Practice Questions Taxation Law and Practice PDF

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Topic: Sources of Taxation Law and The Taxation Formula Following is a set of questions designed to assess your understanding of the topic 'Australian Tax Regime'. Instructions: You will be presented with 10 questions. For each question, select your answer, then click on Submit Answer to record your response. Once you have submitted your answer, you will not be able to change your response. You must complete all questions. You may only attempt this quiz once. Progress through the quiz by pressing the Next button that appears on the left of the screen. 1. Application of the doctrine of precedent » True/False Question An accountant providing tax law advice may only state a likely outcome of how the Commissioner of Taxation interprets precedents. [A*] True [B] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [1.50] for further reading. 2. Commonwealth power to tax » Multiple Choice Question What is significant about s 51(ii) of the Australian Constitution? (A*) This section provides that the Commonwealth has power to make laws with respect to taxation, but not so as to discriminate between States or parts of States. (B) This section provides that laws imposing taxation “shall deal only with the imposition of taxation” and “shall deal with one subject of taxation only”. (C) This section provides that customs and excise duties can only be imposed by the Commonwealth. 2 © 2016 Thomson Reuters (Professional) Australia Limited => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.20] for further reading. 3. Commonwealth power to tax » Multiple Choice Question Which section of the Australian Constitution is responsible for there being separate Acts for imposing income tax and for setting out the rates of income tax? (A*) Section 55 (B) Section 51(ii) (C) Section 81 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.20] for further reading. 4. Court hierarchy » Multiple Choice Question Which is the final court of appeal in Australia? (A)

Federal Court (B) Supreme Court (C) Federal Magistrates Court (D*) High Court => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [1.270] for further reading. 5. Income tax formula » Multiple Choice Question In which section of which Act is the formula to calculate income tax liability located? (A*) s 4-10 of ITAA 1997 3 © 2016 Thomson Reuters (Professional) Australia Limited (B) s 6-5 of ITAA 1997 (C) s 21A of ITAA 1936 (D) s 6-23 of ITAA 1997 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.00] for further reading. 6. tax law">Tax laws » True/False Question Under the self-assessment system taxpayers are responsible for interpreting the tax law and applying it to their transaction when they complete a tax return. [A*] True [B] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [1.280] for further reading. 7. The burden of tax » True/False Question Australia imposes personal income tax on the family unit or couple. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.110] for further reading. 8. Constructive receipt » Multiple Choice Question Betty provides her employer with instructions to pay one-quarter of her salary each fortnight to her elderly parents. Is Betty taxed on this component of salary that is paid to her parents? (A*) Yes 4 © 2016 Thomson Reuters (Professional) Australia Limited (B) No

=> See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.150] for further reading. 9. Burden of tax » True/False Question Partnerships and trusts pay income tax on their taxable income. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.110] for further reading. 10. Tax rates » Multiple Choice Question The applicable rates of income tax are set out in? (A) The Income Tax Assessment Act 1936 (B) The Income Tax Assessment Act 1997 (C*) The Income Tax Rates Act 1986 (D) The Tax Administration Act 1953 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.190] for further reading. 11. Tax-free threshold » Multiple Choice Question The tax-free threshold for a foreign resident for the year ending 30 June 2016 is? (A*) $0 5 © 2016 Thomson Reuters (Professional) Australia Limited (B) $6,000 (C) $18,200 (D) $80,000 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.200] for further reading. 12. Medicare levy » Multiple Choice Question Which of the following entities are liable to pay the Medicare levy? (A*) Australian resident individual for tax purposes (B) Foreign resident individual for tax purposes (C) Australian resident company (D) Foreign resident company (E) Trust (F) All of the above => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.40] for further reading. 13. Medicare levy

» Multiple Choice Question Andrea has a taxable income of $46,750 and is unmarried. What is Andrea’s Medicare levy liability for the year ending 30 June 2016? Do not consider the Medicare Levy Surcharge. (A*) $935 (B) $467.50 (C) 6 © 2016 Thomson Reuters (Professional) Australia Limited $500 (D) $701.25 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.50] for further reading. 14. Medicare levy » Multiple Choice Question Andrea (35 years) has a taxable income of $24 000 and is unmarried. What is Andrea’s Medicare levy liability for the year ending 30 June 2016? Do not consider the Medicare Levy Surcharge and use the current phase-in thresholds in Table 3.2. (A) $480 (B*) $310.40 (C) $360 (D) $701.25 => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.60] for further reading. 15. Higher education debts » True/False Question A taxpayer is able to reduce and/or avoid repayment of their Higher Education Loan Program debt by having multiple rental properties which generate losses and therefore reduce taxable income. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.90] for further reading. Topic: Residence and Source 7 © 2016 Thomson Reuters (Professional) Australia Limited Following is a set of questions designed to assess your understanding of the topic 'Residence and Source'. Instructions: You will be presented with 10 questions. For each question, select your answer, then click on Submit Answer to record your response. Once you have submitted your answer, you will not be able to change your response.

