Taxation Assignment

Question 1 (10 Marks)

Jack and Jill jointly own and run a bed and breakfast business. The business is run

through their partnership, J & J Bed and Breakfast. Jack and Jill also own an

investment property together which they purchased in equal proportions. During the

year, they undertook the following transactions:

• Purchased furniture for their bed and breakfast business for $3,000 on 21

• Purchased a printer for their bed and breakfast business for $700 on 30 April

• Purchased an air-conditioner for their investment property for $2,000 on 15

December 2014. The furniture is expected to last for seven years.

2015. The machine is expected to last for three years.

March 2015. The air-conditioner is expected to last for eight years. Jack

and Jill contributed to the purchase price of the air-conditioner equally.

Advise Jack and Jill of their income tax consequences arising out of the above

information under both the diminishing value method and the prime cost method (if

relevant) for the year ended 30 June 2015. Assume that the business does not

qualify as a small business entity.

Question 2 (10 Marks)

Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following

remuneration package with ABC:

• salary of $300,000;

• Payment of Alan’s mobile phone bill ($220 per month, including GST).

Alan is under a two-year contract whereby he is required to pay a

fixed sum each month for unlimited usage of his phone. Alan uses

the phone for work-related purposes only;

• Payment of Alan’s children’s school fees ($20,000 per year). The

school fees are GST free.

ABC also provided Alan with the latest mobile phone handset, which cost $2,000

(including GST).

At the end of the year ABC hosted a dinner at a local Thai restaurant for all 20

employees and their partners. The total cost of the dinner was $6,600 including GST.

(a) Advise ABC of its FBT consequences arising out of the above information,

including calculation of any FBT liability, for the year ending 31 March 2015.

Assume that ABC would be entitled to input tax credits in relation to any GST-
inclusive acquisitions.

(b) How would your answer to (a) differ if ABC only had 5 employees?

(c) How would your answer to (a) differ if clients of ABC also attended the end-
of-year dinner?