1. (Question 4.3, Chapter 4)

 Fred, an executive of a British corporation specializing in management consultancy, comes to Australia to set up a branch of his company. Although the length of his stay is not certain, he leases a residence in Melbourne for 12 months. His wife accompanies him on the trip but his teenage sons, having just commenced college, stay in London. Fred rent out the family home. Apart from the absence of his children, Fred's daily behavior is relatively similar to his behavior before entering Australia. As well as the rent on the UK property, Fred earns interest from investments he has in France. Because of ill health Fred returns to the UK 11 months after arriving in Australia. Discuss residency and source issues.

2. (Question 6.1, chapter 6)

 During the current tax year Erin received the following amounts:

• Salary and wages income of $98,000
• A bank term deposit of $50,000, which earned interest of $4,200
• A rental property from which she received $500 per week for 50 weeks of the year
• Winnings of $10,000 on the poker machines
• $500 from selling to friends eggs that her chickens laid
• A holiday bonus of $,1000 from her employer
• A watch worth $200 from a happy client

What is Erin's ordinary income for the current tax year?

3. (Question 7.4, Chapter7)

Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC:

Salary of $300,000;

Payment of Alan's mobile bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay fixed sum each month for unlimited usage odf his phone. Alan uses the phone for work-related purposes only;

Payment of Alan's children's school fees ($20,000 per year). The second fees are GST free.

ABC also provided Alan with the latest mobile phone handset, which cost $2,000.

At the end of the year, ABC hosted a dinner at a local Thai restaurant for all employees and their partners. The total cost of the dinner was $6,600 including GST.

(a)  Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending in 31 March 2011.

(b)  How could your answer to (a) differ if clients of ABC also attended the end- of-year dinner?

4. (Question 7.5, Chapter 7)

 JB Pty Ltd (JB) is a shoe manufacturer which sells its shoes directly to the public. On 1 May 2010, JB provided one of its employees, Jan, with a car as Jan does a lot of travelling for work purposes. However, Jan's usage of the car is not restricted to work only. JB purchases the car on that date for $55,000 (including GST).

For the period 1 May 2012 to 31 March 2011, Jan travelled 10,000 kilometres in the car and incurred expenses of $550 (including GST) on minor repairs that have been reimbursed by JB. The car was not used for 10 days when Jan was interstate and the car was parked at the airport and for another five days when the car was scheduled for annual repairs.

On 1 September 2010, JB provided Jan with a loan of $2,000,000 at an interest rate of 2,5%. Jan used $1,500,000 of the loan to purchase a new yacht an holiday home and lent the remaining $500,000 to her husband (interest free) to purchase shares in Nation Australia Bank.

During the year, Jan purchased shoes manufactured by JB for $700. The shoes only cost JB $300 to manufacture and are sold to the general public for $1,000.

(a)  Advise JB of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2011.

(b)  How would you answer to (a) differ if Jan used $500,000 to purchase the shares herseft, instead of lending it to her husband?

5. (Question 11.1, Chapter 11)

Anita is a client of yours. To fund her career as an artist Anita sold some of her art collection by other artists. It consisted of:

(a) An antique ceramic bowl purchased in February 1985 for $4,000. She sold the bowl on 1 December of the current tax year for 12,000.

(b) A sculpture purchased in December 1993 for $5,500. She sold the sculpture on 1 January of the current tax year for $6,000.

(c) A bronze figure purchased in October 1987 for $14,000. She sold the bronze figure on 20 March of the current tax year for $13,000.

(d) A painting purchased in March 1987 for $470. She sold the painting on1 July of the current tax year for $5,000.

Consider the GST consequences of the above transactions.

6. (Question 12.4, Chapter 12)

 Henry is a plasterer. He uses his own car (engine capacity 2600cc) to travel to the premises where he works. He acquired the car on 1 October 2010 for 60,000. The acquisition cost was funded entirely by a loan at an interest rate of 15%. He has determined that the depreciation on the car would be $2,300 for the year. In addition, Henry incurred the following expenses during the year:

• Registration and insurance = $2,000;
• Repairs and maintenance = $1,000 and
• Oil and fuel costs = $1,500.

For the period 1 October 2010 to 30 June 2011, Henry estimates that the car travelled a total of 15,000 kilometres, 12,000 of which were for business purposes. You may assume that Henry has maintained all necessary records and a logbook.

Calculate Henry's deduction for car expenses under each of the four methods in Div 28 of ITAA 1997. Use the "cents per kilometer" amounts for the 2009-10 year in answering this question. At the time of writing, reg 28-25.01 had not been updated for the 2010-11 year.

7. (Question 13.3, Chapter 13)

 Leighton recently inherited a large block of land from his uncle. He built a house on the land and subsequently sold the house and the land for $500,000. Leighton received advice on the tax consequences of the sale from his accountant, who is a registered tax agent. The accountant's fees for the year were $700. The fees related to the lodgment of Leighton's income tax return ($300) and the advice regarding the sale ($400). Advise Leighton as to whether the $700 paid to his accountant is deductible for income tax purposes.

8. (Question 13.5, Chapter 13)

 Big Shoes Pty Ltd sells shoes exclusively online. Customers are invoiced for the shoes when they are shipped and are only required to pay for the shoes once they have been received and deemed satisfactory. Big Shoes includes the invoice amount in its assessable income when the invoice is issued. As of 30 June, Big Shoes determined that it had $10,000 in unpaid invoices. Its records indicated that 70% of the invoices related to shoes within the last month, which was considered acceptable. However, of the remaining $3,000, $1,000 related to invoices which were more than three months overdue. In accordance with its customary practice, Big Shoes wrote off the $1,000 of outstanding invoices. Its standard practice is to issued payment reminders before writing off the debt and turning it over to a debt collector. Big Shoes also created a provision for bad debts of $2,000 at this time.

Advise Big Shoes to what amount (if any) it can deduct in relation to the unpaid invoices.

9. (Question 25.1, chapter 25)

 Bunny Pty Ltd is a small company incorporated n Victoria, Australia. The company was incorporated in 2001 to manufacture candles. Its sales revenue regularly exceeds $100,000 each year. The company sells its candles to a local retailer for $3.30 per dozen. It also sells its candles to a retailers in Fiji as the candles have been very popular there for $4.40 per dozen. On 1 January 2011, Bunny purchased a car for $33,000, which it provided to its managing director as he has to do a lot of travelling for work. The car was purchased from Car Retailer Pty Ltd, a large national car retailer with sales revenue in excess of a million dollars per year.

Advise Bunny of its GST consequences arising from the above information.

10. Question 25.2, Chapter 25)

 AD Pty Ltd is a large company incorporated in Australia. AD is registered for GST purposes. The company sells cranes for $66,000 each (inc GST). Its purchases the cranes from Germany for $40,000 each and the cranes are shipped to AD at an additional cost of $1,000 each. AD also sells cranes to companies in Singapore and Malaysia for $60,000 each. In this case, it does not take delivery of the cranes, but directs the German seller to ship them directly to the Singaporean or Malaysian buyer. Last year, there was a problem with one of the cranes which AD sold to a local Australian company and AD had to provide the buyer with a full refund six months after the purchase. AD also incurred a penalty of $1,100 (inc GST) as it failed to comply with certain regulatory requirements.

Advise AD of its GST consequences arising from the above information.