Deck 1: The Australian Taxation System and the Tax Formula

Question 1

Sandra Myers prepared her own tax return for the 2019-20 tax year and claimed a large deduction for overseas travel. Sandra was aware that the claim was false and could not be substantiated but she intentionally claimed it anyway. Sandra was subsequently subjected to an audit where the false claim was detected.
In this case, where there is evidence of fraud or evasion the Tax Commissioner must issue an amended assessment in:

A) 60 days from the date of the original assessment
B) Two years from the date of the original assessment
C) Four years from the date of the original assessment
D) Unlimited time to issue an amended assessment

Answer 1

Unlimited time to issue an amended assessment

Question 2

Charles Goodwin who has a start-up company JTZ Ltd, made a claim for start -up expenses during the 2019-20 tax year. Charles received tax advise that the expenses were necessarily incurred in carrying on his business, but after audit the Tax Commissioner considered that the expenses were on capital account and disallowed them. Charles is unhappy with the decision and wants to challenge the amended assessment.
Which of the following should be Charles's next course of action?

A) Lodge an objection to the amended assessment
B) Request a re-assessment of his claim
C) Appeal the Commissioners decision to the Administrative Appeals Tribunal (AAT)
D) Appeal the Commissioners decision to the Federal Court

Answer 2

Lodge an objection to the amended assessment

Question 3

The power to levy taxes is what sort of power in terms of the power sharing arrangements as set out in the Australian Constitution?

A) An exclusive power
B) A concurrent power
C) A residual power
D) Not referred to in the Commonwealth Constitution at all

Answer 3

A concurrent power

Question 4

Which of the following statements is true of the Tax Law Improvement Project that was established in 1993 to renumber and rewrite the ITAA36 into plain English has had what effect?

A) The ITAA36 has been completely rewritten into the ITAA97 and so no longer has any application
B) The ITAA97 is made subject to the ITAA36 and so any new tax laws are only added to the ITAA36
C) Only some of the ITAA36 has been written into the ITAA97 and any new tax laws are only now added to the ITAA97
D) The complex CGT provisions still remain in the ITAA36 and have not been rewritten into the ITAA97

Question 5

Which one of the following taxes is only set out in the ITAA97?

A) Capital Gains Tax
B) Fringe Benefits Tax
C) Goods and Services Tax
D) Withholding Taxes

Question 6

Which of the following is a taxable entity?

A) A partnership
B) A company
C) A trust
D) A joint venture

Question 7

A progressive tax system has which of the following features?

A) Tax rates decrease as taxable incomes rise
B) A flat rate of tax applies
C) Tax rates increase as taxable incomes rise
D) Different tax rates are paid depending upon what type of assessable income is derived

Question 8

The term ratio decidendi of a decision means what and has what legal effect?

A) The reason for the decision and is the only part of the judgement that is not legally binding
B) Constitutes the things said by the way (throughout the judgement) and is not legally binding
C) Constitutes the things said by the way (throughout the judgement) and is legally binding
D) The reason for the decision and is the only part of the judgement that is legally binding

Question 9

Which of the following courts or tribunals is able to 'stand in the shoes of the taxpayer' and thereby effectively reconsider the case?

A) The Administrative Appeals Tribunal
B) The Federal Court
C) The State Supreme Courts
D) The High Court

Question 10

Don's Gardening is a sole trader business that has been subject to an ATO audit. A number of errors were found as a result of the audit. The errors were caused by a misunderstanding of the tax law and were not caused by fraud or evasion. The ATO proposes to amend the three previous years of assessments of this sole trader business. Which one of the following statements is true?

A) The ATO is not entitled to do this as the power to amend assessments can only allow two years of assessments to be amended if there is no fraud or evasion
B) The ATO is not entitled to do this as amending assessments more than one year in the past is unfair and inconvenient to the taxpayer
C) The ATO is entitled to do this as the power to amend assessments allows the ATO to go back up to four years in the past if there is no fraud or evasion
D) The ATO is entitled to do this as the power to amend assessments allows the ATO an unlimited time period to review past year assessments for whatever reason

Question 11

Which of the following statements is not true?

A) Assessable income comprises both ordinary income and statutory income
B) Taxable income is made up of assessable income less deductions
C) Income tax payable is calculated by working out the tax payable based on the taxable income multiplied by the tax rate and then adding tax offsets
D) Income tax payable is calculated by working out the tax payable based on the taxable income multiplied by the tax rate and then subtracting tax offsets

Question 12

Which if the following statements is correct with regard to the base penalty that will apply if a taxpayer shows intentional disregard of the law in respect to their tax obligations?

