Question 1

Max Smart and Cheryl Smith are in partnership sharing profits or losses equally. The partnership carries on a trading business and has investments in shares.The net income from the business is $80,000 and the fully franked dividends total $21,000.
Calculate the assessable income of each partner.

Accepted Answer

D

Question 2

Which of the following is deductible to the partnership against the partnership net income?

Accepted Answer

Interest paid by the partnership on loans made by a partner, where that borrowed money was used to provide working capital to the partnership, is deductible against the partnership's net income. This is because it is considered a business expense necessary for the operation of the partnership.

Question 3

What is the effect on the partnerships income tax liabilities when it makes a loss?

Accepted Answer

Partnerships themselves do not pay income taxes. Instead, losses are passed through to the partners, who can then use these losses to offset other taxable income on their personal tax returns, subject to certain IRS rules and limitations.

Question 4

Georgina Polo and her husband have formed a partnership to run the family business. The partnership will only be effective for income tax purposes if:

Accepted Answer

A partnership for income tax purposes is defined by the requirement of two or more people entering into a contract to conduct a business together with the intention of making a profit. The other options (A, B, C) are not necessary conditions for a partnership to be recognized for income tax purposes.

Question 5

Anne Rose and Ellen Fenny carry on a partnership together. Gross receipts for the 2019-20 tax year are $80,000 Expenses included: purchases of trading stock $18,000, wages paid to employees $10,000, and the lease on the car used in the business. The car travelled 4,000 kilometres for business use and the partnership didn't keep a log book for the car. Stock on hand at the start of the year was $3,000 and at year end $3,400.
Anne will receive 75% and Ellen 25% of the net partnership income.
What is Anne's assessable income?

Accepted Answer

To calculate Anne's assessable income, first determine the net partnership income. Gross receipts are $80,000. Expenses are: trading stock purchases ($18,000), wages ($10,000), and changes in stock on hand (end $3,400 - start $3,000 = $400 increase, reducing expenses). Total expenses = $18,000 + $10,000 + $400 = $28,400. Net income = $80,000 - $28,400 = $51,600. Anne's share is 75% of $51,600 = $38,700. The car lease expense is not included in the calculation as there's no provided amount, and the question focuses on the given expenses and stock adjustments.

Question 6

Which one of the following beneficiaries is not under a legal disability?

Accepted Answer

Drake, being a 35-year-old engineer, is not under any legal disability. Legal disabilities typically include being a minor, having mental disabilities, or being an undischarged bankrupt, none of which apply to Drake.

Question 7

The Jones Family Trust (an inter-vivos discretionary trust) incurred a $12,000 loss in the 2019/20 tax year. During the 2019/20 tax year the only income derived by the trust was a dividend of $10,000 received from XZY Ltd franked to 60%. The trustee wishes to distribute any available net trust income to the sole beneficiary: Frank Jones, aged 46.
Which of the following distributions could be made to Frank Jones?

Accepted Answer

The trust's net income is zero due to the $12,000 loss exceeding the $10,000 dividend income. However, the imputation credit of $2,571 (calculated as 60% of $10,000 divided by 0.4) can still be distributed to Frank Jones.

Question 8

Which of the following statements about the taxation of trusts are correct?
1 - Income received from a deceased estate by a minor is classified as 'excepted trust income' and will not be subject to Div 6AA ITAA36.
2 - A trust cannot distribute a loss to beneficiaries to offset against their current income, but subject to certain tests, losses can be carried forward and offset against future trust income.
3 - During the period of administration of a deceased estate, no beneficiary is presently entitled to the income of the trust, but rather the trustee is assessed under s 99 ITAA36 for up to three years.

Accepted Answer

All three statements are correct. Statement 1 accurately describes the tax treatment of income received by a minor from a deceased estate under Australian tax law. Statement 2 correctly outlines the rules regarding the distribution of losses by trusts, and Statement 3 accurately describes the tax treatment of income during the administration of a deceased estate.

Question 9

Nita Kats (20 years old, university student), Rita Kats (15 years old, high school student) and Tita Kats (30 years old, mentally incapable) are beneficiaries in the Kats' Discretionary Trust.
The trust deed states that Nita will only start to receive her benefits after she graduates from university.
On 30 June 2020, each of the beneficiaries is entitled to receive an amount of $5,000 as their trust benefit.
Which one of the following statements is correct?

Accepted Answer

The answer of Nita Kats (20 years old, university student),...

Question 10

Paul Simmons carries on a sports retail business selling mostly sporting goods and accessories. Paul paid $47,000 for each of his employees Raquel (21 years old) and Tony (42 years old) into a complying superannuation fund on 10 June 2020.
What tax deduction can Paul claim for the contributions made on behalf of his employees for the year ended 30 June 2020?

Accepted Answer

Paul can claim a tax deduction for the full amount contributed to the superannuation fund for his employees, which totals $94,000 ($47,000 for Raquel + $47,000 for Tony).

Question 11

On 1 June 2020 Kerstin Wells received two superannuation lump sum benefits from two different superannuation plans. The first, for $90,000, is made up of a tax- free component of $40,000 and a taxable component of $50,000 paid from an element taxed in the fund. Kerstin's second benefit is for $50,000 made up of a $20,000 tax free component and a $30,000 taxable component paid from an element taxed in the fund. Kerstin was born on 1 November 1962.
Based on the above information what amount will Kerstin include as assessable income in 2019-20 tax year?

