannuation benefit is not a “fringe benefit” if paid to a complying superannuation fund.
[A*]
True
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[B]
False
8. Reimbursement
An employee travels by taxi between home and work each day with a stopover at McDonald’s
on some mornings to buy breakfast. The employer pays for the taxi fare. What category of
fringe benefit does the above scenario raise?
(A*)
The taxi fare is exempt.
(B)
The taxi fare amounts to an expense payment fringe benefit.
(C)
The taxi fare is an external property fringe benefit.
(D)
The taxi fare is a car fringe benefit.
9. Definition of an employer
Where an employer is a person (not a company), which of the following is not an associate of
the employer for the purpose of the Fringe Benefit Tax Assessment Act 1986 (Cth)?
(A*)
The employee’s spouse
(B)
Spouse of the employer
(C)
A company formally controlled by the employer
(D)
A company informally controlled by the employer.
10. Categories of Fringe Benefits

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How many categories of fringe benefits are contained in the Fringe Benefit Tax Assessment
Act 1986 (Cth)?
(A*)
13
(B)
14
(C)
2
(D)
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11. FBT Liability

The provision of fringe benefits by an employer will generally be deductible expenses to the
business but the FBT liability paid on these fringe benefits is not deductible as an expense
incurred in conducting the business.
(A*)
False
(B)
True
12. Exempt fringe benefits

An employer took each of its 10 management staff to have a meal at a restaurant to celebrate
the end of a successful year. The restaurant meal was eight courses and included alcohol.
The total cost of the meal and drinks was $250 per employee. There were no other non-cash
benefits provided to its management staff during the FBT year.
Which of the following statements is most correct?
(A)
As there is food and drink provided, the benefit cannot be exempt.
(B)
Only the value of the meal (and not the drinks) will be exempt under s58P.
(C)
As the total value of the benefit provided is $2,500 it is not exempt.
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(D)
The benefit can only be exempt under s 58P if employee’s family members are invited.
(E*)
The provision of the restaurant meal and drinks is an exempt benefit under s 58P.
Topic: Income from Business

from Business'.
Instructions:
response.
1. Classifying an entity as a business

In classifying whether an entity is running a business, what is or are the most important
factor(s)?
(A)
Profit-making intent
(B)
Scale of activities
(C)
Frequent activity
(D)
System and organisation employed
(E*)
All of the above
2. Classification of a business
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What factors are usually taken into account in determining whether an individual is in the
business of gambling?
(A)
A significant degree of commercial activity.
(B)
Regular and systematic betting.
(C)
The commitment of substantial amounts of money and time to betting.
(D)
Integration into other business activities.
(E)
Being able to manage the odds and predict a likely profit.
(F*)
All of the above.
3. Classification of a business
Maria has a very large garden at the rear of her home. She grows large quantities of fruits
and vegetables. She uses most of the produce for her own family and sells any excess to her
neighbours and friends. Is Maria carrying on a business?
(A)
Yes
(B*)
No
4. Income from business

Because of ill health, Bob sold his pharmacy in North Melbourne for $800,000 in March 2018.
He had purchased the pharmacy in 1989. Bob also received the sum of $25,000 from the
purchaser for agreeing not to operate another pharmacy within 10 km of his old pharmacy for
five years. Which of the following amounts constitutes ordinary income of the business?
(A)
$25,000
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(B)
$800,000
(C)
Both A and B
(D*)
Neither A nor B
[5.40], [6.160] & [8.270] for further reading.
5. Windfall or business activity

During the 2017-2018 financial year, Tom Jones received a cash payment of $500,000 and
goods worth $10,000 from appearing on a television quiz show. He became an overnight
celebrity and because of his success, he was invited to appear on another TV network’s quiz
show. He was paid $5,000 to appear on the show and then won $50,000 in cash. Which of
the following amounts constitutes assessable income?
(A)
$565,000
(B)
$510,000
(C)
$5,000
(D)
$0
(E*)
$55,000
6. Share trading
Gary is an employee at Briggs and Shore Pty Ltd, a real estate agency. He has invested in
6,000 shares in BHP Billiton from which he receives dividends. He decides to sell all of his
shares in return for a handsome profit. Does this profit constitute ordinary income?
(A)
Yes
(B*)
No
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7. Business Income
Darren Bennet is a fulltime professional footballer playing in the national rugby league
competition. Darren is currently contracted for three years to play for a Brisbane based team.
Darren has a manager to help him with his financial affairs, including negotiating contracts for
both playing football and for product endorsements. Is Darren carrying on a business?
(A*)
Yes
(B)
No
8. Non-cash business benefits

Tenant Co rents business premises from Landlord Co. For taking excellent care of the
premises and always paying their rent on time Landlord co gives Tennant Co a $250 voucher
for dinner at a leading local restaurant. Does the value of the voucher amount to a non-cash
business benefit capable of constituting assessable income?
(A)
Yes
(B*)
No

Jenny spends her weekends baking cookies, which she sells at work to her colleagues. She
does this because she enjoys baking but doesn’t want to eat all the cookies. She charges her
colleagues for the cost of the ingredients to make the cookies, but nothing more.
Jenny must include the money received from her colleagues in her assessable income for the
year.
[A]
True
[B*]
False
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10. Income from isolated transactions

Income derived from a transaction outside the ordinary activities of the business is not
assessable as business income.
[A]
True
[B*]
False

Bob is an employee accountant and five years ago he purchased some acreage land in
regional QLD. His intention at the time was to build his dream home and establish a hobby
farm. He had plans designed and developed for this. However, due to the mining boom he
decided to subdivide and develop the land. He set up a company to undertake the
development and has employed his wife for administrative work. All sales of the subdivided
land are to take place in the 2018 income year and he expects to make around $1.8million in
profits.
Which of the following statements are correct in relation to the Bob’s information? (Select
more than one if appropriate).
[A]
Since the disposal of the blocks will be a CGT event, the profits can never be ordinary income
[B]
The disposal of the blocks is an isolated and extraordinary transaction and therefore not
ordinary income
[C*]
It appears Bob’s land development is a separate business and therefore any proceeds from
the sale would be ordinary income
[B]
Since Bob intended to build a house on the land and live there, any future sale proceeds
cannot be ordinary income

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Bob is an employee accountant and five years ago he purchased some acreage land in
regional QLD. His intention at the time was to build his dream home and establish a hobby
farm. He had plans designed and developed for this. However, due to the mining boom he
decided to sell the land to a developer for subdivision. The sale of the land is to take place in
the 2018 income year and he expects to make around $1million in profits.
Which of the following statements are correct in relation to the Bob’s information? (Select
more than one if appropriate).
[A]
Since the disposal of the blocks will be a CGT event, the profits can never be ordinary income
[B*]
The disposal of the blocks is an isolated and extraordinary transaction and therefore not likely
to be ordinary income
[C]
It appears Bob’s land sale is a separate business and therefore any proceeds from the sale
would be ordinary income
[D]
Since Bob intended to build a house on the land and live there, any future sale proceeds
could never be ordinary income

[A]
Insurance compensation received for loss of trading stock due to a fire is not likely to be
assessable income.
[B*]
Insurance compensation received for loss of trading stock due to a fire is likely to be
assessable income.
[C]
The case of FCT v Myer Emporuim Ltd established the principle that one-off transactions of a
business are always capital in nature.
[D]
The case of FCT v Whitfords Beach Pty Ltd is no longer relevant as all transactions involving
property will be considered under capital gains tax and not ordinary income provisions.
[E]
Insurance compensation for pain and suffering due to an injury is likely to be ordinary income.
Topic: Trading Stock
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Following is a set of questions designed to assess your understanding of the topic 'Trading
Stock'.
Instructions:
response.
1. Opening Stock
Opening stock can be valued using which method?
(A)
Cost Price
(B)
Market selling value
(C)
Replacement value
(D*)
None of the above
2. Opening and closing stock

The difference between the values of trading stock on hand at the start and end of each year
is taken into account for tax purposes. Where the value of the opening stock exceeds the
value of the closing stock, the difference will be deductible.
[A*]
True
[B]
False
3. Valuing trading stock
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When is the difference between the values of trading stock on hand at the start and end of
each year calculated?
(A*)
At the end of each year, generally using a stocktake
(B)
Each month by reconciling the books of account
(C)
At the time when Business Activity Statements are due and payable
(D)
All of the above
4. Valuation methods
According to what valuation method may a taxpayer value trading stock on hand at the end of
an income year?
(A)
Cost
(B)
Market selling value
(C)
Replacement price
(D*)
All of the above
5. Valuation methods
Special valuation options are available for the cost of livestock acquired through natural
reproduction.
[A*]
True
[B]
False
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6. Trading stock
Farmer Marion is in the business of buying and selling livestock. Do her sheep constitute
trading stock?
(A*)
Yes
(B)
No
7. Trading stock
A manufacturer of frozen meals would like to know which of the following constitute trading
stock.
[A*]
Labels
[B*]
Containers
[C*]
Packaging materials which become an integrated part of the product
[D]
Returnable packaging items
8. Trading stock
MBL suppliers Pty Ltd is a computer retailer. Which of the following constitute trading stock?
[A*]
Computer spare parts
[B]
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Cash register
[C*]
Laptops for sale
[D]
Laptops for lease
9. Trading stock
Horses used on a cattle property to help muster cattle are classed as livestock.
[A]
True
[B*]
False
10. Trading stock

Shares in a listed company cannot be trading stock because they are intangible assets.
[A]
True
[B*]
False
11. Trading stock

In July 2016 a computer distributor buys a computer for $1,000 for resale. He records the
expense as a purchase in his trading stock account. In March 2018, the computer distributor
takes the computer from stock to use in his office. If at 30 June 2018 the distributor is still
using the computer in his office, is it counted as trading stock for stocktake and valuation
purposes?
(A)
Yes
(B*)
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No
12. Trading stock

Unity Ltd imports mannequins from New Zealand and sells them to retail stores for the display
of clothing in Australia. At 30 June of the current tax year the stock of mannequins on hand
totalled 200. The valuation of these was as follows:
At Cost $350 000

At Replacement $420 000
At Market selling value $500 000
At 30 June of the previous tax year, the company had valued its stock for tax purposes at
replacement price of $480 000. Assuming that the company wishes to minimize its taxable
income, what amount should it’s trading stock adjustment be:
[A*]
A deduction of $130 000.
[B]
A deduction of $80 000.
[C]
An assessable amount of $80 000.
[D]
[E]
Topic: Income from Property

from Property'.
Instructions:
response.
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1. Interest as income
Natalie loaned her friend Daniel $4,000. He repaid her with $4,400 seven months later. What
amount must Natalie include in her income tax return for the year?
(A)
$4,000
(B)
$4,400
(C*)
$400
(D)
Nil
2. Discounts and premiums

There is no fundamental difference between a discounted loan and a loan premium.
[A]
True
[B*]
False
3. Dividend income from shares

Aranka purchased $9,000 worth of shares in a small mining company on 1 December 2015.
At 31 March 2018, the company declared and paid an interim dividend of $1,000, which
was unfranked. Aranka sold her shares on 21 May 2018 for $12,000. What amount must
Aranka include in her assessable income for the 2018 income year as ordinary income?
(A)
$9,000
(B*)
$1,000
(C)
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$13,000
(D)
None of the above
4. Royalties as income
Rose is an architect. She recently permitted a large multinational company to use one of her
designs for a fixed fee of $50,000 regardless of how much of the design they use. Rose must
include the payment in her assessable income for the year.
[A*]
True
[B]
False
5. Charges under a lease

