Question 1

Which of the following statements is true?

Accepted Answer

The principle in tax law is that specific provisions take precedence over general provisions. When an expense qualifies for both a general and a specific deduction, the specific deduction provision is usually applied because it is tailored for particular situations, providing more precise guidance on eligibility and calculation.

Question 2

A business taxpayer has incurred an interest expense in respect to a loan for use in that business. Which of the following statements is true?

Accepted Answer

Section 8-1 of the ITAA97 allows for deductions for losses and outgoings to the extent that they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income. The first limb focuses on expenses incurred in gaining or producing assessable income, while the second limb is broader, covering expenses necessarily incurred in carrying on a business. Taxpayers can choose which limb to apply based on their circumstances, but the second limb's broader scope often makes it more applicable for business-related expenses.

Question 3

Which of the following statements is incorrect?

Accepted Answer

Expenses that are of a private nature, such as speeding fines, are not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA97). This section generally allows deductions for losses and outgoings to the extent that they are incurred in gaining or producing assessable income, but it explicitly excludes expenses that are capital, private or domestic in nature, or relate to the earning of exempt income.

Question 4

If the payment date or nature of the services is missing from a receipt, which of the following statements is correct?

Accepted Answer

The IRS allows taxpayers to use other reasonable evidence, such as bank statements, to prove the date of payment for an expense if the receipt is missing this information. Additionally, if the nature of the goods or services is not specified, the taxpayer can manually add this information to the document, provided it accurately reflects the transaction.

Question 5

Cedric uses his mobile phone for work. He has kept a diary for one month itemising his calls and has determined that his work use of his mobile phone is 40%. If his total mobile expenses are $1,200 for the year, what amount is Cedric entitled to claim?

Accepted Answer

Cedric can claim 40% of his total mobile expenses for work use. Therefore, 40% of $1,200 equals $480.

Question 6

Sam is an accountant and has paid his annual membership fees of $850 with CPA Australia. Is the payment of this $850 fee likely to be incidental and relevant to Sam's work as an accountant?

Accepted Answer

Membership fees paid to professional bodies like CPA Australia are typically considered incidental and relevant to the work of professionals like accountants, as they are necessary for maintaining professional accreditation, staying updated with industry standards, and fulfilling continuing professional development requirements.

Question 7

Top Quality Printers Pty Ltd purchased a new printing machine for $20,000 in May 2020. Is the purchase of this new printing machine deductible under section 8-1 ITAA97?

Accepted Answer

The purchase of a new printing machine is considered a capital expense because it is an asset that will be used in the business over several years, rather than an immediate expense directly related to the day-to-day running of the business. Section 8-1 of the ITAA97 typically does not allow deductions for capital expenses.

Question 8

Edward is required to travel for work. Which one of the following statements is correct regarding his claiming of his travel expenses?

Accepted Answer

Edward is required to keep a detailed travel diary for any work-related travel that exceeds 6 consecutive nights. This is to ensure that there is sufficient documentation to support the nature of the travel and the expenses incurred, should they be required for tax purposes or by his employer. Basic notes or relying on an employer's letter does not meet the detailed record-keeping requirements set by tax authorities in many jurisdictions.

Question 9

A former taxation officer incurred and claimed legal expenses to defend against allegations of misconduct under thePublic Services Act 1922. Are these legal expenses allowable to claim as a deduction under section 8-1 ITAA97?

Accepted Answer

The answer of A former taxation officer incurred and claimed...

Question 10

Helen likes to have her husband, Louis, accompany her on her work trips interstate. In the 2020 tax year, Helen incurred $14000 in expenses relating to Louis' air fares for him to accompany her at various work conferences and meetings. In light of these facts, which one of the following statements would be true?

Accepted Answer

Helen cannot claim any expenses for Louis because typically, tax regulations do not allow deductions for the travel expenses of a spouse or partner unless their presence is required for a business purpose, which is not indicated in the scenario provided.

Question 11

Stuart is a self employed architect and during the school holidays each year he has his 14 year old son come into his offices to empty the rubbish bins and do some general tidying. For this work the son was paid $20,000. The ATO has recently reviewed Stuart's business claims and determined that the reasonable amount for Stuart's son's services should only have been $2,000. Based on these facts, which of the following statements is true?

