PRACTICE EXAM ANSWER & MARKING GUIDE

PRACTICE EXAM ANSWER & MARKING GUIDE Certificate in Foundation Tax V1 2012

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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 [email protected]

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FOUNDATION TAX

Questions and marks structure Part A – Individual

Question 1 Question 2

5 marks 2 marks

Part B – Business

Question 3 Question 4 Question 5 Question 6

5 marks 2 marks 6 marks 6 marks

Part C – GST Module

Question 7 Question 8

4 marks 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

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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

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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.

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Taxable value 0.5 mark for correctly identifying 70% as the business percentage. 0.5 mark for correct treatment of $1000 recipient payment

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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.

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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%

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0.5 mark for correct conclusion – ie. statutory formula method. No requirements for reason.

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