Amounts derived as rent or hiring charges under a lease are not assessable income.
[A]
True
[B*]
False
6. Dividends
Brendan is an Australian resident for tax purposes and receives dividends from an American-
based company. The profits are paid from the company’s subsidiary located in Texas.
Brendan is not assessed on the dividends.
[A]
True
[B*]
False
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7. Dividends
It is important to distinguish between payments by a company paid to shareholders that are

dividends and payments by a company paid to shareholders that are interest on debt.
[A*]
True
[B]
False
8. Dividends
The distinction between debt and equity is made on the basis of the certainty of return and the
level of risk to which the investor is exposed.
(A)
False
(B*)
True
9. Lease Premiums
A lease premium will always be a capital receipt, subject to Capital Gains Tax.
(A)
True
(B*)
False
10. Taxation of royalties

Royalties may be either ordinary income or statutory income.
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(A*)
True
(B)
False
11. Lease incentives

QLD Property Investments owns several commercial office buildings in the Brisbane CBD.
Sometimes lease premiums are payable by lessors in order to secure popular office spaces.
During the current year, it received a total of $550,000 in normal lease income, $50,000 in
lease payments in advance and $200,000 in lump sum lease premiums. What amount of
income is ordinary income to QLD Property Investments during the current income year?
(A)
$550,000
(B*)
$800,000
(C)
$50,000
(D)
$600,000
(E)
Nil
Topic: Principles of Compensation

Following is a set of questions designed to assess your understanding of the topic 'Principles
of Compensation'.
Instructions:
response.
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1. Compensation - structured settlements

At the age of 22, Angela was seriously injured when a public walkway collapsed under her.
Angela’s lawyer made a claim for compensation against the public authority responsible for
the walkway. After negotiations between the parties, the public authority admitted liability
(fault). It was agreed that the public authority would purchase a personal injury annuity for
Angela from an insurance company. This annuity is to start at $40,000 per year, with
payments paid to Angela monthly and payable for the next 10 years.
Under this structured settlement arrangement, the periodic payments to Angela are exempt
from income tax.
[A*]
True
[B]
False
2. Compensation receipt
Augustus is a resident of Australia and works in a chocolate factory in Tasmania. In May,

Augustus slipped on a wet floor at the factory. As a result, Augustus fractured his shoulder
and could not work for one month. His employer paid him $4,000 in lost wages for being
unable to work. How is the $4,000 assessed?
(A)
It is a windfall gain and is therefore not assessable income
(B)
It is assessable as statutory income
(C*)
It is assessable as ordinary income
(D)
It is capital in nature
3. Medical expenses
Augustus is a resident of Australia and works in a chocolate factory in Tasmania. In May,

Augustus slipped on a wet floor at the factory. As a result, Augustus fractured his shoulder
and could not work for one month. His employer paid him $1,000 for medical expenses. The
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$1,000 is ordinary income for Augustus as it is connected with his income earning activity.
[A]
True
[B*]
False
4. Compensation receipts
Whether a compensation receipt is income or capital will depend on whether it is a lump sum
or periodic amount.
[A]
True
[B*]
False
5. Compensation for pain, suffering or medical expenses

Helen is a professional cello player. She recently injured her finger due to falling on an
uneven pavement and received a compensation payment of $3,000. The compensation
payment was a lump sum amount to compensate Helen for the loss of the use of her finger
for one month. Luckily, Helen did not have any concerts planned for that month and so did not
in fact lose out on any income. However, after three weeks, Helen’s finger developed a
serious infection and was required to be amputated. She received $100,000 for the loss of her
finger. How much should Helen include in her assessable income as ordinary income in
relation to the compensation receipt?
(A)
$130,000
(B)
$100,000
(C)
$30,000
(D*)
Nil
[10.80], [10.100] for further reading.
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6. Compensation for loss of trading stock

Recently, a business’s trading stock was completely destroyed by fire. However, no

insurance or compensation was received. Where trading stock is lost or destroyed and no
compensation is received, the value of the amount lost will be treated as assessable income.
[A]
True
[B*]
False
7. Composite claims
Ivan, an owner of land near the seaside, agrees to accept a payment of $500,000 in
compensation for its compulsory resumption. In addition, an interest payment of 25% on the
principal sum is to be paid, which represents loss of profits Ivan would have received had he
built townhouses on the land and leased them out. Does the interest payment constitute
assessable income?
(A*)
Yes
(B)
No
8. Compensation for breach of contract

XYZ Pty Ltd sold, installed and maintained lift systems. It received damages for breach of
contract, including an amount for loss of profits, from a supplier who had supplied XYZ Pty Ltd
with defective equipment. Is this compensation payment capital in nature?
(A)
Yes
(B*)
No
9. Compensation paid under anti-discrimination legislation
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A compensation payment received by a person as a result of a claim under the Sex

Discrimination Act 1984 (Cth) will always be capital in nature.
[A]
True
[B*]
False
10. Compensation receipts

A lump sum compensation payment made solely for loss of business income (eg past year
profits and/or interest) will be assessable as ordinary income.
[A*]
True
[B]
False
11. Compensation for pain, suffering or medical expenses

Hannant Ltd, carries on a manufacturing business and had a number of transactions for the
current tax year ended 30 June relevant to calculating its ordinary income:
 received $100 000 as compensation for the loss of trading stock due to flooding in
its business premises;
 received $300 000 for the outright sale of a patent/copyright for a product it no longer
manufactures;
 received $400 000 from the sale of its manufactured goods to a retailer.
Based on this information what amount of ordinary income will Hannant Ltd have for the
current tax year ended 30 June?
(A)
$100,000
(B)
$300,000
(C)
$700,000
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(D*)
$500,000
(E)
Nil
Topic: Capital Gains Tax

Following is a set of questions designed to assess your understanding of the topic 'Capital
Gains Tax'.
Instructions:
response.
1. Capital gains and losses

A taxpayer can only make a capital gain or loss if a CGT event happens.
[A*]
True
[B]
False
2. Timing of CGT event A1

Bob Jones signs a contract to sell his investment property on 26 June 2018; however,
settlement does not take place until 26 July 2018. When does the CGT A1 event occur?
(A*)
26 June
(B)
1 July
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(C)
26 July
(D)
30 June
3. Capital gains
In which transaction will a capital gain arise?
(A*)
If a taxpayer receives amounts from the CGT event which exceed the taxpayer’s costs
associated with that event
(B)
If a taxpayer receives amounts from the CGT event which are less than the taxpayer’s costs
(C)
If the taxpayer’s costs associated with the CGT event exceed the amounts received from t the
event
(D)
B and C only
4. Capital losses
When does a capital loss arise?
(A)
If a taxpayer receives amounts from the CGT event which exceed the taxpayer’s costs
(B)
If a taxpayer receives amounts from the CGT event which are equal to the taxpayer’s costs
(C*)
If the taxpayer’s costs associated with the CGT event exceed the amounts received from the
event
(D)
A and B only
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5. Capital losses
Is a capital loss deductible against assessable income in the year in which it arises?
(A)
Yes
(B*)
No
6. Net capital gain

Jim bought a beachfront house in March 2008 for $140,000. After renting the house out for
three years, he moved into the house in 2011 and it became his main residence for the next
seven years. He sold the house in March 2018 for $260,000. Jim has prior year net capital
losses of $4,000 and current year capital losses of $6,000 from the sale of shares. What is
Jim’s net capital gain for the 2018 income year?
(A)
$260,000
(B)
$120,000
(C)
$26,000
(D*)
$13,000
(E)
There is a net capital loss
7. Working out capital gain or loss

Hans acquired shares in Macquarie Bank in December 2017 for $90,000. He needed cash
quickly and so sold the shares in March 2018 for $120,000. What amount must Hans include
in his assessable income for the year ended 30 June 2018?
(A*)
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$30,000
(B)
$50,000
(C)
$100,000
(D)
$35,000
8. Cost base
In April 2018, Henry Haggle sold all his shares in Rion Tight Pty Ltd for $8,000 as the share
market was quickly losing value. He had paid $13,000 for them in January 2000. He had paid
brokerage fees of 5% of both the purchase and sale values. What amount must Henry Haggle
include in his assessable income for the year?
(A*)
$0
(B)
$3,550
(C)
$3,550 less the brokerage fees
(D)
$3,000
9. Collectables
Trent had the following transactions in the 2017/2018 income year:

· 30 January 2018, Trent gave a flower vase to his daughter that was worth $2,200 and
which had been acquired for $4,200 in October 2000. Trent quite liked the vase and had
bought it just after the potter closed his business.
· 28 March 2018, Trent sold an antique fireplace for $10,000 which cost $600 in December
2000.
What amount must Trent include in his assessable income arising from the above
transactions?
(A*)
$4,700
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(B)
$2,000
(C)
$2,200
(D)
$9,400
(E)
$0
10. Personal use assets

Mark purchased an option to acquire a yacht on 1 December 2017 for $11,000. The option
gave him the right to acquire a yacht for $350,000, regardless of changes to currency
exchange or interest rates. The yacht was intended for him to go sailing during the summer
with his family. Mark was retrenched from his job on 20 May 2018 and sold the option for
$13,000.
How much will Mark include in his assessable income for the year in relation to the sale of the
option?
(A)
$7,000
(B*)
$2,000
(C)
$11,000
(D)
$1,000
(E)
Nil
11. Exempt assets

Mark purchased an Audi car on 1 February 2018 for $87,000. On 14 May 2018, Mark sold the
car for $90,000.
What is Mark’s capital gain?

