PRACTICE EXAM ANSWER & MARKING GUIDE Certificate in Foundation Tax V1 2012
2012 The Tax Institute. These materials are copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Disclaimer Unless otherwise stated, the opinions published in these materials do not express the official opinion of The Tax Institute. The Tax Institute accepts no responsibility for accuracy of information contained herein. Readers should rely on their own inquiries before making decisions that touch on their own interests. All activities should be conducted in adherence to the Federal Privacy Act and the National Privacy Principles.
PRACTICE EXAM QUESTIONS SUGGESTED SOLUTIONS V1 2012 How to use this marking guide and answers This practice exam is a past paper for March 2007. Please note: the answer guide has been updated to apply current year rates and law consistent with your study period. These questions are based on the 2011/12 income year. You are advised to refer to the rates and tables provided your materials to complete the calculations in this practice exam. Candidates who attend lectures You will be attempting the questions in the lecture and will have access to the solutions as an appendix to the general solutions provided on the website after the lecture for each module. Distance candidates You are encouraged to first attempt the questions without accessing the solutions and then self-marking using this guide. Key Black font = Questions Blue font = Marking guide Red font = Answers As always, the Foundation Tax Course Convenor is available to answer any queries on FoundationTaxConvenor@taxinstitute.com.au The Tax Institute 1
FOUNDATION TAX Questions and marks structure Part A Individual Question 1 5 marks Question 2 2 marks Part B Business Question 3 5 marks Question 4 2 marks Question 5 6 marks Question 6 6 marks Part C GST Module Question 7 4 marks Question 8 2 marks Part D Loans Question 9 2 marks Part E CGT Module Question 10 7 marks Part F Structures Question 11 3 marks Part G FBT Module Question 12 6 marks 2 THE TAX INSTITUTE
PRACTICE EXAM QUESTIONS SUGGESTED SOLUTIONS V1 2012 PART G (FBT) New information On 1 April 2011, Tumnus Pty Ltd (registered for GST purposes) bought a car and immediately provided the car to Jane (an employee) for her private use. Throughout the 2011/12 FBT year, the log book maintained for the car shows the following details: Cost of the car $18,000 (GST inclusive) Repairs $3,300 (GST inclusive) Insurance $2,200 (GST inclusive) Fuel $ 990 (GST inclusive) Distance travelled 20,000 km (for the entire 2011/12 FBT year) Business use 70% Jane contributed $1,000 towards the cost of the car. Question 12 [6 marks] Using the 2011/12 rates, calculate the FBT liability for Tumnus Pty Ltd for the 2011/12 FBT year, assuming Tumnus Pty Ltd would like to minimise its FBT liability. If there is more than one method of calculating the FBT liability, conclude which method should be used. Show full workings to support your conclusion. Operating cost method Formula: C x (100% - BP) R C = operating cost BP = business percentage R = recipient s payment Operating cost: Repairs $3,300 Insurance $2,200 Fuel $ 990 Depreciation $4,500 ($18,000 x 25%) (0.5 mark) Interest $1,404 ($18,000 x 7.80%) (0.5 mark) $12,394 (0.5 mark) Taxable value = $12,394 x (100% - 70% (0.5 mark)) - $1,000 (0.5 mark) = $2,718.20FBT = $2,718.20 x 2.0647 (0.5 mark) x 46.5% (0.5 mark) = $2,609.70 The Tax Institute 19
FOUNDATION TAX Statutory method Formula: ABC E D A = base value of car = $18,000 (0.5 mark) B = statutory fraction = 20% (0.5 mark) C = number of days car is provided to employee for private use = 365 days D = number of days car is held in that FBT year = 365 days E = recipient s payment = $1,000 (0.5 mark) Taxable value = $18,000 x 0.2 x 365 - $1,000 = $2,600 365 FBT liability = $2,600 x 2.0647 x 46.5% = $2,496.22 (0.5 mark) Conclusion: choose statutory formula method (0.5 mark) Marking explanation: Operating cost - Operating costs 0.5 mark for correctly calculating depreciation, interest and correct total. Correct amounts required to be awarded the mark. - Taxable value 0.5 mark for correctly identifying 70% as the business percentage. 0.5 mark for correct treatment of $1000 recipient payment - FBT 0.5 mark for using correct gross-up factor (ie. 2.0647) 0.5 mark for using correct tax rate (ie. 46.5%) Statutory formula - 0.5 mark for correctly identifying components A, B and E of the formula. Correct figures required to be awarded the mark. - 0.5 mark for correctly calculating the FBT liability based on candidate s taxable value ie. Mark independent of correct figure for FBT liability. Answer must include being derived from taxable value x 2.0647 x 46.5% - 0.5 mark for correct conclusion ie. statutory formula method. No requirements for reason. 20 THE TAX INSTITUTE