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Law of Taxation

ack and Jill jointly own and run a bed and breakfa
st business. The business is run
through their partnership, J & J Bed and Breakfast.
Jack and Jill also own an
investment property together which they purchased i
n equal proportions. During the
year, they undertook the following transactions:
•
Purchased furniture for their bed and breakfast bus
iness for $3,000 on 21
December 2014. The furniture is expected to last fo
r seven years.
•
Purchased a printer for their bed and breakfast bus
iness for $700 on 30 April
2015. The machine is expected to last for three yea
rs.
•
Purchased an air-conditioner for their investment p
roperty for $2,000 on 15
March 2015. The air-conditioner is expected to last
for eight years. Jack
and Jill contributed to the purchase price of the a
ir-conditioner equally.
Advise Jack and Jill of their income tax consequenc
es arising out of the above
information under both the diminishing value method
and the prime cost method (if
relevant) for the year ended 30 June 2015. Assume t
hat the business does not
qualify as a small business entity.
Question 2 (10 Marks)
Alan is an employee at ABC Pty Ltd (ABC). He has ne
gotiated the following
remuneration package with ABC:
•
salary of $300,000;
•
Payment of Alan’s mobile phone bill ($220 per month
, including GST).
Alan is under a two-year contract whereby he is req
uired to pay a
fixed sum each month for unlimited usage of his pho
ne. Alan uses
the phone for work-related purposes only;
•
Payment of Alan’s children’s school fees ($20,000 p
er year). The
school fees are GST free.
ABC also provided Alan with the latest mobile phone
handset, which cost $2,000
(including GST).
At the end of the year ABC hosted a dinner at a loc
al Thai restaurant for all 20
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 t
he above information,
including calculation of any FBT liability, for the
year ending 31 March 2015.
Assume that ABC would be entitled to input tax cred
its in relation to any GST-
inclusive acquisitions.
(b)
How would your answer to (a) differ if ABC only had
5 employees?
(c)
How would your answer to (a) differ if clients of A
BC also attended the end-
of-year dinner?
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Category: Sample Questions