(A)
$3,000
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(B)
$90,000
(C)
$1,000
(D*)
Nil
12. Cost base

Danny purchased a new rental property on 3 April 2017. The property was rented out
immediately after purchase and throughout the income year. Up to 30 June 2018 he paid the
following amounts in relation to the property:
- Purchase price $375,000
- Stamp duty on purchase $2,800
- Legal fees to transfer title to him $1,100
- Interest paid on loan to purchase the property $7,000
- Plumbing Repairs $700
- Extension to main bedroom
$19,000 - Rates paid to the local
council $800
What will be Danny's cost base of the rental property for CGT purposes?
(A)
$405,700
(B)
$406,400
(C*)
$397,900
(D)
$396,800
13. Main Residence Exemption

Assuming a taxpayer has only one main residence, they may claim the full main residence
exemption where:
(A*)
The taxpayer establishes a main residence and then is absent from the dwelling for a
continuous period of seven years during which time she does not use the property to produce
assessable income.
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(B)
The taxpayer establishes a main residence and then is absent from the dwelling for
a continuous period of seven years during which time she uses the dwelling to
produce assessable income.
(C)
The taxpayer establishes a main residence and then is absent from the dwelling for a period
of 10 years during which time it is used to produce assessable income for a continuous period
of seven years.
(D)
The taxpayer buys vacant land with the intention of building her main residence but sells it
within three years before a dwelling is built.
(E)
The taxpayer having rented out a rental property for 10 years commences using it as a main
residence for 2 years and then selling it.
14. Small Business CGT Concessions

In relation to the small business CGT concessions which of the following statements is most
correct?
(A)
The net asset value of all assets needs to be less than $10mil to have access to the
concessions.
(B)
The small business retirement exemption is only available to taxpayers over 55 years of age.
(C)
If the roll-over relief option is chosen, neither of the 50% discounts can also apply.
(D)
The net asset value does not include the net value of CGT assets of entities related to you.
(E*)
If eligible, the small business 50% reduction is available in addition to any general 50%
discount available under Division 115.
Topic: General Deductions

Following is a set of questions designed to assess your understanding of the topic 'General
Deductions'.
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Instructions:
response.
1. Deductibility of expenses
Which of the following expenses cannot be claimed as a deduction against assessable

income?
[A*]
Any expense that is of a capital, private or domestic nature
[B*]
An expense that is incurred in gaining tax-exempt income
[C*]
An expense prevented from being deducted by a specific provision, such as those in Div 26
[D]
An expense incurred in gaining assessable income
2. Deductible expenses
Which of the following expenses would not be an allowable deduction for a self-employed
accountant?
[A]
Airfare to see a client travelling from Brisbane to Melbourne (return)
[B*]
Cost of undertaking a massage therapy course
[C*]
Shirt and tie
[D]
Pens and paper
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[E]
Financial Review subscription
[F]
None of the above
[12.40 ]-[12.70] & [12.220] for further reading.
3. Commissioner’s powers concerning deductions

In which of the following circumstances can the Commissioner reduce the amount of
deduction allowed for a transaction?
[A]
Sole trader who is running their own business at a loss
[B*]
Where trading stock is purchased at an excessive price and the parties are not acting at arm’s
length
[C*]
Where payments are made to associated persons and relatives
4. Deductible expenses
Elizabeth is an accountant at a Big 4 accounting firm. Which of the following expenses would
be deductible for Elizabeth?
[A*]
Taxi fare between the firm's office and a client's premises
[B]
HELP fees relating to her accounting degree, which she is still paying off annually
[C]
Travel costs between home and work
[D*]
Parking fees incurred while at a client’s premises
[12.20], [12.330], [12.380] - [12.390] & [12.680] for further reading.
5. Dual purpose expenses

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Seng has a portable notebook computer which cost $295. He uses the portable notebook
40% of the time for private purposes. How much is Seng entitled to deduct in relation to the
portable notebook computer?
(A)
$295
(B*)
$177
(C)
$118
(D)
Nil
6. Home office expenses

A successful full-time, self-employed television series scriptwriter conducts her writing

activities on a regular daily basis from a room in the apartment where she lives. The room is
equipped with a large desk, answer phone, telephone, computer and filing cabinet. The only
other significant use of the room was for the storage of clothes in a wardrobe. No writing
facilities are provided to her by any television production company she does work for. Is the
room in her apartment a genuine home office?
(A*)
Yes
(B)
No
7. Home office expenses

Mark is a senior accountant for a large accounting firm and wants to do work as much as
possible at home. He contracts a builder to construct an additional room on his house at a
cost of $35,000. This room will be used as a home office. Mark borrows $35,000 from his
bank. Is the interest on the bank loan deductible?
(A)
Yes
(B*)
No
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8. Amounts paid to related entities

Anna runs her own business making and selling chocolate. She employs her mother, Mary,
as an employee. Anna pays her mother $1,000 a week, whereas Anna pays another
employee who performs the same role as her mother $350. How much can Anna deduct in
relation to Mary’s wages?
(A)
$1,000
(B)
$650
(C*)
$350
(D)
$0
9. Expenses incurred in gaining employment

Timothy is the director of Small Fry Accountants Pty Ltd. He has recently been recruited by
Big Fry Accountants Pty Ltd to be their Chief Executive Officer. Timothy incurred legal
expenses of $2,500 in negotiating his new contract. How much is Timothy entitled to deduct in
relation to the legal expenses?
(A)
$2,500
(B)
$2,000
(C)
$500
(D*)
Nil
10. Non-Commercial transactions

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Gregory borrows money from a bank at an interest rate of around 10%. He then lends the
money to his wife Rebecca at an interest rate of around 5%. Rebecca uses the money to pay
out a bank loan that she used to finance the purchase of a new family car. Of the interest that
is payable by Gregory on his loan from the bank, how much can be claimed as an allowable
deduction?
(A)
All of the interest paid by him at the rate of 10%
(B*)
Only half the interest being the rate he on lends the money to Rebecca
(C)
None, as this is a non-commercial loan.
11. Reimbursements
Expenditure may not be deducted to the extent that it has been reimbursed.
[A*]
True
[B]
False
12. Interest deductibility

Chandra borrowed $200,000 from the bank at an interest rate of 7.8% during the current
income year. The purpose of the loan was to build an extension on his rental property that is
currently being rented out. The cost of the construction of the extension was $160,000 and
the remaining amount of the loan was used to go on an overseas holiday with his family.
Chandra will be entitled to a deduction for the full amount of interest paid on the loan.
[A]
True
[B*]
False
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13. Legal expenses deductibility

Nicholas carries on a business providing engineering services to the building industry.

He paid $2500 in legal expenses to collect outstanding trade debtors. In relation to
claiming income tax deductions for the current tax year ended 30 June which of the
following statements is most correct?
(A)
Nicholas cannot claim a tax deduction because he has not incurred the expense.
(B)
Nicholas can claim a tax deduction under s 25-10 ITAA 97 for $2,500.
(C*)
(D)
Nicholas cannot claim a tax deduction because the expenses are specifically
denied under s 26-5 ITAA 97.
(E)
Topic: Specific Deductions

Following is a set of questions designed to assess your understanding of the topic 'Specific
Deductions'.
Instructions:
response.
1. Repairs
Collin is the landlord of an investment property that is currently leased out. He would like to
know whether he is permitted a tax deduction for the cost of repairs to a burst pipe in the
kitchen.
(A*)
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Yes
(B)
No
2. Gifts
Howard’s Accounting Pty Ltd is a small accounting firm in South Yarra, Victoria. The company
has 12 employees who have been working there since its incorporation five years ago. One of
the employees has been very ill with cancer and the company seeks to donate $8,000 to
assist in cancer research. In which of the following case(s) will the donation be an allowable
deduction to the accounting firm?
(A)
Give the $8,000 to the employee directly
(B)
Donate the $8,000 to a charity nominated by the employee
(C*)
Donate the $8,000 to a deductible gift recipient nominated by the employee
(D)
All of the above
3. Tax-related expenses
The interest that is charged by the ATO in relation to the late payment of tax is an allowable
deduction.
[A*]
True
[B]
False
4. Deductible gift recipient

Which statement below best describes the entities that can accept donations from the public
and provide donors with documentation to allow them to claim a tax deduction in respect of
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their donation?
(A*)
Only entities classified as a deductible gift recipient (DGR) as they meet the necessary
requirements to be registered by the ATO.
(B)
A local state school
(C)
A private hospital
(D)
Any not for profit organisation
5. Car expenses - cents per km method

Cheryl is a mobile dog washer. She goes to clients’ houses and grooms their pets there. She
has a small Daihatsu Charade (1300cc) which she uses to travel between clients. She finds
the small car easy to get around the city and easy to park. Cheryl bought the car on 1
February 2014 for $15,000. Cheryl estimates that she used the car for work purposes to travel
a total of 6,000 kilometres for the year ended 30 June 2018.
How much can Cheryl claim as a deduction for her car expenses if she used the “cents per
kilometre” method? (Use the 2017/2018 amounts detailed in Principles of Taxation Law at
[12.460]), to calculate the deduction).
(A)
$4,440
(B*)
$3,300
(C)
$3,960
(D)
$2,100
6. Car expenses - log book method

Frank is a mobile dog washer. He goes to clients’ houses and grooms their pets there. He has
a medium-sized BMW (2000cc) which he uses to travel to his clients’ premises. Frank bought
the car on 1 January 2013 for $85,000. Frank estimates that he used the car for business
purposes to travel a total of 12,000 kilometres for the year ended 30 June 2018. The car
travelled a total of 20,000 kilometres for the year. He incurred the following expenses in
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relation to the car:

· Insurance $340
· Registration: $660
· Petrol: $2,300
· Repairs: $1,200
· Depreciation: $8,500 (assume the car-limit has been correctly applied).
How much can Frank claim as a deduction for his car expenses if he used the “logbook”
method?
(A)
$13,000
(B)
$5,200
(C*)
$7,800
(D)
Nil, Frank is not eligible to use the log book method
7. Car expenses
Frank is a mobile dog washer. He goes to clients’ houses and grooms their pets there. He has
a medium-sized BMW (2000cc) which he uses to travel to his clients’ premises. Frank bought
the car on 1 April 2018 for $67,000. Frank estimates that he used the car for business
purposes to travel a total of 3,000 kilometres for the year ended 30 June 2018. How many
kilometres has the car travelled for the purposes of the cents per kilometre method?
(A)
1,000 kms
(B)
15,000 kms
(C*)
3,000 kms
(D)
12,066 kms
8. Tax losses
Is a prior year tax loss for an individual taxpayer or sole trader deductible against assessable
income in the current year of income?
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(A*)
Yes
(B)
No
9. Notional repairs
Dian spent $5,000 replacing the laminate kitchen benches in his office with marble benches. It
would have cost him $600 if he had just fixed up the chips and sections that were worn out.
Dian is entitled to a deduction of $600 for the cost of repairing the bench.
[A]
True
[B*]
False
10. Repairs - replacement

Andrew owns a rental property and the agency recently advised the air-conditioner was not
working properly. The technician advised the cost to fix the machine would be $800 or
alternatively a new machine would be $1,500. Andrew decided to replace the machine with a
new one. As the air-conditioner was in need of repair, the $1,500 will be deductible under
s25-10 ITAA97.
[A]
True
[B*]
False
11. Bad Debts

James owns a car parts business. He sold goods to Debbie on credit in August 2016 for the
amount of $3,000. In December 2017, Debbie advised James she had declared bankruptcy.
In April 2018 the administrator advised James as a creditor he would receive 60% of any debt
owing as a final payment. On 30 June 2018, James adjusted his accounting records and
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moved the remaining $1,200 to the bad debts account.

In which of the following months does James’s 25-35 ITAA97 bad debt deduction occur?
[A]
August 2016
[B*]
June 2018
[C]
December 2017
[D]
April 2018
[E]
June 2017
12. Repairs
Sally operates a computer software retail business on the south side of Brisbane. She has
incurred the following expenses during the current income tax year:
- Servicing costs of $600 performed on her motor vehicle that is used 60% of the
time for business purposes.
- During a motor vehicle service, the mechanic advised that the engine of the vehicle
was in need of repair. It was decided to purchase a new engine instead of repairing
the old one. The new engine has significantly more power than the original one and
cost $3,000. The cost of repairing the original engine would have been $1,000.
In relation to the above facts about Sally, which of the following statements is most correct?
[A*]
There has been a significant improvement in the functionality of the motor vehicle engine
therefore it would not be a deductible repair in accordance with the principles established in
FCT v Western Suburbs Cinemas Ltd (1952) 86 CLR 102.
[B]
There has been a significant improvement in the functionality of the motor vehicle engine
therefore it would be a deductible repair in accordance with the principles established in W
Thomas & Co Pty Ltd v FCT (1965) 115 CLR 58.
[C]
The servicing costs of the vehicle are capital in nature and not deductible as they relate to a
depreciating asset.
[D]
Replacing the engine of the motor vehicle would constitute the replacement of an entirety and
would therefore be capital in nature and not a repair.
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13. Borrowing Expenses

Jack incurred a number of expenses in relation to his legal practice and investment property
for the current tax year ended 30 June:
 He paid $1 200 in borrowing expenses in the current tax year to his bank for a 12
year loan to purchase a new rental property that commenced earning income on that
day.
 He paid $2 000 for six months supply of stationery to use in his business on 13
June of the current tax year. The stationery was delivered on that day and he had $1
500 of that stationery on hand at 30 June of the current tax year.
Assuming that Joseph is not an eligible small business what amount can he claim as
deductions (to the nearest dollar) for the current year ended 30 June?
[A*]
$2 240
[B]
$2 000
[C]
$240
[D]
$3 200
[E]
Nil
Topic: Capital Allowances

Following is a set of questions designed to assess your understanding of the topic 'Capital
Allowances'.
Instructions:
response.
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1. Depreciation deductions
What elements must be present when determining if an asset is a depreciating asset?

