CPA Program — Australia Taxation

Which Act is the primary source of Australia's general capital gains tax (CGT) rules and most current income tax provisions, having progressively rewritten the earlier 1936 legislation?

• AIncome Tax Assessment Act 1997 (ITAA 1997)
• BIncome Tax Assessment Act 1936 (ITAA 1936)
• CTaxation Administration Act 1953 (TAA 1953)
• DA New Tax System (Goods and Services Tax) Act 1999

Under s 6-5 of the ITAA 1997, an Australian resident is assessable on ordinary income derived from which sources?

• AOnly sources within Australia
• BAll sources, whether in or out of Australia
• COnly sources outside Australia
• DOnly sources within the resident's State of residence

The Commissioner of Taxation issues a public ruling setting out how the Commissioner will apply a tax law. What is the status of a public ruling on which a taxpayer relies?

• AIt is law and binds the courts
• BIt is merely a guideline with no legal effect
• CIt binds the Commissioner in the taxpayer's favour if the taxpayer relies on it
• DIt binds the taxpayer but not the Commissioner

A tax agent prepares a client's return knowing the client has deliberately omitted cash income. Under the Code of Professional Conduct in the Tax Agent Services Act 2009 (TASA), the agent's primary obligation is to:

• ALodge the return as instructed because the client is responsible for its content
• BReport the client to the police immediately
• CCharge a higher fee to reflect the increased risk
• DAct honestly and with integrity, and not knowingly make a false or misleading statement t…

Which body is responsible for the registration and regulation of tax agents and BAS agents in Australia?

• AThe Tax Practitioners Board (TPB)
• BThe Australian Securities and Investments Commission (ASIC)
• CThe Australian Taxation Office (ATO)
• DCPA Australia

An individual spends 100 days in Australia during the income year but argues they are a non-resident. Which of the following is one of the statutory residency tests in the ITAA 1936 definition of 'resident'?

• AThe 90-day visa test
• BThe 183-day test
• CThe 6-month employment contract test
• DThe permanent home abroad test only

Which institution has the constitutional power to make laws with respect to taxation in Australia, subject to the requirement that such laws do not discriminate between States?

• AState parliaments
• BLocal councils
• CThe Commonwealth Parliament
• DThe High Court of Australia

Part IVA of the ITAA 1936 is best described as:

• AThe general capital gains tax regime
• BThe fringe benefits tax charging provision
• CThe PAYG withholding regime
• DThe general anti-avoidance rule allowing the Commissioner to cancel a tax benefit from a…

A taxpayer disagrees with an assessment. What is the correct first formal step to challenge it?

• ALodge an objection with the Commissioner within the prescribed period
• BLodge an appeal directly with the High Court
• CRefuse to pay the tax until the dispute is resolved
• DApply to ASIC for review

The 'self-assessment' system used for company and individual income tax in Australia means that:

• AThe ATO calculates and issues tax before any return is lodged
• BThe taxpayer's return is generally accepted at face value and an assessment is taken to b…
• CTax is only payable if the ATO selects the taxpayer for audit
• DCompanies are exempt from lodging returns

Taxable income for an entity is calculated under s 4-15 of the ITAA 1997 as:

• AOrdinary income only
• BGross receipts minus GST
• CAssessable income minus deductions
• DAssessable income minus tax offsets

Which of the following amounts is most likely to be ordinary income under s 6-5 of the ITAA 1997?

• AA lottery win received by a casual gambler
• BA gift from a friend for personal reasons
• CProceeds from selling a private car at a loss
• DSalary and wages from employment

Statutory income differs from ordinary income because statutory income is:

• AAmounts that are not ordinary income but are included in assessable income by a specific…
• BIncome that is exempt from tax
• CIncome earned only by companies
• DIncome derived from overseas only

Under the general deduction provision s 8-1 of the ITAA 1997, a loss or outgoing is deductible to the extent that it is:

• AOf a capital, private or domestic nature
• BIncurred in gaining or producing assessable income, or necessarily incurred in carrying o…
• CPaid in cash during the year
• DApproved in advance by the Commissioner

An employee claims the cost of travel between two separate workplaces on the same day for the same employer. This travel is generally:

