AF308 Second Semester 2020 Short Test Two
Short Test 2 is 10 multiple choice questions. When answering you can have at hand a hard
copy of the legislation but no other materials.
The test opens at 5.00 p.m. (Fiji time) on Friday October 30 and closes after one hour.
Q1
A tax creates the relationship of creditor and debtor. The creditor is the State. The debtor is
the taxpayer. As in any creditor-debtor relationship a major concern of the creditor is to
obtain payment of the debt due. An income tax system may have a variety of features focused
on obtaining payment. Which one of the following (one only) is not concerned with obtaining
payment?
(a) departure prohibition orders
(b) PAYE
(c) withholding at source
(d) third party returns
(e) garnishee orders
Q2
This question concerns the tax treatment of trusts under the ITA 2015. One only of the
following statements is false. Which one?
(a) Income of the trust and related expenses are included in the calculation of the
beneficiary’s chargeable income if the beneficiary is presently entitled to income of the trust.
(b) A trustee has no personal liability for Income Tax calculated on the chargeable trust
income.
(c) Chargeable trust income does not include income of the trust (and related expenses) to
which any beneficiary/ies are presently entitled.
(d) Trust income taxed in the hands of the trustee becomes effectively exempt income in the
hands of the beneficiary when distributed to the beneficiary.
Q3
This question concerns the House of Lords decision Ostime v Duple Motor Bodies Ltd. This
is the case in which the taxpayer carried on a business of coach manufacturing i.e. building
and fitting a bus body to a bus chassis and engine. Coaches (buses) were built to order. The
tax issue concerned the valuation of work in progress.
One only of the following statements is false. Which one?
(a) The taxman argued that work in progress should be valued on an on-cost basis while the
taxpayer argued that work in progress should be valued on a direct cost basis.
(b) The court decided only the case before it and refused to adopt any universal rule.
(c) The taxpayer won the case.
(d) The court observed that valuation on an on-cost basis fitted neatly with the decision in
Vallambrosa Rubber case. (Vallambrosa was the decision concerning the deduction of
expenses in watering and weeding young rubber trees.)
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Q4
Income tax law generally prohibits any deduction for capital expenditure or losses. From
court decisions we can extract four general ‘tests’ used in deciding whether a particular
expenditure or loss is of a capital nature. Which one (one only) of the following is not one of
the four general tests?
(a) once and for all
(b) enduring benefit
(c) normal proceeds
(d) fixed and circulating capital
(e) business entity
Q5
This question concerns the tax treatment of partnerships under the ITA 2015. One only of the
following statements is false. Which one?
(a) A partnership is required to file an annual return of income.
(b) Each partner includes in his (or her) chargeable income his (or her) share of the
partnership profit or loss for the year.
(c) In calculating partnership profit for tax purposes there is never any loss carry forward.
(d) Each partner includes in his (or her) chargeable income his (or her) drawings from the
firm for the year.
(e) Whether partners decide to distribute profit for the year or leave profit in the partnership
business is irrelevant.
Q6
In this question all dollar values are stated in FJD.
Fiji Trading Ltd (‘Fco’) is a Fiji company. Fco conducts a retailing business.
The company’s principal store is in Suva, Fiji.
The company also has one branch office. This is a retail store in Honiara, Solomon Islands.
For the year 2019 Fco’s Suva store has profits (for tax purposes) of $100,000. The Honiara
store has profits (for tax purposes) of $30,000. Fco is subject to Solomon Islands income tax
of $9,000 on the profits of its Honiara store.
Per the Fiji ITA 2015 what is Fco’s chargeable income for the year 2019?
Per the Fiji ITA 2015 what is Fco’s Income Tax liability after taking account of any available
ftc?
(a) ch inc $130,000 Inc Tax $20,000
(b) ch inc $130,000 Inc Tax $17,000
(c) ch inc $121,000 Inc Tax $24,200
(d) ch inc $121,000 Inc Tax $18,200
(e) ch inc $121,000 Inc Tax $15,200
(f) none of these answers are correct
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Q7
This question concerns the definition of ‘employment income’ in the ITA 2015. Which item
(one only) is not included in employment income?
(a) a housing allowance
(b) a fringe benefit that is not subject to FBT
(c) a payment in return for the employee agreeing to a restrictive covenant
(d) a gain from an employee share scheme
(e) salary
Q8
One only of the following propositions is incorrect. Which one?
(a) A taxpayer can deduct expenditure incurred in repairing a capital asset used in producing
income.
(b) A taxpayer cannot deduct expenditure incurred in altering or modifying a capital asset
used in producing income.
(c) Repair involves replacement or renewal of a part of the whole.
(d) A railway line is laid on sleepers. Replacing worn wooden sleepers with concrete sleepers
will not count as repair (Rhodesia Railways Ltd v CIT Bechuanaland Protectorate).
(e) Repairing defects in a second-hand ship acquired in a state of disrepair is capital
expenditure (Law Shipping case).
Q9
One only of the following statements is true. Which one?
(a) Employment income subject to withholding at source under s.111 is never included in
gross income.
(b) Interest subject to withholding at source under s.112 is never included in gross income.
(c) Interest subject to withholding at source under s.113 is never included in gross income.
Q10
X is employed by Bankco as a senior executive. X’s remuneration package includes the
benefits listed below. Which one (one only) is not subject to FBT.
(a) The Bank shall provide X with a motor vehicle for private use after working hours.
(b) The Bank shall reimburse X for school fees paid by X for his daughter to study at Suva
Private School.
(c) The Bank shall provide a night watchman to guard X’s house.
(d) X shall be entitled to obtain a home loan with a rate of interest 1% below the Bank’s
standard home loan interest rate.
(e) The Bank shall pay all medical bills incurred by X or any immediate family member.