You must complete all questions. You may only attempt this quiz once. Progress through the quiz by pressing the Next button that appears on the left of the screen. 1. Residency » Multiple Choice Question Bill was born in Australia and resided in Australia all his life. For a period of seven weeks in the year of income he was present in Hong Kong on business for his employers. His wife and children remained in Australia where he maintained a home. Can Bill claim that during the period of seven weeks he was a resident of Hong Kong? (A*) No (B) Yes => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.40] - [4.120] for further reading. 2. Individual resident - domicile » True/False Question By travelling to Australia and living here for more than 6 months a person will automatically have a domicile of Australia. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.100] for further reading. 3. Individual resident » Multiple Choice Question 8 © 2016 Thomson Reuters (Professional) Australia Limited Bob has established that he has an Australian domicile. However, the Commissioner is satisfied that Bob’s permanent place of abode is outside Australia. Is Bob a resident for Australian tax purposes? (A) Yes (B*) No => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.100] for further reading. 4. Partnership residence » Multiple Choice Question What test is used to determine whether a partnership is a resident of Australia for taxation purposes? (A) Domicile test for partnerships (B) Incorporated test (C) 183-day test for partnerships (D*) None of the above => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s)

[3.110] for further reading. 5. Individual - resident » Multiple Choice Question Allan Rich, an Australian citizen, has been living in Singapore for the past three years. Allan owns an apartment in Singapore, has no family ties in Australia and does not intend to return to Australia in the near future. Is Allan a resident of Australia for tax purposes? (A) Yes (B*) No => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.100] - [4.130] for further reading. 9 © 2016 Thomson Reuters (Professional) Australia Limited 6. Individual - resident » Multiple Choice Question Marie is a marine biologist. She comes to Australia for five months to conduct research on the Great Barrier Reef but actually stays seven months to complete it. She stays in a hostel and uses credit cards for living expenses. Her husband and children stay home in America. Marie also helps run the family business by using the internet in Australia. Marie’s research is often interrupted because she has to frequently communicate with her husband about their emerging business problems. Eventually she goes home to America for a week to sort out a major business issue. Is Marie a resident of Australia during her seven-month stay? (A) Yes (B*) No => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.90] for further reading. 7. Residence of company » Multiple Choice Question Shipping Co Ltd is a shipping company that was incorporated in America. An Australian resident holds the majority of shares in Shipping Co Ltd. He had the power to remove the three directors resident in America and no resolution has effect without his approval. Shipping Co’s main business activity is the preparation of contracts for shipping which is undertaken by the Australian resident shareholder. In which country is Shipping Co Ltd a resident? (A*) Australia (B) America (C) Both A and B => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.170] & [4.210] for further reading. 8. Services » Multiple Choice Question In determining the source of remuneration for services rendered, which factor(s) can be relevant?

(A) The place where the relevant services are performed (B) 10 © 2016 Thomson Reuters (Professional) Australia Limited The place where the remuneration is payable (C) The place where the relevant contract is made (D*) All of the above => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.260] for further reading. 9. Bonus paid for overseas work » Multiple Choice Question Joseph is a resident for Australian tax purposes and was employed in Indonesia (by an Indonesian resident company) for 18 months supervising company operations. His work proved highly profitable to the company which, after termination of his Indonesian employment, gave him a $10,000 bonus payable in Melbourne. Where is the bonus sourced? (A) Australia (B*) Indonesia (C) Both A and B => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.260] for further reading. 10. Royalty payments » Multiple Choice Question Kate Knowles is a resident of New Zealand who receives royalty payments, as a result of licensing a design in Australia, from Design Co Ltd which, for tax purposes, is a resident company of Australia. Where are the royalty payments sourced? (A*) Australia (B) New Zealand (C) Both A and B => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [4.290] for further reading. 11 © 2016 Thomson Reuters (Professional) Australia Limited Topic: Introduction to Ordinary Income Following is a set of questions designed to assess your understanding of the topic 'Introduction to Ordinary Income'. Instructions: You will be presented with 10 questions. For each question, select your answer, then click on Submit Answer to record your response. Once you have submitted your answer, you will not be able to change your response. You must complete all questions. You may only attempt this quiz once. Progress through the quiz by pressing the Next button that appears on the left of the screen. 1. Ordinary income » True/False Question