• ANon-deductible because all travel is private
• BDeductible only if the employee uses public transport
• CDeductible because it is travel between income-producing locations, not home-to-work trav…
• DDeductible only with a private ruling

A business buys trading stock for resale. The cost of that trading stock is:

• ADenied as a capital outgoing
• BOnly deductible when the stock is eventually sold
• CTreated as a CGT asset
• DGenerally deductible, with the value of stock on hand brought to account at year end

Under the simplified depreciation rules and Div 40, the decline in value of a depreciating asset used to produce assessable income is deductible. The deduction reflects:

• AThe asset's decline in value over its effective life (or under any available immediate wr…
• BThe full cost in the year of purchase in all cases
• COnly the GST component of the asset
• DThe market value of the asset at year end

Which of the following is specifically made NON-deductible by a provision of the tax law?

• AInterest on a loan used to buy income-producing shares
• BEntertainment expenses that are not otherwise subject to FBT
• CRepairs to an income-producing rental property
• DWages paid to genuine employees

Mei earns $80,000 of assessable income and has $12,000 of allowable deductions, and also has a $5,000 prior-year tax loss carried forward. Her taxable income for the year is:

• A$68,000
• B$73,000
• C$63,000
• D$80,000

A receipt that is 'exempt income' under the tax law has what effect on a taxpayer?

• AIt is included in assessable income but taxed at a lower rate
• BIt is fully taxable like ordinary income
• CIt is added to a net capital gain
• DIt is not included in assessable income, and it can reduce certain tax losses

The 'derivation' of income is important because income is generally assessable when it is derived. For a business carried on with substantial credit sales, income is typically derived on which basis?

• AAccruals (earnings) basis, when a recoverable debt arises
• BCash (receipts) basis
• COnly when the cash is banked
• DWhen the customer pays GST

A self-employed consultant pays a $660 (GST-inclusive) fee for tax-deductible professional indemnity insurance and is registered for GST. The income tax deduction for this outgoing is:

• A$660
• B$600
• C$60
• DNil

Prepaid expenditure by a small business entity for a service period of 12 months or less, ending in the next income year, is generally:

• ASpread over the service period only
• BNever deductible
• CImmediately deductible in the year incurred under the 12-month prepayment rule
• DDeductible only when the service is fully consumed

A taxpayer receives a non-cash benefit that is convertible to money as a reward for services rendered. For income tax purposes this benefit is:

• AAlways exempt because it is not cash
• BOnly assessable if over $10,000
• CAssessable only under the CGT rules
• DPotentially ordinary income, measured at its money value, because it is a product of serv…

Which of the following best describes the difference between a tax deduction and a tax offset?

• AA deduction reduces assessable income to arrive at taxable income; an offset directly red…
• BThey are identical in effect
• CA deduction reduces tax payable; an offset reduces assessable income
• DOffsets are only available to companies

A company incurs legal fees to defend a trademark that is a structural asset of its business. These legal fees are most likely:

• ADeductible under s 8-1 as a revenue outgoing
• BCapital in nature and therefore not deductible under s 8-1
• CDeductible as entertainment
• DExempt income

Which provision allows a deduction for the decline in value of certain 'blackhole' business-related capital expenditure over five years where no other provision applies?

• ASection 8-1
• BSection 25-10
• CSection 40-880
• DSection 6-5

An individual donates $300 cash to a deductible gift recipient (DGR) charity and receives nothing material in return. The donation is:

• ANot deductible because gifts are private
• BDeductible only as a CGT cost
• CAssessable income to the donor
• DDeductible as a gift under Div 30

A tax loss arises in an income year when:

• AAllowable deductions (excluding tax losses of earlier years) exceed assessable income plu…
• BAssessable income exceeds deductions
• CA capital loss is made
• DA company pays a dividend

Under the non-commercial loss rules for individuals, a loss from a business activity can generally be offset against other income only if:

• AThe taxpayer simply chooses to do so
• BOne of the four objective tests is met (or the Commissioner exercises discretion), subjec…
• CThe business has operated for at least 10 years
• DThe loss is less than $1,000

A CGT event A1 happens when a taxpayer:

• AReceives a dividend
• BEarns interest
• CDisposes of a CGT asset (a change of ownership occurs)
• DPays a tax-deductible expense

An individual buys shares for $10,000, pays $200 brokerage on purchase, and later sells them for $18,000 incurring $300 brokerage on sale. The shares were held for 18 months. The capital gain after applying the general CGT discount is:

• A$7,500
• B$8,000
• C$4,000
• D$3,750

The general CGT discount of 50% is available to which type of taxpayer for a CGT asset held for at least 12 months?