Accepted Answer

The correct answer is C because section 26-35 of the Income Tax Assessment Act 1997 (ITAA97) specifically deals with excessive payments to associates. In this case, the payment to Stuart's son is considered excessive (beyond the reasonable amount of $2,000 for the work performed), and therefore, the excessive part ($18,000) is not deductible. Only the reasonable part of the payment ($2,000) can be claimed as a deduction.

Question 12

Larry Stupida was involved in heroin dealing and after being arrested and convicted of his criminal activity and as a tax return was being prepared by the ATO on his behalf, he claimed that he was robbed by one of his 'associates' of an amount of $10,000 during the year ended 30 June 2020. Which one of the following statements is correct regarding Larry Stupida?

Accepted Answer

Income and deductions from illegal activities are generally not recognized for tax purposes in many jurisdictions. Therefore, Larry cannot claim a deduction for losses incurred from his illegal drug dealing activities.

Question 13

Hari is currently working as a security guard and he works at various venues ensuring that patrons are able to enjoy a safe environment. His employer has advised him to eat more steaks and bread each week to 'beef up' so that he can have a more muscular body to help carry out his security duties even better. Is Hari likely to be able to be able to claim the extra cost of his food he is now required to spend each week because if his employer's direction?

Accepted Answer

The essential character of a food expense generally denies a deduction for food in these circumstances because personal living expenses are not deductible, even if an employer suggests or requires an employee to alter their diet for work purposes.

Question 14

The meaning of the term 'necessarily incurred' most closely means what?

Accepted Answer

The term 'necessarily incurred' typically means expenses that are appropriate or adapted for the purpose of the business, not just those that are legally required or forced.

Question 15

Which one of the following statements best describes the treatment under section 8-1 ITAA97 of expenses incurred before the business has started?

Accepted Answer

Under section 8-1 of the Income Tax Assessment Act 1997 (ITAA97), for an expense to be deductible, it generally needs to be incurred in gaining or producing assessable income. Expenses incurred before a business has actually commenced typically do not meet this criterion, as the business is not yet generating assessable income. Therefore, such pre-business expenses are not deductible under section 8-1 ITAA97.

Question 16

Which one of the following statements best describes the treatment under section 8-1 ITAA97 of expenses incurred after a business has ceased?

Accepted Answer

The answer of Which one of the following statements best...

Question 17

What is the current tax treatment under section 8-1 ITAA97 of an expense involving the purchase of goodwill in relation to a business?

Accepted Answer

Goodwill is considered a capital asset, and expenses related to its purchase are capital in nature. Under section 8-1 of the Income Tax Assessment Act 1997 (ITAA97), expenses that are capital in nature are not deductible.

Question 18

Rina lives in an outer suburb of Perth and she is required to travel by car to work everyday to her employer's premises, which are located in the middle of the Perth CBD. She is adamant that she should be allowed to claim this travel expense as she has to travel by car as there is currently no suitable bus or train link available. Can Rina claim her home to work travel costs?

Accepted Answer

Home to work travel is considered a private expense under Australian tax law, and therefore, it is not deductible.

Question 19

Ann Stis is a student studying psychology at university and she is has paid this semester's HELP payments upfront. Ann thinks that she is entitled to claim the course fees for her psychology degree (Bachelor of Arts) as she has paid her HELP fees upfront. Is Ann correct that she can claim her study fees in this situation?

Accepted Answer

Ann is incorrect because a deduction is not allowable for Higher Education Loan Program (HELP) payments, regardless of whether they are paid upfront or deferred. HELP payments are considered personal or living expenses, which are not deductible under Australian tax law.

Question 20

A financial planner takes out a prospective new client to lunch. Is the financial planner allowed to claim the costs of the lunch (for both himself and his client) under section 8-1?

Accepted Answer

The costs of the lunch would be considered an entertainment expense, and under most tax jurisdictions, entertainment expenses are not deductible for tax purposes. This is because they are not directly related to the earning of assessable income.

Quiz 6: General Deductions