NOTES REGARDING THE MID-TERM EXAM

1) It can’t be repeated often enough that the nexus between the taxpayer’s current work and their study must be explained in plain English. The same principle applies to motor vehicle deductions. If you do not do this in the final exam you will lose several marks, and if you were to not explain the nexus in the case of a real H & R Block client, then the return would not be lodged until you had corrected it.

2) The self-education portion of the capital cost of the printer can go at category E to reduce the threshold. If you didn’t do this, then you have robbed the taxpayer of a $100 deduction. Also, non-deductible travel includes self education km over 5000 km if the taxpayer has reached the 5000km limit elsewhere on the tax return. Category E is just as important as the other categories – don’t ignore it.

3) Decline in value (depreciation)

A quick summary:

COST OF ASSET ($)	TREATMENT
0 - 99	Even if it is a durable asset like a printer or scanner the ATO allows any asset costing under $100 to be treated as a consumable. Hence it need not be depreciated.
100 - 299	Should be depreciated at 100%. Properly it should remain on the schedule in future years, because it might be sold eventually and the money received would be assessable income.
300 - 999	Can either be put into a low value pool or depreciated at the UCA rate.
1000+	Must initially be depreciated on a UCA schedule until its value falls under $1000. Then it can either be put into the LVP or continue on the UCA schedule.

4) Filling out the I form

I have stressed that it is vital to become familiar with the I form, and to be aware of all the boxes and labels which must be filled if the tax return is to be valid. If you had taken notice of this advice you should not have lost any marks on the front page, and not lost any marks for not filling in the ‘totals’ boxes on the I form. And of course everybody filled in item M2.

Right?

QUESTION 3 (10 marks)

METHOD OF CLAIM	CALCULATION	ITEM NO & CODE
Set rate	5000 x 0.67 = $3350	D1 S
Twelve per cent of cost	15000 x 12% = $1800	D1 T
Log book	4826 x 80% = $3861	D1 B
One third of actual expenses	4826 x 1/3 = $1609	D1 O
Award transport allowance	4320 x 7.6/18 = $1824	D2

LOG BOOK CALCULATIONS

For the 12 week period:

5050/6312 = 80.0% work use.

Km traveled for the year = 741,025 – 713,675 = 27,350

Fuel cost for the year = (27350 x 6.67 x 1.20)/100 = $2189

10 litres x 100/150 = 6.67 litres per 100 km.

2189+560+573+35+180+165+275+849 = 4826

Notes

1) Renewal of an ordinary driving license is a private expense.

2) The work-related road tolls go at item D2.

3) Be careful not to calculate ‘80% of 80%’ when working out the fuel cost. It is a very common error.

D1	3861	B
D2	35

QUESTION 4 (10 marks)

1] He will be treated as a non-resident.

A person on a 12 month working holiday visa has no settled place of abode, will work at a number of jobs (the time a working holiday person can spend at one job is limited by law), and will maintain investments and other ties with their country of citizenship. They are not living the ‘lifestyle’ of a resident.

2] a) The taxpayer should declare the $600 interest on his 2007 tax return because it has been added to his account, even though he cannot access it.

b) Trust income is declared in the year in which it accrued, not the year in which it is paid. So the income should be declared on the 2007 tax return.

	STUDY	DEDN?	REASONS
a	Pharmacy assistant studying for a B. Pharm.	NO	It would involve a change of occupation. A pharmacy assistant is not qualified to dispense drugs – she merely assists customers who often only want to buy make-up or hair shampoo.
b	Full-time maths teacher studying for a M.Ed. part-time.	YES	It is closely focused on her established occupation and would enable her to perform her current work better.
c	Engineering student doing work experience as a course requirement.	NO	The work is not primary. The study is the primary consideration and was begun before the work. The work is merely a requirement of the course.