Module 3 Principles of general and specific deductions (CPA 105)

CPA 105 Taxation

Module 3 Principles of general and specific deductions

Question 1
Which of the following statements relating to section 8-1 is/are correct for a non-small business entity (formerly
known as a non-STS taxpayer)?

I. The word ‘purpose’ in s.8-1(1)(b) may allow the Commissioner to examine the motive of the taxpayer in
situations where the outgoing incurred by the taxpayer is voluntarily incurred, is excessive, and has no
commercial explanation.
II. The word ‘necessarily’ in s.8-1(1)(b) means that the outgoing must be unavoidable in the sense that it is
a compulsory payment.
III. An outgoing must produce assessable income in the year in which it was incurred to be deductible.
IV. An outgoing can only be incurred where there is an actual disbursement of cash.

a. I only.
b. I and IV only.
c. II and III only.
d. II and IV only.

Question 2
Pets Ltd, a non-small business entity, commenced business on 1 March 2008. When preparing the tax return for
Pets Ltd for the year ended 30 June 2008, you note that the company:

■ On 30 June 2008, donated to the Royal Society for the Prevention of Cruelty to Animals (Victoria) trading
stock which cost $5000 but had a market value of $8000.
■ On 1 April 2008, paid its fire insurance premium of $8000 for the period 1 April 2008 to 31 March 2009.

Note: All figures are GST exclusive.

Assuming that the trading stock has been included in Pets’ assessable income, the amount deductible from
these two transactions for the year ended 30 June 2008 is:

a. $6995.
b. $9995.
c. $13 000.
d. $16 000.

Page 1
Module 3 Principles of general and specific deductions (CPA 105)

Question 3
During the 2007/08 tax year, Helen Donald, an employee, incurred the following education expenses whilst
working for a firm of public accountants:

■ Fees for attending a CPA course $450.

■ Expenses associated with a postgraduate course at a university where the course directly relates to the
taxpayer’s employment $950.

How much of this expenditure is deductible?

a. $450.
b. $950.
c. $1150.
d. $1400.

Question 4
During the 2007/08 tax year, Tony Morris:

■ Borrowed, on 1 July 2007, $10 000 at 10 per cent interest and immediately lent this money to his wife
at an interest rate of 2 per cent. Tony’s wife used this money to discharge a mortgage over their
residential property.
■ Paid his accountant $600 for advice relating to the establishment of a new business structure for Morris.
■ Paid his solicitor $2000 for documentation relating to the establishment of the trust structure as advised
by his accountant.

The amount allowable as a deduction to Tony Morris for the tax year ended 30 June 2008 is:

a. $200.
b. $720.
c. $800.
d. $3600.

Question 5
Which of the following statements is most accurate?

a. Entertainment expenses are deductible under ITAA97 s.8-1 to the extent to which they are incurred in
the course of gaining or producing assessable income.
b. Entertainment expenses are deductible under ITAA97 s.8-1 to the extent that they are also subject to
Fringe Benefits Tax.
c. Entertainment expenses are deductible under ITAA97 s.8-1 to the extent that they are not subject to
Fringe Benefits Tax.
d. Entertainment expenses are not deductible under ITAA97 s.8-1.

Page 2
Module 3 Principles of general and specific deductions (CPA 105)

Question 6
Lucas is employed by SRA Ltd, a mining company. Because of the nature of his job, which involves
considerable travel, he received an $8000 entertainment and travelling allowance. During the year 2007/08
Lucas spent:

■ $3000 on accommodation.
■ $700 on entertaining clients.
■ $2000 on travel to work sites.
■ $1500 on meals while away from home.
■ $100 on telephone calls to clients.

Assuming Lucas has adequate written evidence of this expenditure, the amount which he may claim as a
deduction for the 2007/08 year of income is:

a. Nil.
b. $5100.
c. $6600.
d. $7300.

Question 7
On 1 August 2007, Jones borrowed $10 million to finance the acquisition of an office building. The loan was to
be repaid in seven years time.

