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School of Business
SAMPLE EXAMINATION
BULAW5916 Taxation Law and Practice
SAMPLE EXAMINATION FOR STUDENT PRACTICE: PLEASE NOTE THESE QUESTIONS ARE INDICATIVE
ONLY. EXAM QUESTIONS WILL CHANGE EACH SEMESTER – EXAM FORMAT AND FOCUS MAY
CHANGE SLIGHTLY FROM SEMESTER TO SEMESTER

Examination Duration: 180 minutes Total Marks:100

Reading Time: 10 minutes

EXAMINATION RULES
Exam Conditions:
1. Do not detach any
This is a THEORY examination portion of the
examination paper.
This is a Limited Open BOOK examination.
2. Listen for all
Only items specifically listed below as permitted materials are allowed instructions from
in this exam. venue supervisors.
3. Do not begin writing
Materials Permitted In The Exam Venue: until reading time has
ended.
Normal writing materials 4. Ensure that you print
your name and student
Dictionary (bilingual unmarked)
number on all exam
Calculator (non-programmable) papers, answer
booklets and multiple
Only “Core Tax Legislation & Study Guide” (or equivalent tax choice sheets.
legislation) may be brought into the exam, as well as Six [6] single-
sided A4 pages of handwritten or typed notes. These notes must be
left with the examination booklet.

Materials To Be Supplied To Students:

1 x FedUni Standard Answer Booklet

Instructions To Students:

Please answer 5 out of the 6 questions below. If you answer all 6 questions, only the first 5 will be
marked.

DO NOT REMOVE ANY PART OF THIS PAPER FROM THE EXAM ROOM.
Question 1
Frank is in the business of importing leather sandals from Indonesia and selling them in
Maker’s Markets in regional Victoria. On 1 June, he purchased $15,000 of leather sandals
from a Japanese shoe maker. Frank does not have ownership of the leather sandals until they
are unloaded from the cargo ship at Port Kembla, NSW on 15 June. At 30 June, Frank had 30
pairs of leather sandals in stock. The sandals had cost him $30 a pair and he sells them for
$85 a pair. In December, Frank took 5 pairs of the sandals from his stock to give to family as
Christmas gifts- The leather sandals had cost Frank $150 and he would usually have sold
them for $425.
Business was good for Frank in the first six months of the current financial year, and he held
a Half Financial Year Sale. The HFY Sale was a huge success and Frank completely sold out
of stock within a couple of days. Frank sold the stock for $6,500. That stock had cost him
$3,000 in total and he would normally have sold it for $8,500. Following the sale, Frank
bought 100 pairs of newly designed hand dyed leather sandals from a Balinese shoemaker-
These cost $50 a pair and Frank expects to sell them for $125 a pair.
Because he is so excited about the new design, Frank decides to sell five pairs of the new
leather sandals to his friends at a 50% discount- charging them only $62.50 for each pair.
Assume that at the end of the current financial year, Frank still has 20 pairs of the new design
hand dyed leather sandals in stock. Frank wishes to minimise his tax liability in the current
financial year. Advise Frank of the tax consequences arising from the information.
20 marks

Question 2
If you choose to answer this question, please answer both Part A, Part B and Part C
Part A
Bridgette has worked as a lawyer at a law firm for six years. Bridgette has provided advice
several times to a wealth eighty-year-old widow called Miss Jones. Miss Jones told Bridgette
that she appreciated her continued professional advice over such a long period of time, and
she felt that the time was right to show her appreciation to Bridgette. Accordingly, on 20
December 2018 she gave Bridgette $15,000 to use as she wished.
Required: With reference to case law, discuss whether the $15,000 would be assessable for
tax purposes 6 marks
Part B
In October 2018, Bridgette was offered a three-year position at a special court based in
Germany. Bridgette was keen to accept such a wonderful opportunity but unfortunately the
salary offered by the special court was $20,000 less than her salary in Australia at the law
firm. Bridgette confided in her mentor Mr Wu, who was the managing partner of the law
firm, about the difficulty of deciding what to do. Mr Wu offered to make up $10,000 of the
annual salary difference himself (he offered to pay Bridgette $10,000 once per year for three
years). Mr Wu also said he would be prepared to re-employ Bridgette at any time in the
future, although the offer to pay Bridgette $10,000 per year for three years was in no way
conditional upon Bridgette working for him again in the future. With less of a reduction in
wage for Bridgette to worry about, she now feels happy to fly to Germany, and on 2 January
2019 she started her new position. She received the first annual lump sum of $10,000 from
Mr Wu on the day she left the law firm.
Required: Please advise whether the $10,000 Bridgette will receive once per year for three
years would be assessable for tax purposes. Refer to at least one case in your answer.
6 marks

Part C
Apart from the sums that are mentioned above, during the income year ending 30 June,
Bridgette had received the following payments in connection with her work as a lawyer at the
law firm with Mr Wu: A salary of $55,000 and a travelling allowance (related to work related
travel) of $7,500.
Required: With reference to appropriate legislation, please advise whether the $55,000 and
$7,500 would be assessable for tax purposes. 6 marks
6 + 6 + 8 = 20 marks

