Tax Law Practice Exam Paper
There are TWO (2) Problem Questions. Students will need to answer ALL
questions. Your answer to each question attempted should commence on a new
page and be appropriately numbered.
The examination is worth 50% of the marks available in this subject. The contribution
each question makes to the total examination mark is indicated on the paper.
This examination is an open book examination.
This examination is expected to take approximately 2 hours of working time. You
are advised to allocate your time accordingly. Your answer file may be submitted at
any time before the due time. Please allow time to complete the submission process.
Please submit your file in PDF or Word format. Please name your file as follows:
EXAM_subject number_student number e.g. EXAM_54000_12345678
Word Limit
There is a recommended word count of approximately 1000 words for each question,
and a mandatory maximum word limit of 2000 words in total, overall for the answer
file. This means that you can write either more or less than 1000 words for each
question, however you must comply with the mandatory maximum overall word limit
of 2000 words. A ten percent (10%) leeway on the maximum word limit is permitted.
Your answer can consist of a word count less than the imposed word limit.
References are not included in the word count.
Important Notice – Exam Conditions and Academic Integrity
In attempting this examination and submitting an answer file, candidates are
undertaking that the work they submit is a result of their own unaided efforts and that
they have not discussed the questions or possible answers with other persons during
the examination period. Candidates who are found to have participated in any form
of cooperation or collusion or any activity which could amount to academic
misconduct in the answering of this examination will have their marks withdrawn and
disciplinary action will be initiated on a complaint from the Examiner.
Exam answers must be submitted via Turnitin. Staff may ask that a student
undertake an oral test to ensure they have completed the work on their own and to
assess their knowledge of the answers they have submitted.
References to cases, legislation and tax rulings
For the purpose of answering the exam questions, students are not required to
include footnotes or AGLC referencing in their exam answer. Students should use
brief in-text referencing in the body of their exam answer. Any reference to cases
may be cited with the case name, and brackets may be used (e.g. Brent). Examiners
will assume that all references to sections, sub-sections or paragraphs of subsections (e.g. s 8-1) are references to the Income Tax Assessment Act 1997 (Cth),
unless otherwise specified. References to any other legislation should be made clear
and can afterwards be abbreviated (e.g. Income Tax Assessment Act 1936 (Cth))
(‘ITAA36’). References to tax rulings may also be abbreviated (e.g. TR93/30)
A bibliography is not required for this assessment task.
Structure
• Make sure you follow the HIRAC methodology (see “Concise Guide to Answering
Tax Law Problem Questions” and “Example illustrating HIRAC methodology” on
Canvas)
• Use separate headings for each relevant key issue eg, ““Is the [$y]
amount/benefit received, included in the taxpayer’s assessable income?”, “Is the
[$x] expense deductible to the taxpayer under s8-1?”
Document type, formatting and font
• Students must submit their exam answers as a Word or PDF file. Other file types
will not be assessed.

• In their answer, students should clearly specify which question they are
addressing (e.g. Question 2). Students should also make use of headings
throughout their answers.
• Students should use Times New Roman or Arial font, size 12, and the
paragraphs should be double or 1.5 spaced.
• Make sure you proofread your response & correct any spelling/grammar errors
before handing it in
• Don’t forget to attach a completed UTS Law Assignment Cover Sheet for Online
Submissions to the front of your response.
Question 1 (25 marks)
In 2019 Kate purchased an investment property in the Blue Mountains for $700,000.
(Kate paid a 10% down payment and borrowed the balance of the purchase price
from BigBank at market rates.) Kate also paid transfer (stamp) duty of $50,000 and
legal fees of $2,000 in relation to the purchase. At the time of the purchase, the
property was already rented out to tenants who continued to live in the property
following the purchase. During the 2020/21 year of income, in relation to the
property, Kate received rent of $40,000, and incurred the following expenses: council
rates of $2,500, water rates of $500, insurance premiums of $1,000 , agent’s fees of
$7,000 and $40,000 interest on the loan. Kate also arranged to use the property
herself as a holiday home for four (4) weeks during the year, as she enjoys
bushwalking in the Blue Mountains.
Kate is also a potential beneficiary of the Smith Family Trust (SFT), an Australian
resident trust. The beneficiaries are Bob and his wife Bernice, and their two children,
Kate (30 years) and Kim (25 years). Bob, Bernice, Kate and Kim are Australian
residents for tax purposes. The trustee is a close family friend, Mercy. The SFT trust
deed provides that:
“the Trustee may distribute all or any of the trust income to such one or more or all of
the beneficiaries Bob, Bernice, Kate or Kim in such proportions as the Trustee shall
in their unfettered discretion determine”.
During the 2020/21 year, the trust estate earns income calculated under trust law
principles of $275,000. Mercy, the trustee, allocated the trust law income under a
trustee resolution made on 27 June 2021 as follows:
Beneficiary: Share:
Kate 40%
Kim 20%
Bob 30%
Bernice 10%
SFT’s tax law income (net income calculated under s95 ITAA36) for the 2020/21
income year was $284,000.
Required:
Advise Kate regarding the income tax implications arising from the above
facts. In your answer make sure you refer to any relevant cases, legislative
provisions, tax rulings and principles of tax law. (25 marks)
Question 2 (25 marks)
BagCo Ltd (BagCo) is a large company which sells synthetic handbags in a wide
range of designs. The company accountant, Alan, is in the process of preparing
income tax returns for the company and staff, and seeks advice on the following
matters:
BagCo owns commercial premises in a busy retail-shopping mall. The premises are
currently leased out to a company that operates a computer store. The tenant has
complained for a while about how the air conditioning unit in the store is not working
properly, and has regularly requested BagCo to have it fixed. BagCo eventually
agrees and arranges for a technician to have a look at it. In order to fix it, the
technician replaces the compressor part in the air conditioning unit and issues
BagCo an invoice of $700.
BagCo employs Alan as the accountant for the business. Alan is occasionally
required to travel from the head office to retail store premises to consult with store
managers. Afterwards he travels back to the head office to write up a report. During
the year, he incurs travel expenses of $3,000 in travelling from head office to retail
store premises and back to the office.
Due to the nature of his work, Alan is required to stay up to date with the latest
changes in accounting standards. Alan pays $800 per year to attend weekly update
seminars held by a professional accounting organisation. Alan was recently on
holiday in Brisbane when he became aware of a work-related accounting seminar
being held in Brisbane. The cost of the seminar was $300. Alan also incurred $500
on the return airfare to Brisbane and $700 for his accommodation.
BagCo does not reimburse Alan for any of these expenses.
During the 2021/22 year, BagCo’s CEO Brenda, wins an award for “Best CEO”
which includes $1,000 cash prize and a brand new washing machine valued at
$3000. The “Best CEO” prize is a renowned award in the industry which is awarded
annually by Channel Nine.
In the 2021/22 income year, BagCo received a dividend of $30,000 franked 50%
from another Australian resident company HatCo Pty Ltd. (Assume 30% corporate
tax rate for imputation purposes)
Required: Advise BagCo, Alan and Brenda regarding the income tax
implications arising from the above facts in relation to the 2021/22 income
year. In your answer make sure you refer to any relevant cases, legislative
provisions, tax rulings and principles of tax law.
(25 marks)