LEGT2751 Midsem Solutions

Topics: Taxation, Tax, Taxation in the United States Pages: 14 (3803 words) Published: October 12, 2013
THE UNIVERSITY OF
NEW SOUTH WALES

AUSTRALIAN SCHOOL OF TAXATION AND BUSINESS LAW

LEGT 2751 BUSINESS TAXATION

MULTIPLIE CHOICE TEST S1 2011
DURATION: 40 MINUTES
READING TIME: 10 MINUTES

In each case choose the most correct answer.
Indicate your answer in pencil on the answer sheet provided. Each question is worth one mark.
Candidates may bring an un-annotated copy of either: CCH Core Tax Legislation; ATP Fundamental Tax Legislation; or Lexis Nexis Concise Tax Legislation into the examination room. Post-it markers or other similar markers that do not have any writing on them may be placed on the legislation as marker tabs. Electronic calculators may be brought into the examination room. Mobile phones may be brought into the examination room but must be switched off and must be placed under your desk.

QUESTION ONE
Barry conducts a butcher shop in Gladesville. He purchases 10 whole sheep that have already been slaughtered for $110 each. He butchers the slaughtered sheep into various cuts such as chops, leg of lamb, shoulder of lamb and so on. His total sales receipts for the cuts from each slaughtered sheep are $440. His annual turnover is $76,000. This year he spent $4400 (GST inclusive) on new knives and chopping boards. The GST consequences for Barry of these transactions are: (a) Barry is liable to be registered for GST. All the purchases are GST free and all the sales are GST free as purchases and sales of food. Hence Barry does not receive any input tax credits on the purchases and is not liable for GST on his sales.

(b) Barry is liable to be registered for GST. The purchase of the slaughtered sheep carcasses is GST free as a purchase of food. Barry receives an input tax credit on the purchase of the knives and the chopping boards of $4400 x 10/11 x 10% = $400. However, the input tax credits cannot be refunded to Barry as his sales are GST free.

(c) Barry is liable to be registered for GST. The purchase of the slaughtered sheep was not a purchase of food as they had not yet been butchered into cuts but was input taxed. This means that no GST was payable on either of Barry’s purchases and hence Barry cannot receive any input tax credits. All of Fred’s sales are GST free.

(d) Barry is liable to be registered for GST. The purchase of the slaughtered sheep is GST free as a purchase of food. Barry receives an input tax credit on the purchase of the knives and chopping boards of $4,400 x 10/11 x 10% = $400. Barry’s sales are GST free and any excess input tax credits that Barry has are refunded to him.

(e) Barry is not liable to be registered for GST as his turnover less his annual expenses is less than the GST registration threshold. Hence Barry does not have to charge GST and cannot claim input tax credits.

Correct answer was (d)
QUESTION TWO
Cathy and Bruce are both residents of the newly independent country Utopia. Cathy had a taxable income in the year ending 30 June Y1 of $50,000 which was wholly derived from her salary as a teacher of English as a second language. Bruce had a taxable income in the same year of $100,000 which was wholly derived from interest in Utopian banks. Under the Euphorian tax system salary is taxed at the following rates: 10% for the first $10,000; 15% for the next $40,000; 20% on the next $60,000; and 45% on the remaining income. Income from interest is taxed at a rate of 5% from $1. The Euphorian tax system is: (a) Consistent with horizontal equity as it taxes $1 of interest income differently from the way it taxes $1 of salary income.

(b) Consistent with vertical equity in the manner in which it taxes income other than interest but inconsistent with horizontal equity in that it taxes interest income differently to the way in which it taxes other income.

(c) Consistent with vertical equity as it taxes someone with a larger amount of interest income at the same rate as it taxes...
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