• AIndividuals and trusts (and one-third for complying superannuation funds)
• BCompanies
• CAll taxpayers including companies at 50%
• DOnly foreign residents

A taxpayer makes a $10,000 capital gain on shares (held 14 months) and a $4,000 capital loss on other shares in the same year, with no prior capital losses. After applying losses and the discount, the net capital gain included in assessable income is:

• A$5,000
• B$3,000
• C$6,000
• D$7,000

A capital loss can be offset against:

• AAny assessable income of the taxpayer
• BSalary and wages
• CCapital gains only, in the current or a future year
• DGST payable

Which asset is generally a 'pre-CGT asset' that is exempt from CGT on disposal (subject to integrity rules)?

• AAn asset acquired on 30 June 1985
• BAny asset acquired before 1 July 2000
• CAn asset acquired before 1 July 2020
• DAn asset acquired before 20 September 1985

The main residence exemption can fully exempt a capital gain on a dwelling where:

• AThe dwelling was the taxpayer's main residence throughout the ownership period and was no…
• BThe dwelling is rented for the whole ownership period
• CThe taxpayer owns three or more properties
• DThe dwelling is owned by a company

Which of the following is an exempt CGT asset, so that a capital gain on its disposal is disregarded?

• AAn investment property
• BA car (motor vehicle designed to carry a load of less than one tonne and fewer than nine…
• CListed shares
• DCryptocurrency held as an investment

The five elements of the cost base of a CGT asset include the acquisition cost and which of the following?

• AOnly the purchase price
• BGST input tax credits claimed
• CIncidental costs, ownership costs (for assets acquired after 20 August 1991), enhancement…
• DFuture expected selling costs only

A small business owner sells an active business asset and satisfies the basic conditions and the maximum net asset value test. Which CGT concession can reduce the assessable capital gain on an active asset by 50% (in addition to the general discount)?

• AThe main residence exemption
• BThe trading stock adjustment
• CThe franking credit offset
• DThe small business 50% active asset reduction

A taxpayer acquires land for $200,000 and later disposes of it for $200,000 (no gain, no loss) but had claimed cost base ownership costs of $30,000. If those ownership costs were already deducted elsewhere, the relevant CGT rule is that:

• AAmounts already deducted (or deductible) are generally excluded from the third element of…
• BOwnership costs are always added to the cost base
• CThe whole disposal is exempt
• DThe cost base must be reduced by GST only

When a CGT asset is acquired and later disposed of, the 'reduced cost base' (rather than the cost base) is used to work out:

• AA capital gain
• BA capital loss
• COrdinary income
• DGST liability

A taxpayer acquired a parcel of shares in March 1998 for $5,000 and sells them in 2026 for $9,000. Indexation of the cost base:

• AMust be used and is mandatory for all post-1985 assets
• BHas been abolished entirely
• CIs generally frozen at 30 September 1999, and most taxpayers choose the 50% discount meth…
• DApplies only to real property

A 'collectable' for CGT purposes (such as artwork or jewellery) acquired for $400 or less is:

• AAlways subject to CGT on disposal
• BTreated as trading stock
• CExempt only if held more than 10 years
• DDisregarded for CGT because of the collectables exemption threshold

On the death of a taxpayer, the transfer of a CGT asset to the legal personal representative or a beneficiary generally:

• AIs subject to a CGT rollover so that any gain is deferred until a later disposal by the b…
• BTriggers an immediate capital gain at market value
• CIs always fully exempt regardless of later sale
• DConverts the asset to trading stock

An individual resident taxpayer has taxable income of $50,000 for 2025-26. Using the resident rates (0% to $18,200; 16% to $45,000; 30% from $45,001), the basic income tax (before offsets and Medicare levy) is:

• A$4,288
• B$5,792
• C$6,792
• D$8,000

The Medicare levy for most resident individuals is charged at what rate of taxable income (subject to low-income thresholds)?

• A1%
• B2.5%
• C2%
• D10%