Accepted Answer

Kerstin will include the total taxable components from both superannuation lump sums as assessable income, which are $50,000 and $30,000, totaling $80,000.

Question 12

ABC Pty Ltd and DEF Pty Ltd have agreed to join together and develop a gold mine. Both companies have contributed different equipment and have agreed that each company will keep 50% of the gold extracted from the gold mine. Each company will pay its own expenses and will each sell the gold extracted separately. For tax purposes this arrangement is more likely to be:

Accepted Answer

This arrangement is more likely to be a joint venture because both companies have agreed to collaborate on a specific project (developing a gold mine), with each contributing different resources and agreeing to share the output (gold) equally, while also bearing their own expenses and selling their share of the gold separately. This setup aligns with the typical structure of a joint venture, where parties come together for a specific business undertaking, sharing profits, risks, and losses according to their agreement, without necessarily forming a new legal entity.

Question 13

Which of the following statements is true?

Accepted Answer

The taxable income of a non-complying fund is taxed at a higher rate, which is 47%, to encourage compliance with regulations.

Question 14

For the year ended 30 June 2020 the LKJ Self-Managed Superannuation Fund received $40?000deductible concessional contributions were received (for four eligible members) and fully franked dividends of7?000received. The fund also sold 100 shares in Woolworths for $35 a share. These shares had been purchased by the Fund in 2004 for $5 a share. One member contributed20?000non-concessional contributions to the Fund. The Fund also paid $1 500 in accounting fees and $700 in auditing fees. What will be the taxable income of this Fund for the year ended 30 June 2020?

Accepted Answer

The taxable income of the fund can be calculated by adding the deductible concessional contributions, net investment income (including capital gains and dividends), and subtracting deductible expenses. The capital gain on the sale of shares is $30 per share (selling price $35 - purchase price $5) for 100 shares, totaling $3,000. The fully franked dividends are $7,000. The deductible expenses are $1,500 (accounting fees) + $700 (auditing fees) = $2,200. Therefore, the taxable income is $40,000 (concessional contributions) + $3,000 (capital gains) + $7,000 (dividends) - $2,200 (deductible expenses) = $47,800. Non-concessional contributions are not included in taxable income.

Question 15

William is 53 years old and so has not as yet met his preservation age and he decides to receive an income stream from his superannuation fund of $30,000 (assume a marginal tax rate of 32.5% and a Medicare levy rate of 2%). What rate of tax (plus Medicare levy) would William pay on this income stream for the year ended 30 June 2020?

Accepted Answer

Since William is under his preservation age and decides to receive an income stream from his superannuation fund, the income stream will be taxed at his marginal tax rate plus the Medicare levy. Given his marginal tax rate is 32.5% and the Medicare levy is 2%, the total tax rate on this income stream would be 34.5%.

Question 16

Domenic is 62 years old and he receives an income stream from his superannuation fund of $50,000 per year. The income stream is paid from a taxed element in the fund. What rate of tax (plus Medicare levy) would Domenic pay on this income stream for the year ended 30 June 2020?

Accepted Answer

For individuals over the age of 60, income streams from a taxed superannuation fund are tax-free. Therefore, Domenic would not pay any tax on his superannuation income stream.

Question 17

Edward is 58 years old and he receives a lump sum from his superannuation fund of $180,000. If Edward has not previously used any of his low rate cap amount and if the lump sum payment is paid from a taxed element in the fund, what rate of tax (plus Medicare levy) would Edward pay on this lump sum for the year ended 30 June 2020?

Accepted Answer

The low rate cap amount for the 2019-2020 financial year was $210,000. Since Edward's lump sum is less than this amount and it is his first withdrawal, the entire amount is taxed at 0%.

Question 18

Mining Co A and Mining Co B have agreed to extract the copper out of a copper mine together and for the year ended 30 June 2020 the joint operation extracted 10 million kilograms of copper out of the copper mine. The two mining companies do not share expenses. Mining Co A sold its share (5 million kilograms) of the copper extracted for $6.95 per kilogram and Mining Co A made a profit of $15 million. Is Mining Co B entitled to share in any of this profit?

Accepted Answer

The arrangement described is a joint operation, not a joint venture or partnership. In a joint operation, each party takes a share of the output and is responsible for its own expenses and profits. Therefore, Mining Co B is not entitled to share in the profits made by Mining Co A from selling its share of the copper.

Question 19

The Ryan Family Trust (an inter-vivos discretionary trust) had net income of $20,000 in the 2019/20 tax year. The trustee wishes to distribute $10,000 of this net trust income to James, aged 23, who is a resident of Australia and the remaining $10,000 to Abdul, aged 22, who is a non-resident of Australia.
Which of the following statements is true in respect to the planned distributions of trust net income?

Accepted Answer

James, as a resident beneficiary, will pay tax on the distribution he receives at his ordinary marginal tax rates.

Question 20

Which of the following statements is not true about a Self-Managed Superannuation Fund?

Accepted Answer

The answer of Which of the following statements is <underLine>not...

Quiz 12: Taxation of Partnerships, Joint Ventures, Trusts and Superannuation

Max Smart and Cheryl Smith are in partnership sharing profits or losses equally. The partnership carries on a trading business and has investments in shares.The net income from the business is $80,000 and the fully franked dividends total $21,000. Calculate the assessable income of each partner.