Question 3
In March 2015, Profit Ltd. purchased 50 acres of rural land in Warrnambool, Victoria. At the
time the land was zoned rural but the directors of Profit Ltd. were aware that the land would
increase in value and it was likely in the future that the land would be zoned as residential. In
the company documents, it was stated that the land was acquired for the purposes of sheep
farming. The sheep on the land were to be looked after, and the wool from the sheep to be
sold to wool manufacturers.
The selling of the wool was successful at first, but by about 2017 the demand for the
company’s wool began to decline, In January 2018, at the next general meeting, the
shareholders of Profit Ltd. decided that the wool growing business was no longer sufficiently
profitable to justify the company’s involvement in the business. At the same time, the land
had become ripe for development as the zoning rules had changed to permit subdivision. The
directors of Profit Ltd. therefore decided to take the steps required to have the land rezoned
residential. In order to obtain council approval to subdivide the land, Profit Ltd. was required
to provide sewerage services and to carry out electrical and water works, which were carried
out over the next twelve months. The company was actively involved in the marketing of the
land, and had sold all the subdivided blocks of land at a substantial profit by June 2019.
Advise Profit Ltd. of the income tax implications of the above transactions, referring to
relevant case law and sections of legislation where appropriate 20 marks

Question 4
Barry is a successful barrister. He has chambers in central Sydney for which he pays annual
rent of $22,000. Barry regularly takes work home at night and on weekends and he often
works many hours in a row in his home study preparing various legal opinions (although he
only sees clients at his chambers). The study is the largest room in his house and it is
dedicated for use as a study. Some of the law reports which Barry keeps at home have been
used so frequently that they required re-binding and he recently spent $1,100 to repair them.
Barry is divorced and has sole custody of two young children. To enable him to work as a
barrister, Barry employed a nanny for an annual salary of $33,000 to look after his children.
Advise Barry of any tax deductions he may be entitled to claim in respect of the above
expenses 20 marks

Question 5
If you choose to answer this question, please answer all 10 parts. Each part is worth 2
marks

1. The High Court in Myer’s case decided that the payment of the lump sum by Citicorp to
Myer was assessable income because:
A. Myer’s decision to sell the rights to the interest payments to Citicorp had been
independent of its decision to enter into the loan agreement with Myer Finance.
B. Myer’s decision to sell the rights to the interest payments to Citicorp had been an
isolated transaction.
C. Myer had considered the possibility that Citicorp would pay it a lump sum for the
rights to the interest payments before it lent the money to Myer Finance
D. Myer obtained the lump sum by entering a commercial transaction with Citicorp with
the intention of making a profit by the means that gave rise to that profit

2. The sale of the property in Westfield’s case was held not to be ordinary income because:
A. There was not both a commercial transaction and an intention to profit from the resale
B. The property sold had not been held for 12 months
C. They were not in the business of selling property
D. The sale was subject to capital gains tax
3. Shanti is employed by a newspaper publishing company. Her employer has recently
asked Shanti to increase her hours of work to 36 hours per week (before this Shanti
worked less hours per week), and Shanti was paid $3,000 by her employer in
compensation for her agreeing to change her hours of work. As part of Shanti’s
employment agreement, she receives an allowance to cover her estimated motor vehicle
expenses of $4,000 per year. This year, Shanti’s employer has also reimbursed Shanti
$2,500 for the actual cost of accommodation that Shanti paid while travelling away from
home in the course of her work. What amount should Shanti include in her assessable
income for this year?
A. $3,000
B. $7,000
C. $9,500
D. $5,550

4. Which of the following is a CGT event A1?

A. Sale of an inherited asset
B. Issue of shares by a company
C. Destruction of a factory used by a manufacturing company
D. Expiry of an option

5. Which of the following are assets for capital gains tax purposes?
(i) Shares listed on the Australian Stock Exchange
(ii) Shares listed on the New York Stock Exchange
(iii) A resident Australian’s main residence
(iv) Trading stock

A. (i), (ii), (iii) and (iv)

B. (i), (iii) and (iv) only
C. (i), (ii) and (iii) only
D. (i), (ii) and (iv) only

6. Which of the following statements about capital gains tax is incorrect?

A. A capital gain or loss only arises if there is a CGT event
B. Net capital gains can be calculated by deducting capital losses from collectables from
capital gains
C. Net capital gains are a form of statutory income
D. Indexation does not apply to capital losses
7. Which of the following statements about the taxation of trading stock is correct?
(i) Purchases of trading stock are treated as capital for tax purposes
(ii) When trading stock is purchased and a deduction is claimed under s70-5(2)(a), the
amount of the deduction depends on whether the trading stock is valued at cost,
market selling value or replacement value
(iii) For the purposes of s70-35, trading stock should always be valued at cost to
obtain the lowest tax bill
(iv)For the purposes of s70-35, the taxpayer can give trading stock a closing value of
either cost, market selling value or replacement value