[A*]
An asset that has a limited effective life
[B*]
An asset that can reasonably be expected to decline in value over time
[C]
An asset that holds its value for a period of time or increases in value for a period
[D]
A fixture that completely loses its value
2. Effective life
What is the effective life of an asset?
(A*)
The period that the asset can be used for income-producing purposes
(B)
The total period that the asset can be used, including when it is used for private purposes
(C)
The total period of ownership of the asset, including when it is not installed and ready for use.
(D)
The period prior to the asset being abandoned or scrapped
(E)
All of the above
3. Effective life - obsolescence

Does a computer’s effective life end with each technological advance?
(A)
Yes
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(B*)
No
Stuart proposed to carry on a fishing business, and on 21 June 2018 bought a specially
designed boat for this sole purpose. Immediately after purchasing the boat, Stuart fell ill, and
did not commence to carry on the business for three months. During this period, the boat
remained in storage. Can Stuart claim a deprecation deduction at 30 June 2018 in relation to
the boat?
(A)
Yes
(B*)
No
5. Depreciating asset - sets

A lawyer employed by a large legal firm purchases a set of law reports, consisting of 30 books
and costing $6,000 (a cost per book of $200 each). Can the employee lawyer claim a full
deduction for the cost of the set of the books?
(A)
Yes
(B*)
No
Dwell Co Pty Ltd’s low-value pool closing balance for the year ended 30 June 2017 was
$2,500. During the 2017/2018 income year Dwell Co Pty Ltd acquired a depreciating asset for
$800 (excluding GST). Its taxable use percentage is 80%. Also, in the 2017/2018 income
year, Dwell Co Pty Ltd chose to allocate to the low-value pool, a low-value asset with an
opening adjustable value at 1 July 2017 of $990. What is the decline in value of the
depreciating assets in the low-value pool for the 2017/2018 income year rounded to the
nearest whole dollar?
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(A)
$2,350
(B)
$1,790
(C)
$1,450
(D*)
$1,429
(E)
None of the above
7. Pooling of assets
Commonwealth Bay Pty Ltd uses a low-value pool to calculate its depreciation deductions.
Which of the following assets must be added to the low-value pool?
[A*]
Printer purchased for $290
[B*]
Bookshelf purchased for $999
[C*]
Camera purchased for $800
[D]
Laptop computer purchased for $1,300 which has an adjustable value of $300 at the start of
the year
Holding Accounts Pty Ltd is a medium-sized accounting firm in Perth, Western Australia. The
company purchased a car on 1 January 2018 for $95,000. What is the company’s
depreciation deduction in relation to the car for the year ended 30 June 2018 under the
diminishing value and prime cost methods respectively? The effective life of cars is eight
years.
(A)
$28,590 and $14,295
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(B)
$11,777 and $5,888
(C)
$7,089 and $3,544
(D*)
$7,138 and $3,569
(E)
None of the above
Quin is a psychologist and owns her own business. On 1 March 2018, Quin purchased a
sofa for $4,500. She uses the sofa 90% for work purposes. She estimates that the sofa will
last for four years. Quin uses the prime cost method to calculate all depreciation deductions.
How much can Quin claim as a deduction in the first financial year she owns the sofa
(rounded to the nearest dollar)?
(A)
$1,125
(B)
$376
(C*)
$338
(D)
$188
10. Depreciation deductions - effective life

With reference to the Commissioner’s guidelines for effective lives in Taxation Ruling TR
2017/2 (Table B), which of the following is correct?
(A)
Desks have an effective life of 21 years
(B*)
Art works have an effective life of 100 years
(C)
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Chairs have an effective life of five years
(D)
Desktop computers have an effective life of three years
(E)
Televisions have an effective life of nine years
Appendix: 23 for further reading.
11. Balancing Adjustment Events

Which of the following is NOT a balancing adjustment event?
(A*)
Where a depreciating asset is split into 2 separate depreciating assets.
(B)
When a depreciating asset is stolen.
(C)
Where the owner of a depreciating asset sells that item.
(D)
Where a depreciating asset is traded in for a new depreciating asset.
(E)
You stop using a depreciating asset and never expect to use it again.
Topic: Tax Offsets

Following is a set of questions designed to assess your understanding of the topic 'Tax
Offsets'.
Instructions:
response.
1. Senior Australian tax offset
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The unused portion of the senior Australians and pensioners tax offset can be transferred
between a taxpayer and their spouse, provided they are both entitled to the offset.
(A*)
True
(B)
False
2. Private health insurance offset

Which of the following is correct with respect to the private health insurance offset?
[A*]
It was adopted to subsidise taxpayers paying private health insurance premiums.
[B]
The rebate rate is 30% of the amount of private health insurance premiums.
[C]
No offset is available where income is greater than $90,000 for singles and $180,000 for
families.
[D*]
It is means-tested.
[E]
It is a non-refundable offset.
3. Transferrable offsets
A transferrable offset:
(A)
Is an offset that can be carried forward to a later year.
(B*)
Is an offset that can be transferred to another taxpayer.
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4. Dependant offset
What is the maximum dependant offset in the 2017/18 financial year for a dependent invalid
spouse?
(A)
$2,423
(B*)
$2,666
(C)
$10 946
(D)
$282
5. Defence forces
A rebate is available for members of the Australian Defence Force (ADF) serving in certain
overseas localities.
[A*]
True
[B]
False
6. Concessional offsets phased out

The mature age worker tax offset is in the process of being abolished.
(A*)
True
(B)
False
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7. Dependant offset
Iman cares fulltime for her invalid husband. Assuming income requirements are met, Iman is
entitled to the:
(A)
Spouse offset
(B*)
DICTO
8. Order of taking offsets

Which of the following is not correct?
(A)
Some offsets are lost to the extent they exceed a taxpayer’s income tax liability for the year.
(B*)
Taxpayers may choose the order in which they apply offsets.
(C)
Some offsets may be carried forward to be used in future years.
(D)
Some offsets may be refunded in cash if they are not fully used in the year in which
entitlement to the offset arises.
9. Dependant offset
Simone supports her mother who is over 90 years old. She currently receives the maximum
dependency offset of $2,666. Which of the following statement(s) are incorrect?
(Select more than one if appropriate.)
[A*]
Simone will always receive the maximum parent rebate as her mother was born prior to 1 July
1952.
[B]
Simone will not be entitled to the rebate if her adjustable taxable income exceeds $100,000.
[C*]
Simone’s rebate will be reduced by $1 for every $5 of income that she earns.
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[D]
Simone's rebate will be reduced if her mother's adjustable taxable income exceeds $282.
10. Using offsets to reduce levies

Can offsets or rebates be used to reduce the Medicare levy or HELP debt liabilities?
(A)
Yes
(B*)
No
11. Low income offset

Julie has a taxable income for the current income year of $63,000. What amount of low
income rebate (offset) will Julie be entitled to?
[A]
Nil
[B]
$445
[C]
$37,000
[D*]
$55
[E]
$390
Topic: Tax Accounting

Accounting'.
Instructions:
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response.
1. Payment by cheque
Where income is paid by cheque, the recipient can avoid deriving that income simply by
refraining from banking the cheque.
[A]
True
[B*]
False
2. Cash method - entities

Which of the following entities is likely to use the cash method of account?
[A*]
Sole trader
[B*]
Employee
[C]
Large accounting firm
[D*]
Business with a turnover of $100,000
[16.40] – [16.60] for further reading.
3. Cash method - deductions

Under the cash method of accounting, when are deductions for services received incurred?
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[A]
When the invoice is received detailing services provided
[B*]
As determined by the taxpayer’s accounting system
[C*]
When the expense is paid
[D*]
When the invoice for services received become due and payable
4. Changing the method of accounting

Is it possible for a taxpayer to change between the cash and accrual methods of accounting
and vice-versa?
(A*)
Yes
(B)
No
5. Small Business Entity

William owns his own business maintaining gardens. He qualifies as a small business entity.
He invoiced a customer for $2,500 on 20 May 2018. Payment was received on 4 July 2018.
How much must William include in his assessable income for the year ended 30 June 2018?
(A)
$2,500
(B)
$1,250
(C)
$625
(D*)
Nil
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6. Derivation of fee income assessable on accruals basis

A large accounting firm enters into a contract on 30 June 2017 to audit a company’s
accounts. Under the contract a recoverable debt for the fee arises (without a bill needing to
issue) six months after audit work commences. Audit work commences on 1 November 2017
and is completed in July 2018. When is the fee income derived?
(A)
30 June 2017
(B)
1 November 2017
(C*)
1 May 2018
(D)
July 2018
7. Derivation of fee income assessable on accruals basis

ABC Accounting Firm Pty Ltd is contracted as an external auditor of a large IT company,
Capture Computers Pty Ltd, from 1 July 2017 to 30 June 2018. The contract provides that
payment is due (without the need for billing) at three-monthly intervals for work done in the
preceding three months. When is the fee income for work done in the 1 July 2017 to 30
September 2017 period derived by ABC Accounting Firm Pty Ltd?
(A*)
30 September 2017
(B)
31 October 2017
(C)
1 July 2017
(D)
31 December 2017
(E)
30 June 2018
8. Accruals method of accounting - incurring expenses

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ABC Accounting Firm Pty Ltd is contracted as an external auditor of a large IT company,
Capture Computers Pty Ltd, from 1 July 2017 to 30 June 2018. The contract provides that
payment is due (without the need for billing) at three-monthly intervals for work done in the
preceding three months. When is the fee expense for work done in the 1 October 2017 to 31
December 2017 period incurred by Capture Computers Pty Ltd?
(A)
30 September 2017
(B)
31 October 2017
(C)
1 October 2017
(D*)
31 December 2017
(E)
30 June 2018
9. Large firms and businesses

Maxwell Chartered Accountants Pty Ltd is a large accounting firm with 20 partners and 300
employees. Maxwell Chartered Accountants Pty Ltd invoiced a client for $120,000 on 1 May
2018. Payment was received on 5 July 2018. How much should Maxwell Chartered
Accountants Pty Ltd include in its assessable income for the year ended 30 June 2018?
(A*)
$120,000
(B)
$60,000
(C)
$45,000
(D)
Nil
10. Large business and income from trading