A) 75% of the tax shortfall amount
B) 50% of the tax shortfall amount
C) 25% of the tax shortfall amount
D) 0% of the tax shortfall amount

Question 13

The complexity of the Australian tax system has what other unintended effects?

A) It promotes transparency and reduces compliance costs
B) It reduces transparency and increases compliance costs
C) It makes it harder for taxpayers to avoid their tax obligations
D) It promotes certainty and this reduces compliance costs

Question 14

A feature of company tax rates is that they are?

A) Progressive tax rates that increase as taxable incomes increase
B) Progressive tax rates that decrease as taxable incomes increase
C) Flat rates of tax that do not change of taxable income changes
D) Different for different types of income derived by a company taxpayer

Question 15

An example of a state based tax is which of the following?

A) Fringe Benefits Tax
B) Payroll tax
C) Goods and Services Tax
D) Excise duties

Question 16

When comparing the income tax rates that apply to resident and non-resident taxpayers, which one of the following statements is true?

A) Non-resident taxpayers pay lower rates of tax than resident taxpayers
B) Resident taxpayers pay higher rates of tax than non-resident taxpayers
C) Resident taxpayers are not eligible for the tax-free threshold or tax offsets
D) Non-resident taxpayers are not eligible for the tax-free threshold or tax offsets

Question 17

Ian is an Australian resident taxpayer who derived assessable income of $90,000 and had $5,000 in deductions in the 2020 year. He does not have any private health insurance. What amount of Medicare levy will Ian have to pay?

A) 2% x $85,000 = $1,700
B) 1.5% of $85,000 = $1,275
C) 2% x $90,000 = $1,800
D) 0% as he does not have private health insurance

Question 18

Boris is an Australian resident who derived assessable income of $30,000 and had $5,000 in deductions in the 2020 year. He does not have any private health insurance. What amount of Medicare levy will Boris have to pay?

A) Boris's assessable income = $30,000 and his Medicare levy will be $600
B) As Boris does not have private health insurance he does not have to pay any Medicare levy.
C) Boris's taxable income = $25,000 and his Medicare levy will be $260.20
D) Boris's taxable income = $25,000 and his Medicare levy will be $500

Question 19

Drake is an Australian resident who derived assessable income of $120,000 and had $7,000 in deductions in the 2020 year. He is single and does not have any private health insurance. Which of the following statements is true?

A) Medicare levy of $2,400 and Medicare levy surcharge of $1,800
B) Medicare levy of $2,400 and Medicare levy surcharge of $1412.50
C) Medicare levy of $2,260 and Medicare levy surcharge of $1,130
D) Medicare levy of $2,260 and Medicare levy surcharge of $1,412.50

Question 20

Which of the following is not true with respect to objections?

A) Objections must be lodged within 60 days of the issue of the decision being objected against in the case of a challenge to an income tax assessment
B) Objections must be lodged within 4 years of the issue of the decision being objected against in the case of a challenge to an income tax assessment
C) A taxpayer lodging an objection does not need to include full and detailed information to enable a decision on the objection to be made.
D) The ATO has 2 years to make a decision on the objection.

Question 21

Joseph is a non-resident for tax purposes and during the year ended 30 June 2020 he derived $30,000 in taxable income that had an Australian source and $20,000 in income that had a foreign source. Based on this information, what Australian tax liability is Joseph likely to have for the 2020 tax year?

Question 22

Robert is a resident for tax purposes and during the year ended 30 June 2020 he derived $60,000 in assessable income and had deductions, for which he has kept the appropriate records, of $3,000. He is single and does not have private health insurance. Based on this information, what Australian tax liability is Robert likely to have for the 2020 tax year?

Question 23

Edwina is 72 years old and the only income she received in the 2020 tax year was the age pension of $16,000 and some bank interest of $1,000 and also some unfranked dividends of $500. Does Edwina have to lodge a tax return for the year ended 30 June 2020?

Question 24

Gerald recently wrote to the ATO and requested a Private Ruling in respect to a planned investment he planned to make. He received a Private Ruling back from the Commissioner of Taxation which advised him that he would be entitled to a full deduction of the management fees he was expected to pay as part of this investment. Unfortunately for Gerald he failed to advise some important aspects of the investment, which, if he had advised the Commisssioner, it is unlikely that he would have been entitled to the full deduction. If Gerald is later subject to an audit in respect to this investment what is likely to be Gerald's position with respect to any penalties that may be imposed against him as a result of the audit?

Question 25

Tony is a resident for tax purposes and during the year ended 30 June 2020 he derived $140,000 in assessable income and had deductions, for which he has kept the appropriate records, of $10,000. He is single and he does have private health insurance that covers him for hospital services. Based on this information, what Australian tax liability is Tony likely to have for the 2020 tax year?