A. (ii) only
B. (ii) and (iii) only
C. (ii), (iii) and (iv)
D. (i), (ii), (iii) and (iv)

8. Which of the following are not a taxable supply?

A. The supply of accounting advice
B. The supply of residential property
C. The supply of vegetables by a supermarket
D. The sale of goods by a business not registered for GST

A. (ii) only
B. (ii) and (iii)
C. (ii), (iii) and (iv)
D. (i), (ii), (iii) and (iv)

9. Which of the following are fringe benefits?

A. Payment to employees for the estimated cost of the employee’s home phone bill as the
employee sometimes has to use the home phone for work purposes
B. Payment of employee’s superannuation contributions by the employer to a complying
superannuation fund
C. Provision of an all-expenses paid holiday to an employee who has had to work every
weekend for the last six months
D. Loan by Company X to one of its directors, Rupert, who is also a shareholder in the
company. The company’s rules do not permit loans to directors

10. Which of the following statements about Fringe Benefits Tax is correct?
A. Benefits given to spouses of employees are exempt
B. Once the employment relationship is terminated, fringe benefits tax cannot apply
C. If an amount is deductible to an employer it is not a fringe benefit
D. Wages are excluded from fringe benefits tax
Question 6
If you choose to answer this question, please answer all 10 parts. Each part is worth 2
marks

1. Ray is a primary producer who uses a tractor in his business operations. On 1 May 2018,
he paid $13,000 to replace the engine in the tractor. The replacement engine was 250 hp
(187.5 kW), while the old engine was 175 hp (131.25 kW). Ray had purchased the tractor
on 4 June 2012.
Ray’s accountant advised him that he could not claim a deduction for the $13,000 under
s25-10 of the ITAA97. Which of the following reasons explains this advice?
A. The repairs were “notional repairs”
B. The engine constituted an entirety and was an asset in its own right
C. The repairs were “initial repairs”
D. The repairs constituted a significant improvement to the tractor

2. Jay owns a clothes shop and has recently incurred expenses while carrying out the
following:
(i) Replastering and repainting a wall which had been damaged due to a leak;
(ii) Recarpeting the whole shop as the old carpet had worn out due to normal wear
and tear;
(iii) Installing new payment counter with new display signs; and
(iv) Repainting the front of the store with a new type of glossy paint to make it more
attractive to walk-in customers
Based on the information above, which of the following statements is most correct?
A. None of the expenses are likely to be deductible as repairs
B. The expenses incurred for (i) are likely to be deductible as repairs
C. The expenses incurred for (iii) are likely to be deductible as repairs
D. All of the expenses are likely to be deductible as repairs

3. Frank, an Australian resident individual for tax purposes, received a fully franked
dividend of $1,620 from ABC Ltd. on 5 June 2018. What amount should he include in his
assessable income?
A. $1,800
B. $540
C. $1,260
D. $720
4. Huy Hoang, an Australian resident for tax purposes, received a partially franked cash
dividend of $3,360 (franked to 50%) from ABC Ltd. on 30 May 2019. What amount
should he include in his assessable income?
A. $3,360
B. $4,080
C. $4,800
D. $720

5. Natalie, an Australian resident for tax purposes, received an un-franked dividend of

$7,000 from ABC Ltd. on 10 June 2019. What amount should she include in her
assessable income because of receiving the dividend?
A. $3,000
B. $4,000
C. $7,000
D. Nil

6. Assume a corporate tax rate of 30%. Consider the following situations. Which would
involve a franking debit entry?
A. A company pays income tax of $200
B. A company pays a PAYG instalment of $500
C. A company receives a dividend of $1,100, which has a franking percentage of 10%
D. A company paid a $20,000 cash dividend, franked to 80%

7. A resident company wants to pay a dividend of $500. What is the maximum amount of
franking credits that it can allocate to the dividend?
A. $150
B. $225
C. $214
D. $216

8. Raj, a civil engineer, purchased a new computer to use 60% of the time for work purposes
and 40% of the time by his family members. The cost of the computer was $2,700 and he
purchased it on 1 June 2017. Assuming that the computer has an effective life of 3 years
and that Raj uses the diminishing value method of depreciation, what amount will be the
adjustable value (to the nearest dollar) at 30 June 2018?
A. $148
B. $1,021
C. $1,701
D. $851
9. Sue Lynn purchased a truck for use in her business for $67,000 on 1 September 2017. She
uses the truck 100% for business use at all times and is not using the Small Business
Entity method of depreciation. The effective life of the truck at the time of its acquisition
was seven years. Sue Lynn’s depreciation claim (assuming the diminishing value method
is applied) for the year ended 30 June 2018 will be:
A. $11,803
B. $15,891
C. $12,450
D. $14,603

10. Which of the following would be classified as a “depreciating asset” under s40-30(1)
(i) An automated drive-through carwash
(ii) Goodwill
(iii) Portable buildings used as sleeping quarters for mine workers
(iv) Carpets in a rental property

A. (i) only
B. (i) and (ii) only
C. (i) and (iii) only
D. (i), (ii) and (iv) only