Maxwell Accountants Pty Ltd purchases 10 desks from Officeworks on 21 June 2018. It pays
the cost in full, with delivery of the desks to be within 7 working days. Officeworks then
delivers the desks on 8 July 2018. When does Officeworks derive income from the sale of the
desks.
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(A*)
21 June 2018
(B)
8 July 2018
(C)
28 June 2018
(D)
30 June 2018
11. Derivation general

Cathy is a chartered accountant practising as a sole practitioner with a part-time clerical

assistant. On 30 June 2018, she invoiced a number of her clients for work done up to that
date, for a total of $5,600. The invoices were all paid after 30 June 2018. Cathy is likely to
have derived assessable income in the 2018 income year.
[A]
True
[B*]
False
12. Deductions timing

Sandhu carries on a small wholesale trading and has three employees. He has the following
trade creditors and provisions in his accounts for the current tax year ended 30 June:
 $5,000 owing to a supplier for the purchase of trading stock that was invoiced and
delivered to Sandhu on 23 June of the current tax year. Sandhu paid the amount on
15 July.
 $7,800 in the provision for annual leave account which is based on the amount of
annual leave accrued by employees to 30 June.
 $450 owing for an electricity account where the bill was issued on 15 June of
the current tax year. Sandhu paid the bill on 3 July.
Based on these items what amount can Sandhu claim as a deduction for the year current tax
year ended 30 June?
(A)
$5,000
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(B)
$13,250
(C*)
$5,450
(D)
$450
(E)
Nil
[16.120], [16.130], [16.190] for further reading.
Topic: Superannuation and other Retirement

Savings
'Superannuation and Other Retirement Savings'.
Instructions:
response.
1. Superannuation fund as form of trust

Superannuation funds are the same as companies and are always subject to tax at a flat rate
of 15% of taxable income.
[A]
True
[B*]
False
2. Non-concessional contributions - annual cap

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What is the annual cap that applies to “non-concessional contributions” for 2017/2018?
(A)
$50,000
(B)
$200,000
(C)
$150,000
(D*)
$100,000
(E)
There is no cap
3. Annual contribution limits

Contributions above the annual contributions cap are subject to the highest personal marginal
rate of tax plus Medicare levy.
[A*]
True
[B]
False
4. Salary sacrifice arrangements

Salary sacrifice arrangements can be a tax-effective option for employees to boost their
retirement savings?
(A*)
True
(B)
False
5. Salary sacrifice arrangements
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Which of the following is incorrect about a salary sacrifice arrangement?

(Select more than one answer if appropriate.)
[A]
A salary sacrifice arrangement will only be effective where it has been entered into before the
employee has earned the entitlement to receive the relevant amount as salary and wages
[B]
Employment income is not derived if it is redirected through an effective salary sacrifice
arrangement with an employer.
[C]
A salary sacrifice arrangement will only be tax-effective where the employee is within her or
his concessional contributions cap
[D*]
The provision of a superannuation benefit by an employer is subject to FBT
6. Taxation of income streams

Taxation of income streams depends on:
(A)
Whether the taxpayer wishes to withdraw a lump sum or receive an annuity, and whether the
taxpayer has fully retired or not
(B*)
Whether the income stream is taxed or untaxed and the age of the taxpayer
7. Stages of a superannuation investment

Which of the following is not a stage of superannuation investment?
(A)
Contributions stage
(B*)
Streaming stage
(C)
Investment stage
(D)
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Payment of benefits stage
8. Superannuation taxable component

Oliver has a superannuation fund account with a withdrawal benefit balance of $200,000 as at
1 May 2018. This superannuation interest includes a tax-free component of $60,000 and a
taxable component of $140,000. Oliver, age 58, uses all of his superannuation interest to
purchase a transition to retirement income stream on 1 May 2018.
On 1 June 2018, Oliver receives his first monthly superannuation income stream benefit
payment of $1,300. What is the taxable component in whole dollars?
(A)
$1,300
(B*)
$910
(C)
$650
(D)
$390
(E)
Nil
9. Minimum annual withdrawal

Richard is aged 63 and has superannuation fund assets of $250,000. Richard reluctantly
retires and converts the whole fund into a pension. What is the minimum percentage (of total
fund assets) that Richard must withdraw from his fund for the year ended 30 June 2018?
(A)
14%
(B*)
4%
(C)
3%
(D)
9%
(E)
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Nil
10. Government contribution for low income earners

Mark is a chef who earns $29,500 per year. In February 2018, he won $1,000 in Tatts Lotto.
Mark contributes the $1,000 to his superannuation fund. How much will the Government
contribute to his superannuation fund as a co-contribution?
(A)
Nil
(B*)
$500
11. Taxation of superannuation funds

In relation to the taxation of superannuation funds, which of the following statements is most
correct?
(A*)
Complying superannuation funds are generally taxed at a rate of 15% on all concessional
contributions received from members.
(B)
The taxation rules for superannuation funds are found in the SIS Act 1993.
(C)
Assessable capital gains of a super fund are assessed at a 33% tax rate.
(D)
Superannuation funds are not assessed on income earned on the investment of member
contributions.
(E)
Non-complying superannuation funds pay 15% tax on all income.
[18.130]-[18.150] for further reading.
Topic: Partners and Partnerships

Following is a set of questions designed to assess your understanding of the topic 'Partners
and Partnerships'.
Instructions:
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response.
1. Dividends received by partnership

Which of the following scenarios is correct?
[A]
If a partnership receives a dividend, the individual partners can claim the amount of the
dividend as a tax offset.
[B]
If a partnership receives a dividend with an imputation credit attached, only the dividend
needs to be included in assessable income.
[C]
If a partnership receives a dividend with an imputation credit attached, the partnership does
not need to include this in assessable income as tax has already been paid on this
transaction.
[D*]
If a partnership receives a dividend with an imputation credit attached, the dividend plus the
imputation credit must be included in assessable income of the partnership.
2. Taxation of partnership income

Sophie and Anne carry on a partnership together with gross receipts for the current income
year of $80,000. During the year, the following payments were made:
Purchases of trading stock $18,000

Wages to employees $10,000
Advances to Rachel $35,000
Lease payments on a car $4,000
It has been agreed that Sophie will receive 75% and Anne will receive 25% of the profits of
the partnership. Stock on hand at the beginning of the year was $3,000 and at the end of the
year it was $3,400. The car was used 100% for business purposes
What is Sophie’s assessable income?
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(A)
$48,400
(B)
$24,200
(C*)
$36,300
(D)
$12,100
[19.50] & [19.90]-[19.100] for further reading.

Are partners’ salaries a deduction for the purpose of the net partnership income calculation?
(A)
Yes
(B*)
No

Alex and Jim carry on a business in partnership and split any net income or losses equally.
Gross income for the current income year is $40,000, of which $8,000 is made on sales
outside Australia (for which no expenses are incurred). Business expenses of $25,000 include
a salary paid to Alex of $5,000. All expenses relate to Australian source income.
What is Jim’s assessable income assuming he is a non-resident?
(A)
$12,500
(B*)
$6,000
(C)
$4,500
(D)
$2,000
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[4.230], [19.50] & [19.90]-[19.100] for further reading.
5. Taxation and administration of partnership income

Which of the following statements is true?
(A)
It is optional for partnerships to lodge a partnership tax return each year.
(B)
Partnerships are required to lodge a tax return for their partner if that partner fails to do so.
(C)
Each partner in a partnership is taxed on her or his share of the partnership’s gross income.
(D*)
Each partner in a partnership is taxed on her or his share of the partnership’s net income.
6. Partnership income tax

Tom and Bill are conducting a business in partnership. They invite Tony to join their
partnership. Do they need a new partnership agreement?
(A)
Yes, because the ATO requires a tax return to be lodged as of the date the new partner is
admitted to the business.
(B*)
No, provided the existing partnership agreement allows the business to continue on the
admission of a new partner.
7. Partnership income
Tony and Adele Plum are partners conducting a photography business. After all expenses are
paid, the accounts reveal a net profit for the business of $95,000 for the year ended 30 June
2018. This is after payments of $90,000 to Tony and $35,000 to Adele by way of salary were
deducted. Interest of $7,250 was also paid to Adele on an advance of money to the business
and this was deducted in calculating net profit. This advance was used as working capital for
the business.
The net income of the business after payment of salaries and interest is to be split evenly.
What is Adele’s assessable income from the partnership?
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(A*)
$89,750
(B)
$92,500
(C)
$82,500
(D)
$110,000
(E)
None of the above
[19.50], [19.90] - [19.100] for further reading.
On 1 October 2017, Johann and Wynona, two computer programmers, commenced a

partnership. As Johann had contributed most of the working capital, the partnership
agreement provided that Johann would receive 60% of the net partnership income.
For the year ended 30 June 2018, the partnership returned net profit of $120,000. This was
after a payment of $10,000 in interest to Johann on $120,000 capital which he had
contributed to the partnership.
What is the partnership’s net income?
(A*)
$130,000
(B)
$110,000
(C)
$82,000
(D)
$60,000
On 1 October 2017, Johann and Wynona, two computer programmers, commenced a

partnership. As Johann had contributed most of the working capital, the partnership
agreement provided that Johann would receive 60% of the net partnership income.
For the year ended 30 June 2018, the partnership returned net profit of $140,000. This was
after a payment of $20,000 in interest to Johann on the $120,000 capital which he had
contributed to the partnership. Half of the partnership income is derived from overseas
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sources.
Wynona is a non-resident of Australia for tax purposes. What is Wynona’s assessable
income?
(A)
$70,000
(B)
Nil
(C)
$90,000
(D*)
$28,000
(E)
None of the above
[4.230], [19.50] & [19.90]-[19.100] for further reading.

Catrina and Donald operate a gift business as partners. The partnership agreement provides
that the profits or losses of the partnership should be divided equally after Donald, the active
partner, receives a salary of $60,000. For the year ended 30 June 2018, the partnership
made a profit of $30,000 after the payment of Donald’s salary.
What is the net partnership income?
(A*)
$90,000
(B)
$75,000
(C)
$60,000
(D)
$15,000
(E)
None of the above
[19.50] & [19.90]-[19.100] for further reading.
11. Partnership losses

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Where a partnership records a loss for an income year for tax purposes:
(Choose the most correct option)
(A)
It will be carried forward and allowed as a deduction from future income of the partnership.
(B)
It will be of no significance for tax purposes because it cannot be used by the partnership
under tax legislation.
(C)
It is only transferred to the individual partner’s tax calculation as an allowable deduction for
that partner's share if the individual partner has assessable income.
(D*)
It is transferred to the individual partner’s tax calculation as an allowable deduction and if the
individual partner does not have assessable income sufficient to absorb the loss the individual
partner can carry forward the loss or part of the loss to future years.
(E)
It will only be transferred to the individual partner’s tax calculation after it is matched with any
salary due to the partner.
12. Partnership definition

In which of the following situations will a partnership exist under the definition in s 995-1
ITAA97?
(A*)
James and Jane conduct a restaurant sharing profits and losses equally. They have a
registered business name and a separate bank account for the restaurant.
(B*)
Bill and Ben jointly own two rental properties in Toowoomba and receive the rent into their
joint bank account.
(C)
The Sydney Photography Club is an unincorporated association of persons who meet to swap
ideas and discuss photography every month. The club has 30 members and has made a
small surplus for the last four years.
(D)
None of the scenarios listed are examples of a partnership for tax purposes.
13. Partnership existence
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Which of the following factors support the existence of a partnership for taxation purposes?
(A*)
A partnership agreement exists.
(B)
There is a large turnover of revenue.
(C*)
Joint ownership of assets.
(D*)
Joint liability for debts.
(E)
Existence of a silent (non-working) partner.
Topic: Trusts and Beneficiaries

Following is a set of questions designed to assess your understanding of the topic 'Trusts and
Beneficiaries'.
Instructions:
response.
1. Tax applied to Trusts

The aim of the provisions in ss 92 to 102 of the ITAA 1936 is to impose income tax on?
(A)
All beneficiaries, regardless of entitlement
(B)
Only beneficiaries who are presently entitled
(C)
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Only the trustee of the trust
(D)
The trust
(E*)
Either the beneficiary or the trustee if no beneficiary is presently entitled.
2. Use of Trusts
One of the main justifications for using a discretionary trust is
(A)
Tax minimisation
(B)
The beneficiaries pay no income tax
(C)
The assets belong to the beneficiaries
(D*)
Assets of the trust are protected if a beneficiary goes into bankruptcy
3. Trust formation
Unlike a partnership a trust can retain income in the trust.
[A*]
True
[B]
False
4. Trust formation
How can a Testamentary trust be created?