For the year ending 30 June 2008, the amount of interest paid on the loan was $100 000. The expenses incurred in
borrowing were:

$
Legal expenses 2 000
Broker’s commission 50 000
Underwriter fees 50 000
Printing costs 7 500
Stamp duty 2 500
112 000

For the year ending 30 June 2008, the amount that may be claimed as a deduction is:

a. $114 667.
b. $120 549.
c. $122 400.
d. $212 000.

Page 3
Module 3 Principles of general and specific deductions (CPA 105)

Question 8
The Bank of Richmond has been advised by provisional liquidators that the best return it could hope to receive
on the liquidation of Textiles Pty Ltd would be 75 cents in the dollar and, at worst, 30 cents in the dollar.
Textile Pty Ltd’s debt to the Bank of Richmond is $100 000. For accounting purposes, the Bank of Richmond
wrote off $70 000 of the debt in May 2008.

On the basis of this information, the Bank of Richmond is entitled to a tax deduction for bad debts of:

a. Nil.
b. $25 000.
c. $70 000.
d. $100 000.

Question 9
For the year ending 30 June 2008, Haya Ltd has gross business income of $600 000 and expenses (all allowable
deductions) of $800 000. Tax deductible contributions of $5000 to qualified charities were included in expenses.
In addition to the expenses, Haya had a carry forward tax loss of $9000. There has not been a change in the
ownership of Haya. What was Haya’s net tax loss for the year ending 30 June 2008?

a. $195 000.
b. $200 000.
c. $204 000.
d. $209 000.

Question 10
Dr Smith, a self-employed medical practitioner, has paid the following items and recorded them as repairs for the
year ending 30 June 2008:

Amount
Date Description $
20.07.07 Rewiring of surgery due to electrical fault 1000
18.10.07 Service of motor vehicle (used 80% for business purposes) 400
04.02.08 Painting outside of surgery 750
15.03.08 Putting sealed surface on surgery car park (previously unsealed) 1800

The total amount deductible in the 2007/08 tax year in respect of the above is:

a. $1320.
b. $2070.
c. $2083.
d. $3870.

Page 4
Module 3 Principles of general and specific deductions (CPA 105)

Question 11
In owning and operating his riding school, Adam O’Neill incurred the following expenses during the 2007/08
taxation year.

$
■ 1 July 2007 Purchased four horses, with an estimated working life of 10 years 4000

■ 1 April 2008 Expenses in borrowing $30 000 for 10 years as working capital 500

■ 1 May 2008 Veterinary expenses 750

Assume that although the riding school is a small business entity Adam does not elect to take advantage of any
small business tax concessions. If Adam wishes to maximise his deductions for the 2007/08 income year,
Adam’s total deductions from these transactions for the year ending 30 June 2008 are:

a. $762.
b. $775.
c. $1577.
d. $5250.

Question 12
Andrea took out a 15-year loan to purchase a block of blue-chip, high-yield shares. The loan commenced on
1 January 2005 and on that day she incurred borrowing costs of $1826. Towards the end of December 2007,
she had a major win at the races and found herself $100 000 richer! On 31 March 2008, she paid out the loan
in full.

What deduction in respect of borrowing costs would Andrea be entitled to in the year ending 30 June 2008?

a. $273.
b. $365.
c. $730.
d. $915.

Page 5
Module 3 Principles of general and specific deductions (CPA 105)

Question 13
Cameron Hullmandel operates a small chain of successful computer stores in Melbourne and attends one
computer conference annually to ensure that he stays up to date with developments in the computer industry.
Recently, he undertook a trip to the USA to attend a week-long computing conference. Whilst in the USA,
he became good friends with Elizabeth Gould (a personal computer salesperson from New York) and they
decided to spend a week together on holidays after the conference. Cameron has provided you with the
following information regarding the expenditure on his trip:

$
■ Airfare 4000

■ Conference attendance fees 800

■ Accommodation ($2000 conference, $2000 holidays) 4000

■ PC magazines to read on the plane on the way home 50

What is the total deductible amount in respect of the trip expenditure?

a. $4800.
b. $6800.
c. $6850.
d. $8850.

