QUESTION 1:
NML Ltd is a public gold mining company that is exploring for gold in the Ballarat and the Bendigo
Geoff is the managing director and he seeks your advice as to the deductibility of the following
expenses which were incurred prior to 30 June 2013:
1. The purchase of gold tenements for $259,035 which gives the company the right to prospect
for gold in that area for three years.
2. The payment of legal fees to settle a dispute with an ex‐employee who stole confidential
information from the company. This cost the company $8,569
3. The company was fined by $25,000 by the Environmental Protection Authority for polluting
the rivers in Bendigo and for not rehabilitating the land after exploration. In addition to this,
the company paid $12,000 in legal fees in defending the action in court.
4. As a result of this, the company sponsored the local football club with $5,000 to try and
restore its good name in Bendigo
5. The company also paid a lump sum of $55,000 to a contract drilling company. This payment
was for the next 11 months of services and was paid on 12 May 2013.
The above figures are all exclusive of GST.
REQUIRED:
Please prepare a statement for each loss/outgoing to Geoff advising him whether the above
expenses are deductible or not for the year ended 30 June 2013. In each statement, you need to
identify the issue, then refer to relevant legislation and/or case law, and apply them in the given
factual context. You also need to make a logical conclusion for each expense.
QUESTION 2:
James and Ann Wilson, two Australian citizens, have been living in Sydney since 1 February 2006.
James has been meticulous in keeping records and provides you with the information below. It
should be noted that this information represents his understanding of what was relevant for tax
purposes, and you will need to form your judgement on the various matters based on your
knowledge of Australian income tax law. If any doubt arises on a particular issue or further
information would normally be required, you may assume such details as are necessary to complete
the tax return. All such assumptions and the basis of any decisions you make in various matters,
must be made clear by appropriate reference to legislation, cases or tax rulings and full discussion
where necessary.2 | Page
Information regarding the 2012/2013 Income tax year
Business
The data related to James’ computer consulting business (commenced in Sydney on 1/3/2013) for
the period 1/3/2013 to 30/6/2013 is as follows:
Income:
Consulting fees $120,000
Computer parts $45,000
Total income $165,000
The above figures correspond to income earned and credited to accounts. All income relating to the
sale of computer parts was collected on 30 June 2011. However included in consulting fee income is
an amount of $15,000 invoiced on 29 June 2011 but payment was only received on 6 July 2011. In
addition to the above, James has also received a prepayment of consulting fees in the amount of
$8,000 for work he will undertake in August 2011. This amount is refundable if James cannot
undertake the work.
Expenses Amount Note
Staff wages and salaries $30,000
Staff super $4,500 1
Office rent $12,000
Business Loan repayments $6,000 2
Vehicle running cost $1,300 3
Bad debt $700 4
Advertising $9,000
Other business expenses $12,000 5
Total expenses $82,000
1. Staff super contributions were paid to the superannuation fund on 10 July 2013
2. Loan repayments include a business loan principal payback of $4,000 and interest of $2,000
3. These running costs relate to the vehicle purchased with the business. The vehicle is not available
for private use.
4. The bad debt amount corresponds to a letting fee and property management fees which could not
be recovered from the owners. The amount has been written off as a bad debt in the books before
30 June.
5. Includes $500 for a traffic fine incurred by a staff member but reimbursed by the business
Personal Income
Foreign source income3 | Page
James holds a term deposit in Japan, with $2,000 interest paid in the financial year
Australian source income
Employment income while in Sydney: Gross pay: $42,000; PAYG amounts deducted: $5,500
Personal deductions
James also incurred the following expenses, which he thinks may be claimed as tax deductions
Computer Society of Australia membership fees: $750
Travel expenses to Sydney to attend a conference on development potentials in the Central NSW
region: $400 + Conference entrance fee: $350
Membership to the Newcastle Golf Club: $600; James considers that membership is vital to make
business contacts.
Required
On the basis of the information that James has provided you and assuming that there are no other
circumstances affecting his tax liability, determine James’ taxable income for the 2012/13 income
tax year.
In your answer you must provide references to the relevant sections of the ITAA 1936 and ITAA
1997, case law, Tax Rulings or Tax Determinations. You should ignore the possible incidence of GST
while answering the above requirements.
Other Instructions
Formatting Requirements:
The assignment hard copy is attached to the appropriate coversheet. The coversheet must show the
name and student number. The assignment must be typewritten and should be presented as
follows:
• Font/Font size: Times New Roman (preferred) /11, regular;
• Margin: 2.54 cm (Left, right, top and bottom);
• Page numbers: must have page numbers;
• Line Spacing: 1.15;
• Paragraph Style: Justified.