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[A*]
Within a will
[B]
By Act of parliament
[C]
Using s 99A of the ITAA 1936
[D]
Having a lawyer draft a trust deed
[E]
Having a tax accountant draft a trust deed
5. Taxation of trust income

When is the trustee of a trust estate responsible for paying any tax owing on the net income
of the trust?
(A)
Always
(B*)
Sometimes
(C)
Never
6. No beneficiary presently entitled

Where no beneficiaries are presently entitled to the net income of a trust, the trustee will
always be assessed on the income at the maximum rate of personal income tax plus
Medicare levy.
(A*)
False
(B)
True
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7. Beneficiary under a legal disability

Arthur is the trustee of a discretionary trust. The trust deed states that the primary
beneficiaries of the trust are Bailey, who is 18 years old, and Max, who is 17 years old (and
has no other income sources). For the year ended 30 June 2018, the trust has a net income
figure of $100,000. Arthur has determined that the net income of the trust is to be distributed
in the following proportions: 70% to Bailey and 30% to Max.
How much income does Max need include in his personal income tax return?
(A)
$100,000
(B)
$30,000
(C)
$70,000
(D*)
Nil
8. Beneficiary presently entitled and not under a legal disability

Arthur is the trustee of a discretionary trust. The trust deed states that the primary
beneficiaries of the trust are Bailey, who is 18 years old, and Max, who is 17 years old. For
the year ended 30 June 2018 the trust had a net income of $100,000. Arthur has determined
that the net income of the trust is to be distributed in the following proportions: 70% to Bailey
and 30% to Max.
How much income does Bailey need to report in his personal income tax return?
(A)
$100,000
(B)
$30,000
(C*)
$70,000
(D)
Nil
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9. Beneficiary presently entitled and not under a legal disability

Under a trust created by the will of the late Abraham Linklater, the trust income is to be
distributed as follows:
· One quarter to his widow, Mandy
· To Neville, a son aged 27, one sixteenth. Neville is presently serving a twelve-year jail
sentence for aggravated assault
· To Harry, a son aged 22, the amount the trustee considers necessary to meet his tertiary
education fees
· The remainder of the income to be divided equally between the remaining two
children, Sage (aged 12) and William (aged 18), but to be accumulated and paid over to
them only in the event that they reach 25
The income (and net income) of the trust estate for the current income year amounts to
$82,000 of which $4,000 has been applied for the education of Harry.
How would the income of the trust estate be assessed for Mandy?
(A*)
$20,500, personally liable, presently entitled
(B)
$20,500, personally liable, deemed presently entitled
(C)
$19,500, personally liable, presently entitled
(D)
$19,500, personally liable, under a legal disability
(E)
None of the above
10. Beneficiary under a legal disability

Under a trust created by the will of the late Abraham Linklater, the trust income is to be
distributed in amounts determined by the trustee to:
· His widow, Mandy
· His son Neville, aged 27. Neville is presently serving a twelve-year jail sentence for
aggravated assault
· His son Harry, aged 22.
· His two young children, Sage (aged 12) and William (aged 18). Their share of any trust
income is to be accumulated and paid over to them only in the event that they reach 25 (and if
they don’t any amount would be distributed equally to other beneficiaries).
During the year ended 30 June 2018, the net income of the trust was $100,000, and the
trustee allocated $10,000 each to Sage and William.
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How would the income of the trust estate be assessed for William and Sage?
[A*]
$20,000 to be assessed to the trustee
[B]
$10,000 each, with both personally liable for income tax as they are deemed presently
entitled
[C]
$10,000 each, with both personally liable for income tax as they are deemed presently
entitled and, under a legal disability
[D*]
$0, as neither is presently entitled to the income
11. Distributions from a Trust

Dusty Ltd (D) and Springfield Ltd (S) are resident public companies for Australian tax
purposes and are the beneficiaries of the Country Trust which is a discretionary trust. The net
income of the Country Trust for the year ended 30 June 2018 was $35 000. Mary is the
trustee of the Country Trust and distributed $21,000 to D and $12,000 to S on 30 June 2018.
What is the amount of tax payable (do not consider the Medicare levy), and by whom, for
the year ended 30 June 2018, in relation to the net income of the Country Trust?
(Assume all companies have a standard corporate tax rate of 30%)
(A)
$9,870 paid by D, $5,640 paid by S and $900 paid by Mary.
(B)
$6,300 paid by D and $3,600 paid by S.
(C*)
$6,300 paid by D, $3,600 paid by S and $900 paid by Mary.
(D)
$4,500 paid by Mary.
12. Taxation of Trust Income

The beneficiaries of the Wealth Invest Trust, a discretionary trust carrying on a business, are
Ray (25 years) and Ruth (16 years). Both beneficiaries are residents. In the current year the
net income of the trust is $40,000 and the trustee of the trust made a distribution of $15,000
each to Ray and Ruth. (Tax and accounting income are identical). Which of the following
statements is most correct in relation to the Wealth Invest Trust?
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(A*)
The trustee will be assessed under section 98 and 99A and one of the beneficiaries under
section 97.
(B)
The beneficiaries will all be assessed under section 97.
(C)
The trustee will be assessed under section 98 and 99A and one of the beneficiaries under
section 98.
(D)
The trustee will be assessed under section 97.
(E)
The beneficiaries will be assessed under section 98 and the trustee will be assessed under
section 98.
See Sadiq et al, Principles of Taxation Law 2018 (Thomson Reuters, 2018) at para(s)
Topic: Companies and Shareholders

'Companies & Shareholders'.
Instructions:
response.
For the purposes of the Income Tax Assessment Act, which of the following is not treated as
a company?
[A*]
Non-entity joint venture
[B]
An unincorporated not for profit club
[C]
A limited liability partnership
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[D]
A public trading trust
For taxation purposes, every company is required to?
(A)
Have at least two directors
(B)
Have at least 20 shareholders
(C)
Be incorporated in Australia
(D)
Be a public company
(E*)
Have a public officer
3. Franking credits
Bradley holds 250 shares in Wholesum Food Pty Ltd. The company paid a fully franked
dividend of $8 per share on 1 June 2018. What amount can Bradley claim as a tax offset for
the year? Assume the company has a corporate tax rate of 30%.
(A)
$429
(B*)
$857
(C)
$686
(D)
$229
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4. Benchmark rule
Where a company has over franked dividends at the close of a financial year the company will
be subject to which of the following:
(A*)
Over-franking tax
(B)
Franking deficit tax
(C)
Penalty tax at the highest marginal rate of tax
(D)
There is no consequence to a company when it over franks dividends
5. Non-share distributions and dividends

Fully franked dividends paid to a foreign resident shareholder are subject to withholding tax?
(A)
True
(B*)
False
6. Dividend distributions
Apple Hub Pty Ltd receives a unit trust distribution of $100 which includes a dividend of $80
with a franking percentage of 40%. Which of the following represents the entry in its franking
account as a result of the transaction?
(A)
Franking credit of $140
(B*)
(C)
Franking debit of $40
(D)
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[21.180] - [21.200], [21.220] for further reading.
7. Franking offsets
Determine the tax offset for a resident public company receiving an unfranked distribution
from a resident non-group company of $95,000.
(A)
$40,714.29
(B)
$95,000
(C)
$47,500
(D*)
Nil
8. Deemed dividends
The recipient of a deemed dividend under Div 7A of ITAA 1936 is subject to tax on the
deemed dividend without the benefit of dividend imputation?
[A*]
True
[B]
False
9. Dividend distributions
XYZ Pty Ltd is a foreign resident company. It receives a $28,000 fully franked dividend from
United Forces Pty Ltd, a resident company for tax purposes with a corporate tax rate of 30%.
What is the tax offset available to XYZ Pty Ltd in respect of the fully franked dividend?
(A)
$12,000
(B)
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$40,000
(C)
$6,000
(D*)
Nil
10. Calculation of tax payable

Wei Pty Ltd is a company that has a credit balance of $1,000 in its franking account at 1 July
2017. Wei Pty Ltd has a corporate tax rate of 30%. It pays a PAYG instalment of $21,000 in
respect of income from the previous year on 19 July 2017. It then pays PAYG instalments in
respect of income tax for the current year of:
20 October - $19,000 | 20 January - $18,500 | 20 April - $20,500.
On 21 April 2018, the company declares and pays a fully franked dividend of $28,000 from
profits. Calculate the balance of the company’s franking account at 30 June 2018.
(A)
$12,000
(B)
$28,000
(C*)
$68,000
(D)
$80,000
11. Meaning of dividend

Which of the following distributions does not come within the meaning of a dividend for tax
purposes?
(A)
A franked distribution of profits.
(B)
An un-franked distribution of profits.
(C)
A partially franked distribution of profits.
(D*)
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A return of capital to the shareholder.
(E)
A distribution of a non-assessable accounting profit amount.
Topic: International Taxation

'International Taxation'.
Instructions:
response.
1. Tax treaties
Which of the following countries does Australia not have a double tax agreement with?
(A)
China
(B*)
Brazil
(C)
Germany
(D)
United States
(E)
None of the above
2. Foreign employment income

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Joel is a senior police officer with the Australian Federal police. He is a resident of Australia
for tax purposes. He is thinking about accepting a posting overseas for 10 months. He will be
paid a higher salary and additional allowances whilst posted overseas. Further, he has heard
that the overseas income will also not be taxed in Australia. Is this likely to be correct?
[A*]
True
[B]
False
3. Foreign employment income

Jenny is a university lecturer who is a resident of Australia for tax purposes. In September
2017, she went to Samoa for 95 days to assist in re-establishing educational institutions after
an earthquake had struck. She was paid by a public fund which was established and
maintained by a public benevolent institution solely for providing money for the relief of people
in Samoa in distress as a result of the natural disaster. Is Jenny’s income likely to be exempt
from tax in Australia?
(A*)
Yes
(B)
No
4. Non-portfolio dividends
Which of the following does not constitute a non-assessable non-exempt foreign dividend for
the Australian resident company?
[A]
CPR Pty Ltd owns 19% of the shares in an English company and received a dividend of
$80,000 from the English company
[B*]
ASR Pty Ltd owns 8% of the shares in an English company and received a dividend of
$40,000 from the English company
[C]
PPR Pty Ltd owns 55% of the shares in an American company and received a dividend of
$10,000 from the American company
[D*]
CPR Pty Ltd as Trustee of the CPR Trust, owns 19% of the shares in an English company
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and received a dividend of $80,000 from the English company
5. Portfolio dividends
ASR Pty Ltd owns 8% of the shares in an English company and received a dividend of
$40,000 from the English company. How much tax must ASR Pty Ltd pay in Australia in
relation to the $40,000 assuming it has a corporate tax rate of 30%?
(A)
$40,000
(B)
$18,000
(C*)
$12,000
(D)
$35,000
(E)
Nil
6. Withholding tax
Which of the following may be subject to withholding tax in Australia?