Question 14
A review of Long Line Trucking Pty Ltd’s ‘repairs & maintenance’ account in the general ledger revealed the
following costs:

I. The costs of repairing a defective ‘CB’ radio in a truck just purchased by Long Line Trucking.
II. The costs of replacing an engine in one of Long Line Trucking’s vehicles which exploded when it ran out
of engine oil. The new engine selected was of greater power and cheaper than the old engine.
III. Costs of replacing a forklift truck which, over the last 10 years, had deteriorated through extensive use to
the point where it was worth nothing.

Which of these costs are non-deductible as repairs?

a. I and II only.
b. I and III only.
c. II and III only.
d. I, II and III only.

Page 6
Module 3 Principles of general and specific deductions (CPA 105)

Question 15
James runs a small accounting practice on the outskirts of Sydney. He does not elect to take advantage
of any of the small business entity tax concessions. During the year ending 30 June 2008 he made the
following payments:

■ $5000 to Clique Show Partners—a marketing business in which his wife is a partner. The partnership
would normally have charged $10 000 for the services it provided but offered a substantial discount to
James as James’ wife was a partner.
■ $38 000 to a graduate accountant whom he employed to handle tax returns for individuals. The market
rate for graduate accountants in the tax field was $34 000. James paid extra as he wanted to support the
graduate in undertaking further study.
■ $8000 to his niece who acted as receptionist two afternoons per week. The award wage would have been
$5000 for the work performed however he paid extra to assist his niece with her university study costs.

What is the likely deduction James would be able claim under s.8-1 and s.26-35 in respect of these payments?

a. $44 000.
b. $48 000.
c. $51 000.
d. $56 000.

Question 16
Lauren Rodda operates a small business from home as a sole trader. For many years, the business has lost
money. However, during the year ending 30 June 2008, Lauren picked up some big clients and her profitability
improved. For the year ending 30 June 2008, her taxable income was $50 000 before donations of $1000 and offset
of any prior year losses available.

Her taxable incomes/losses (before loss recoupment and donations) and donations are as follows:

Taxable income (loss)

Year ended before prior year losses & donations Donations
30 June $ $
2001 (10 000) 750
2002 (3000) 750
2003 Nil—returned to study Nil
2004 1500 100
2005 2000 200
2006 Nil Nil
2007 Nil Nil

Page 7
Module 3 Principles of general and specific deductions (CPA 105)

Assuming all donations are deductible, what is Lauren’s taxable income for the year ending 30 June 2008?

a. $31 300.
b. $32 800.
c. $39 200.
d. $49 000.

Question 17
Applying the decision from Law Shipping Co Ltd v. IRC (1924) 12 TC 621, which of the following outgoings
would not be deductible as a repair?

a. The costs of repairing a faulty component in a computer system which has been owned and used by
the taxpayer for three years.
b. The costs of repairing a faulty component in a second-hand computer system just purchased.
c. The costs of replacing a separate and major component in a computer system which has been owned
and used by the taxpayer for three years.
d. The costs of routine maintenance undertaken on a second-hand computer system.

Question 18
Which of the following is deductible under ITAA97 s.8-1?

a. Motor vehicle expenses of a parent incurred as a result of the parent’s son and daughter using the
parent’s car to drive to and from university (both the son and daughter were receiving Austudy).
b. Costs of travelling between home and work for a shift worker who needed to use her car due to the
lack of public transport when she travels to and from work.
c. Golf Club subscriptions for a self-employed doctor who obtained 95 per cent of his business from
members of the golf club.
d. HELP payments by an employer in respect of an employee. (Assume that the employer is liable for
fringe benefits tax on expense payments.)

Question 19
During a tax audit, