INCOME TAXATION LAW & PRACTICE
Companies & Imputation System
Answer the following multi choice questions. Solutions in the tutorial.
1. Nicholas, an Australian resident individual for taxation purposes, received a fully franked cash dividend of $1,400 from Hardware Ltd on 4 June 2010. What amount should he include in his assessable income?
A $2,600
B $2,000
C $1,400
D $600
E Nil
2. Daniel, an Australian resident individual for taxation purposes, received a partially franked cash dividend of $3,360 (franked to 50%) from Equity Ltd on 23 May 2010. What amount should he include in his assessable income?
A $3,360
B $4,080
C $4,800
D $720
E Nil
3. A resident individual has earned salary and wages income of $18,000 and a fully franked cash dividend of $19,600 for the year ended 30 June 2012. He had tax instalments (PAYG) withheld from his salary and wages income of $3,000. He has no dependants and is entitled to no dependant tax offsets/rebates.
What is his net tax to pay or his refund due (including Medicare levy less all offsets)?
A $3,750 refund B $3,3,60 refund C $2,130 payable D $2,694 payable E Some other amount
4. A private company had the following transactions in relation to its franking account:
• Opening credit balance on 1 July 2011 of $23,000.
• Received a dividend of $70,000 on 4 September 2011 with $25,000 franking credits attached.
• Paid income tax instalment of $27,000 on 28 October 2011.
• Received a refund of tax of $7,800 on 27 November 2011.
• Paid income tax instalment of $20,000 on 28 February 2012.
• Paid a dividend of $49,000 fully franked on 23 March 2012.
• Paid income tax instalment of $15,000 on 28 April 2012.
What is the closing credit balance of the franking account on 30 June 2012?
A $110,000
B $81,200
C $53,200
D $28,800
E $58,200
5. Which (if any) of the following could be a dividend for tax purposes?
A Frequent flyer points accrued by a shareholder in Qantas
B Discount on purchases made by a shareholder in the company's stores
C A cash payment of $10 in respect of a $10 redeemable preference share
D A distribution of trading stock to the shareholder/director of a private company
E None of the above
6. Advise whether the following company would be considered a public or private company for taxation purposes. Facts:
The company is listed on the Australian Stock Exchanges - all shares are classed as "ordinary";
- 20% of the shares held by Alan Bee in his own right;
- 20% of the shares held by Alan Bee as trustee for the A Bee Family Discretionary Trust;
- 10% of the shares held by Bee Investments Pty Ltd, a closely held private investment company whose shareholders are all members of the Alan Bee family and also beneficiaries in the A Bee Family Discretionary Trust; and
- 50% of the shares are widely held and traded. An analysis of the share register indicates that there are 100 unrelated shareholders in this group, none of which (together with relatives) control more than 1% of the shares.
7. Travelco Pty Ltd is a travel agent, its shareholding as follows:
Year 1 Y2 Y3
A 100 100 100
B 100 100 100
C 300 300
D 400 200 500 900
The company incurred the following trading losses: Year 1 $10,000
Year 2 $20,000
During Year 3 the company sold its travel agency and acquired a motel and recorded a trading profit of $25,000 for the year. Advise the company how its carry forward losses would be treated in Year 3.
Partnerships
Attempt the following questions in th Study Manual and check your answers with the solutions. Any difficulties will be addressed in the tutorial.
Prepare answers to the following:
1. A and B own a house as joint tenants. For twelve months in the calendar year 2007, they visit relatives in Europe and let their home through an estate agency instructed to pay net rent into A's bank account. Advise whether A and B are in partnership. Would $1,250 incurred in repainting the house upon their return be an allowable deduction and, if so, to whom?
2. C is a cartage contractor. He purchased a prime mover, the loan secured by the matrimonial home held in joint tenancy with his spouse, D a part-time primary school teacher. C is absent from home about three days every week and D attends to administrative matters such as fuel purchases and freight bookings but she does not hold an endorsed truck driver's licence. Advise C and D whether they could form a partnership for income tax purposes.
3. E and F hold an interest bearing joint bank account from which either may draw but in fact it is used exclusively by F to meet household expenses. E is a member of a Lotto syndicate with Alpha and Beta and the three contribute weekly to a ‘systems 12'. In March 2007 they won a prize in 2nd division and E deposits his share in the joint account. Advise whether for tax purposes:
i) E and F are partners;
ii) E and Alpha and Beta are partners;
iii) E, F, Alpha and Beta are partners.
4. On 10 February 2010, Jill and Bill purchase a block of six flats for $550,000 and enter into a partnership agreement providing that all losses be borne by Bill and that profits be split 50-50. For the year ended 30 June 2010 the property produced a loss of
$40,000. Advise whether the agreement is effective for tax purposes.