[A*]
Interest on a bank account paid to a resident of Austria
[B]
Fully franked dividend paid to a resident of America
[C]
Salary paid to a Hungarian resident by an Australian company for performing services in
Germany
[D*]
Royalties paid to a resident of Sweden for the use of a vacuum cleaner design
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7. Dividend withholding tax

Hickory Pty Ltd, an Australian resident company, pays a fully franked dividend of $3.50 per
share to all shareholders. Cordell Pty Ltd is a foreign resident shareholder of Hickory Pty Ltd.
How much withholding tax must Hickory Pty deduct from the dividend paid to Cordell Pty Ltd?
(A)
30% of the dividend
(B)
15% of the dividend
(C)
10% of the dividend
(D*)
Nil
8. Transfer pricing
Haprippa Pty Ltd obtains services from its wholly-owned subsidiary in Taiwan. The general
market value for such services would be $4.2 million. However, Haprippa Pty Ltd has asked
its subsidiary to charge $3 million. This would result in a decrease of the subsidiary’s income
to $3 million, where the corporate tax rate in Taiwan is 25%. The income imbalance resulting
from this undervalue is redressed by another offshore deal with another related party. This
transaction would be caught under Australian transfer pricing laws.
[A*]
True
[B]
False
9. Double tax agreements

The function of a Double Tax Agreement (DTA) is?
(A)
To prevent double taxation between one or more countries
(B)
To allocate residency, when applicable
(C)
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To allocate taxing rights
(D*)
All of the above
10. Accruals taxation

The accruals taxation regime applies to all non-repatriated foreign income which has not been
subject to tax at a comparable rate in the foreign jurisdiction.
[A]
True
[B*]
False
11. Taxation of foreign residents

Geld Ltd is a non-resident (foreign) company which is a resident of Germany and has a
number of investments in Australia. Geld Ltd derived the following income in the current tax
year ended 30 June from Australian sources:
Australian Dividend Income (fully franked) $60,000

Net Australian Commercial Rental income $80,000
Based on this information what is the taxable income of Geld Ltd in Australia for the current
tax year ended 30 June?
(A)
$140,000
(B)
$165,714
(C)
$85,714
(D*)
$80,000
(E)
Nil
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Topic: Tax Avoidance

Avoidance'.
Instructions:
response.
1. Arrangements between associates

Edward has $1,000,000 in a bank deposit which gives an interest return of $90,000 per year.
Can Edward transfer $500,000 to his wife so that they will both derive $45,000 per year and
gain an advantage of two tax thresholds?
(A*)
Yes
(B)
No
2. Techniques of tax avoidance

Which of the following would constitute tax evasion?

[A]
Emily defers prepayments of income to a later income year
[B]
Jia establishes a family trust and distributes income between family members equally
[C*]
Jane does not include $50 of interest from her bank account on her tax return
[D]
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Henry salary sacrifices future income for which services have not already been provided into
superannuation
[E]
All of the above
3. Dealings between associated parties at non-arm’s length prices

Terry runs his own antique dealership business as a sole trader. He decides to give a
valuable antique Rembrandt painting, which formed part of his trading stock, to his best friend
for his birthday. Terry acquired this painting for $50,000 (excluding GST) and its current
market value is $800,000 (excluding GST). What amount (if any) must Terry return as
assessable income?
(A*)
$800,000
(B)
$240,000
(C)
$50,000
(D)
Nil
(E)
None of the above
4. Dividends
A private company pays an excessive salary to an employee who is also a shareholder of the
company. The company can deduct the amount of the salary.
[A]
True
[B*]
False
5. Losses of non-commercial ventures
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Losses of non-commercial ventures may be deducted against other assessable income.
[A]
True
[B*]
False
6. Pt IVA dominant purpose

Which of the following is not relevant to whether Homer has entered into a scheme with the
sole or dominant purpose of obtaining a tax benefit?
(A)
The way in which the scheme was entered into
(B*)
Homer’s purpose for entering into the scheme
(C)
The tax advantage gained as a result of entering into the scheme
7. Schemes to reduce income tax

Part IVA of the ITAA 1936 applies when a taxpayer chooses to use the discount over the
indexation method for CGT purposes.
[A]
True
[B*]
False
8. Schemes to reduce income tax - dominant purpose test

It is necessary to look at the taxpayer’s purpose objectively to determine whether the

dominant purpose was to obtain a tax benefit from the scheme.
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[A*]
True
[B]
False
9. Personal services income

Which of the following is not personal services income?
(A*)
$1000 income received by a plumber for installing a toilet which cost $800
(B)
Income received by a company for providing computer programming services (the company
uses the client’s software)
(C)
Income received by a sole trader builder, 25% of which is received for materials
(D)
None of the above
10. Personal services business

Paul provides architectural consultancy services to clients X and Y. During the 2017/2018
income year, Paul receives 95% of his income from client X because he takes a large, one-off
contract from this client. He receives the remaining 5% of his income from client Y. Is Paul a
personal services business?
(A)
Yes
(B*)
No
11. Non-commercial losses

Julie is a solicitor in Brisbane with an assessable income from her employment of $140,000
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for the current year. She also operates an avocado farm about 2 hours drive from the city.
She has been able to satisfy the requirements of carrying on a business for tax purposes in
relation to her avocado farm and it has been operating for two years. During the current
income year Julie has made a net tax loss of $60,000 in relation to the farm and wishes to
offset this against her employment income.
(A)
Julie will be able to offset the loss against her employment income as she is carrying on a
business for tax purposes.
(B)
Julie will be able to offset the loss against her employment income if the value of her avocado
farm equipment is more than $500,000.
(C)
Julie will be able to offset the loss against her employment income if the value of her farm
land is more than $100,000.
(D*)
Julie will be able to offset the loss against her employment income if the value of her farm
land is more than $500,000.
(E)
Julie will be able to offset the loss against her employment income if her assessable income
from the farm was greater than $40,000.
Topic: Tax Administration

Administration'.
Instructions:
response.
1. Administration
The key administrator of federal taxation in Australia is?
(A)
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The Federal Treasurer
(B)
Federal Parliament
(C*)
The Australian Taxation Office
(D)
State and Territory Revenue bodies
2. Assessments
Where a taxpayer fails to lodge a tax return, the Commissioner can issue a default
assessment.
[A*]
True
[B]
False
3. Assessments
Ivan is an electrician who runs his own small business as a sole trader. It is brought to the
attention of the ATO that Ivan deliberately fails to declare cash receipts. Ivan lodges his return
for the current income year failing to declare any cash receipts as income. There is nothing
that the Commissioner can do to remedy this situation.
[A]
True
[B*]
False
4. Onus of proof
When a taxpayer challenges a default assessment, the Commissioner must first show proof
of why they issued the assessment.
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[A]
True
[B*]
False
5. Assessments
Bob is issued with a default assessment. What does the Commissioner rely on when issuing
a default assessment?
[A*]
Asset betterment statement
[B]
Taxpayer’s honesty
[C]
Material collected from auditing an accountant
[D*]
Taxpayer’s income tax return
6. TFN declarations
Lyn Wang, aged 24, has recently finished university and commenced employment with a
local accounting firm on 1 March 2018. As yet, she does not have a Tax File Number (TFN).
Advise Lyn as to her employer’s obligations concerning her TFN.
[A]
Lyn must provide her TFN to her employer.
[B*]
Lyn need not provide her TFN to her employer.
[C*]
Lyn’s employer must withhold tax from her salary at the top marginal rate of tax if Lyn fails to
provide her TFN.
[D]
Lyn’s employer must withhold tax from her salary at her respective marginal rate of tax if Lyn
fails to provide her TFN.
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7. Orders
Billy Bob is a famous Australian musician who has failed to pay his $800,000 income
tax payable which has accumulated over the last three income years. Billy Bob is
thinking of leaving Australia, moving all of his money into a Swiss bank account and
transferring his assets into his wife’s name. What can the Commissioner do to stop him
doing this?
[A*]
Issue a Mareva order
[B]
Write a letter of demand
[C]
Initiate urgent legal proceedings in court
[D*]
Seek a departure prohibition order
[E]
Audit Billy Bob again
8. Amendments of assessments
On 8 November 2017, Mary Williams, a university lecturer, received an amended assessment

as a result of a tax audit, disallowing a claim for $3,000 travel expenses incurred in attending
a lecturers’ conference in Singapore. Mary contacted the ATO by phone, but no explanation
was provided to her. Is Mary able to gain information from the ATO to explain the amended
assessment?
(A*)
Yes
(B)
No
9. Amendments of assessments
Robin Edwards, an Australian resident who declared a taxable income of $45,000 in his
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income tax return for 2016/2017, failed to disclose $4,000 which he derived from dividends.
Can the Commissioner of Taxation issue an amended assessment to include the undisclosed
dividends?
(A*)
Yes
(B)
No
10. Public rulings

Warren recently incurred various expenses related to his job. He thought that the expenses
would be deductible at the time he incurred them but he recently came across a public ruling
stating that the expenses are not deductible for tax purposes.
Warren is bound by the views in the public ruling and cannot claim a deduction for the
expenses.
[A]
True
[B*]
False
11. Public rulings

Public rulings are binding only on the Commissioner.
[A*]
True
[B]
False
12. Private rulings

Quan has obtained a private ruling from the ATO which states that he is entitled to a
deduction for various expenses incurred while overseas. The ruling is binding upon:
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(A)
Quan
(B*)
Australian Taxation Office
(C)
All taxpayers in Quan’s position
(D)
The Federal Court of Australia
13. Taxpayer’s Charter

What are the functions of the Taxpayers’ Charter?