Amounts that are ordinary income may also be statutory income. [A*] True [B] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [3.160] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at s 6-25(1) of ITAA 1997 for further reading. 2. Categories » Multiple Choice Question Which of the following is not a common category of income? (A) Income from personal services (B) Income from property (C) Income from business (D*) Income from a scheme under Part IVA of ITAA 1936 (E) 12 © 2016 Thomson Reuters (Professional) Australia Limited None of the above => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.30] for further reading. 3. capital gain">Capital gains » True/False Question A capital gain is not ordinary income. [A*] True [B] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.40] for further reading. 4. Reporting obligations » Multiple Choice Question Which of the following receipts would not be considered ordinary income? (A) Cash (B*) Cartons of cigarettes (C) New car (D) Transferrable holiday => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.60] for further reading. 5. Characteristics of ordinary income » True/False Question A lump sum payment will always be considered capital and not ordinary income in the hands of the entity receiving it? [A] True [B*]

13 © 2016 Thomson Reuters (Professional) Australia Limited False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.90] for further reading. 6. Characteristics of ordinary income » Multiple Choice Question A taxpayer receives instalment payments for the sale of a house (ie a capital asset). How are the instalment payments to be categorised? (A*) Capital gain (B) Ordinary Income (C) Both A and B => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.90] for further reading. 7. Ordinary income » Multiple Choice Question Which of the following amounts is not classified as ordinary income? (A) Fees received by an accounting firm (B) Rent received in relation to a lease (C*) Reimbursement of a work related expense (D) Proceeds from the sale of a house by a married couple carrying on a renovation business => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.70] for further reading. 8. Constructive receipt » True/False Question Harry works as a taxation specialist in a large accounting firm. He is paid on a monthly basis. One month, he asks his employer “for the next two months, don’t pay me, pay my wife instead”. 14 © 2016 Thomson Reuters (Professional) Australia Limited This salary is ordinary income in the hands of Harry’s wife. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.160] for further reading. 9. Principle of “mutuality” » True/False Question Membership fees given to a tennis club from its members are subsequently refunded. The refunded fees given back to the members are assessable income of the members. [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.170] for further reading.

10. Ordinary income » Multiple Choice Question What elements must be present for an amount to constitute ordinary income under s 6-5 of ITAA 1997? (A*) Benefit must be cash or cash convertible; it must have a nexus with an income earning activity; benefit must not be in the nature of capital. (B) Benefit is cash or cash convertible and income according to ordinary concepts. (C) Nexus with an income earning activity. (D) Must not be statutory income and must not be capital. => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.40] - [5.70] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at s 6-5 of ITAA 1997 for further reading. 15 © 2016 Thomson Reuters (Professional) Australia Limited Topic: Income from Personal Services and Employment Following is a set of questions designed to assess your understanding of the topic 'Income from Personal Services and Employment'. Instructions: You will be presented with 10 questions. For each question, select your answer, then click on Submit Answer to record your response. Once you have submitted your answer, you will not be able to change your response. You must complete all questions. You may only attempt this quiz once. Progress through the quiz by pressing the Next button that appears on the left of the screen. 1. Jury attendance fees » Multiple Choice Question Sally is required to attend a jury sitting at the Supreme Court for a week. She receives a jury attendance fee of $450, which she pays to her employer because she received her normal income while on jury duty. Does the $450 form part of Sally’s assessable income? (A) Yes (B*) No => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [5.70] for further reading. 2. Restriction of a right » Multiple Choice Question Nancy Twist, a famous Australian actress who recently starred in a Hollywood production, receives A$3million from a film production company in return for her agreeing not to work on any film sets for the next 18 months. How is this payment classified? (A*) Capital (B) Assessable income

16 © 2016 Thomson Reuters (Professional) Australia Limited => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [6.160] - [6.170] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at s 104-35 of ITAA 1997 for further reading. 3. Prize » Multiple Choice Question Would a prize in a literary competition won by an editor of a newspaper constitute assessable income? (A*) Yes (B) No => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [6.110] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at ss 6-5 and 15-2 of ITAA 1997 for further reading. 4. Personal services income » Multiple Choice Question Which of the following are examples of personal services income? (Select more than one, if appropriate.) [A*] Salary and wages [B*] Income of an accountant practising as a sole practitioner [C*] Income of a lawyer practising as a sole practitioner [D*] Income received by a large construction company for work performed by its employees. [E] Income generated from holding shares in a company => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [6.20] - [6.30] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at s 84-5 of ITAA 1997 for further reading. 5. Income from personal exertion 17 © 2016 Thomson Reuters (Professional) Australia Limited » True/False Question Section 15-2 of ITAA 1997 can apply to personal services income and income from business but not income from property? [A] True [B*] False => See Sadiq et al, Principles of Taxation Law 2016 (Thomson Reuters, 2016) at para(s) [6.190] for further reading. => See Pinto, Kendall & Sadiq, Fundamental Tax Legislation 2016 (Thomson Reuters, 2016) at s 15-2 of ITAA 1997 for further reading. 6. Return-to-work payments » Multiple Choice Question Susan works as an accountant for PMK. She quits because she is unhappy with the management of the firm. The firm would lik...