[A]
The Charter has legal effect.
[B]
The Charter has no legal effect, but the ATO can choose whether to follow the Charter.
[C*]
The Charter sets out the service and other standards that a taxpayer can expect from the
ATO.
[D*]
The Charter sets out taxpayers’ rights under the law.
14. Commissioner’s power of access

The ATO has the power to acquire information about a taxpayer’s affairs?
[A*]
True
[B]
False
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15. Objections
In relation to objections lodged by taxpayers which of the following statements is most

correct?
[A]
A taxpayer can only lodge one objection against each assessment.
[B*]
A request for an extension of time to lodge an objection will not be granted in all cases and
taxpayers should normally lodge their objection request within the time periods specified.
[C]
It is up to the Commissioner of Taxation to determine a request for an extension of time to
lodge an objection and the taxpayer cannot appeal the Commissioner’s decision.
[D]
An objection against an assessment can be very brief or detailed and it is up to the taxpayer
how they wish to prepare an objection.
[E]
A request for an extension of time to lodge an objection will not be considered where the
taxpayer is temporarily overseas.
Topic: Goods and Services Tax

Following is a set of questions designed to assess your understanding of the topic 'Goods
and Services Tax'.
Instructions:
response.
1. Registering for GST

Elliot is a plumber with an annual turnover of $57,000. Elliot is required to register for GST.
[A]
True
[B*]
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False
2. Definitions
There is no difference between an input taxed supply and an input tax credit.
[A]
True
[B*]
False
3. GST liable on taxable supply

Jack is an electrician and is registered for GST. He provides services valued at $1,000 to his
lawyer in return for the services provided by his lawyer in assisting with a family law matter.
The provision of the electrical services is not a taxable supply.
[A]
True
[B*]
False

The Centre of Southern Star, a charitable body that is registered for GST, is holding a fund-
raising fete. A local real estate business, Henry Hicks Pty Ltd, has agreed to donate $1,500 in
exchange for the exclusive right to advertise the event.
Has the Centre of Southern Star made a taxable supply?
(A*)
Yes
(B)
No
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David runs a hotel in Sydney. Which of the following constitute a taxable supply?
[A*]
Supply of accommodation at the hotel
[B]
Supply of a free shuttle-bus service from the airport, by the hotel
[C]
Supply of fresh fruit at the hotel bar
[D]
Supply of a tip from a customer to David
[E]
Supply of wages to an employee
6. GST-free supplies
Charlie owns a Strawberry Farm located in Red Hill, Victoria. He is registered for GST. Which
of the following constitute a GST-free supply if supplied to a customer for consideration?
(A)
Strawberry gelato
(B*)
Strawberries picked farm fresh
(C)
Strawberry wine
(D)
Preserved strawberry jam
(E)
Take-away coffee with strawberry syrup
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7. Importation
Laura recently purchased a digital camera costing A$3,400 from Singapore for her
photography business located in Melbourne. She uses the camera partly for private purposes
and partly in her business. She estimates that her business use of the camera would be 85%.
Laura is registered for GST.
Which of the following statements is incorrect?

[A]
Laura is liable to pay GST of $340 on the purchase of the camera.
[B*]
Laura is entitled to input tax credits of $340 on the purchase of the camera.
[C*]
Laura is not entitled to input tax credits on the purchase of the camera.
[D]
Laura is entitled to input tax credits of $289 on the purchase of the camera.
[E]
None of the above.
8. Taxable supply
Nicole owns a boutique winery that is registered for GST. This weekend she sold a bottle of
wine for $30 and forgot to charge the customer GST.
[A]
Nicole is not liable for GST on the sale of the wine.
[B]
Nicole should not report that she sold the wine.
[C]
Nicole is liable for GST of $3.00.
[D*]
Nicole is liable for GST of $2.73.
[E]
None of the above.
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9. Creditable purpose
Michael runs a milk bar as a sole trader and is registered for GST. He recently purchased a
lolly jar for $22 (including GST) which he then decided to take home for personal use.
Michael is entitled to input tax credits in relation to the acquisition of the lolly jar.
[A]
True
[B*]
False
10. Adjustments
Melissa is a lawyer. She is registered for GST quarterly and accounts for it on an accruals
basis. On 18 September 2017, she purchased a laptop for $880 (including GST). She
received the laptop on 12 October 2017 with a new invoice stating the price had since
increased to $990 (including GST).
[A*]
Melissa is entitled to input tax credits of $80 on the initial acquisition of the computer.
[B]
Melissa is not entitled to further input tax credits of $10 upon receipt of the new invoice as she
has already claimed her entitlement to input tax credits in her Business Activity Statement for
the September quarter.
[C*]
Melissa must make an adjustment in her Business Activity Statement for the December
quarter to claim further input tax credits of $10.
[D]
None of the above.
11. Registration
Which of the following entities is required to be registered for GST?
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[A]
The Brisbane Society for the Homeless carries on non-profit activities and has an annual
turnover of $78,000.
[B]
Sophie is a family doctor providing her professional services to the public with an annual
[C*]
Sally is employed as a hairdresser earning $35,000 per year in salary and wage income
and also has a party plan cosmetics business on weekends where she has an annual
[D]
Benjamin is an engineer supplying consulting services to the building industry and has an
annual turnover from this activity of $21,000 while he also owns a commercial retail outlet that
he rents out for $47,000 per year.
[E]
Lucy is a freelance computer programmer who provides consulting services to the real estate
industry and has an annual turnover from this activity of $68,000 and she also rents out a
residential property and earns $15,000 from this activity.
12. Input Taxed Supplies

Benjamin is an investor, registered for GST and leases out a number of properties. In
relation to the following lease income amounts received by Benjamin what is the total
amount of GST liability that he would be liable for each month?
- Lease of commercial retail outlet to a carpet dealer (tenant). The tenant paid
Benjamin $7,700 per month in lease payments.
- Lease of residential property to university students at $1,540 per month.
- Lease of 40 room motel business to a tenant who carries on the motel business and
leases the rooms to tenants for short stays of up to one week at a time. The tenant
paid Benjamin $15,400 per month in lease payments.
[A]
$700
[B]
$140
[C]
$1,400
[D*]
$2,100
[E]
$1,540
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[25.90], [25.130] & [25.165] for further reading.
13. Exports
Steve exports high quality custom car parts to other countries and is registered for GST. In
August of the current year he exported some parts to a New Zealand mechanical business
and the parts were returned to him because they did not fit. Steve undertakes the repairs and
uses a number of smaller components in the process. The repaired car parts were returned to
the customer in New Zealand in December of the current year. Steve charged the customer
for the repair including the parts used. In relation to GST which of the following statements is
most correct?
[A]
Steve should charge GST on the initial sale but not on the repairs.
[B]
Steve should charge GST on both the initial sale and the repairs.
[C*]
Steve should not charge GST on any part of the transaction.
[D]
Steve should neither charge GST on the initial sale nor on the repairs but should charge it on
the components used in the repairs.
[E]
Steve will not be entitled to input tax credits for any costs associated with the initial sale or the
repair of the parts.
Topic: State Taxes

Following is a set of questions designed to assess your understanding of the topic ‘State
Taxes'.
Instructions:
 You will be presented with 10 questions.

 For each question, select your answer, then click on Submit Answer to record your
response.
 Once you have submitted your answer, you will not be able to change your response.
 You must complete all questions.
 You may only attempt this quiz once.
 Progress through the quiz by pressing the Next button that appears on the left of the
screen.
1. Types of taxes
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Australian taxes comprise:

[A*]
State taxes
[B*]
Commonwealth taxes
[C]
District taxes
[D*]
Municipal taxes
2. Payroll tax
Payroll tax:
[A]
Varies greatly from jurisdiction to jurisdiction
[B*]
Is imposed on employers
[C]
Does not provide any exemptions
[D*]
Is imposed where “taxable wages” reach a certain threshold
[E*]
Covers bonuses, allowances payable to an employee and non-cash benefits
[26.300]-[26.320] for further reading.
3. Payroll tax exemptions

Which of the following may be exempt from payroll tax in some jurisdictions?
[A]
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Small business employers
[B*]
Churches
[C]
Businesses that have registered for GST
[D*]
Hospitals
[E*]
Municipal councils
4. Stamp duty exemptions

Which of the following is not a type of stamp duty exemption?
[A*]
Pensioner exemption
[B]
Deceased estates exemption
[C]
A transfer of property between members of a corporate group
[D]
A transfer of property from a wife to her husband
5. Failure to lodge documents for stamping

Which of the following is not a consequence of a failure to lodge documents for stamping?
[A]
Interest
[B]
Registration of ownership of the property is prohibited
[C*]
Term of imprisonment not exceeding three months
[D]
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Penalty
6. Landholding thresholds
Under the landholder regime, a landholder is an entity that:
[A]
has an interest in land valued at or above $1 million or $2 million, depending on the State.
[B]
has an interest in land valued at or above $1 million or $2 million, depending on the type of
landholder.
[C]
has any interest in land.
[D*]
holds land valued at or above a particular threshold, except in the Australian Capital Territory
where there is no threshold.
7. Principal place of residence

The general rule is that a natural person’s principal place of residence is exempt from land tax
regardless of the value of the land.
[A*]
True
[B]
False
8. Calculation of land tax

The land tax formula is:
[A*]
Taxable value x land tax rate = land tax payable
[B]
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Taxable value x land tax rate x aggregation factor = land tax payable
[C]
Market value – acquisition value x land tax rate = land tax payable
[D]
Dutiable value x land tax rate = land tax payable
9. Payroll tax
Payroll tax is imposed on taxable wages. “Wages” is not defined in the legislation and is given
its ordinary meaning.
[A]
True
[B*]
False
10. Aggregation
Samantha purchased a block of land from Nadia on 1 July for $800,000. On 1 November she
purchased an adjacent block of land from Nadia for $650,000.
Which of the following provisions are likely to be applied?
[A]
Grouping
[B*]
Aggregation
[C]
Accumulation
[D]
Apportionment
11. Grouping
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Dream Developments Pty Ltd is a property development company located in NSW. Dream
Developments wholly owns separate companies for each development that owns the relevant
land in that development. Assuming that the value of land held in each separate development
company is less than the relevant land ‘tax-free threshold’, Dream Developments will not have
a land tax liability for the year.
Which of the following provisions are likely to be applied?
[A]
True
[B*]
False
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Topic: Sources of Taxation Law and The

1. Application of the doctrine of precedent

2. Commonwealth power to tax

What is significant about s 51(ii) of the Australian Constitution?

3. Commonwealth power to tax

Which is the final court of appeal in Australia?

5. Income tax formula

s 21A of ITAA 1936

7. The burden of tax

Australia imposes personal income tax on the family unit or couple.

Partnerships and trusts pay income tax on their taxable income.

10. Tax rates

The applicable rates of income tax are set out in?

11. Tax-free threshold

[3.200] for further reading.

12. Medicare levy

13. Medicare levy

14. Medicare levy

15. Higher education debts

16. Income tax formula

Which of the following statements is not correct?

Assessable income excludes exempt income.

17. Income tax rates

Topic: Residence and Source

2. Individual resident - domicile

Shipping Co Ltd is a shipping company that was incorporated in America. An Australian

9. Bonus paid for overseas work

10. Royalty payments

11. Individual - resident

12. Source of Income

from working in London, England.

Topic: Introduction to Ordinary Income

Amounts that are ordinary income may also be statutory income.

Which of the following is not a common category of income?

A capital gain is not ordinary income.

Which of the following receipts would not be considered ordinary income?

5. Characteristics of ordinary income

6. Characteristics of ordinary income

Which of the following amounts is not classified as ordinary income?

Rent received in relation to a lease

This salary is ordinary income in the hands of Harry’s wife.

10. Ordinary income

11. Ordinary income

Which of the following statements is NOT correct?

Topic: Income from Personal Services and

You must complete all questions.

1. Jury attendance fees

Would a prize in a literary competition won by an editor of a newspaper constitute assessable

4. Personal services income

Which of the following are examples of personal services income?

5. Income from personal exertion

Section 15-2 of ITAA 1997

7. Income from personal services - inducement payment

An amount received as an inducement to break a strike is assessable income.

9. Income from personal services - expert advice

10. Non-cash benefit

12. Employment Termination Payments

Topic: Fringe Benefits Tax

2. Classification of fringe benefit

Residual fringe benefit

3. Classification of fringe benefit

4. Classification of fringe benefit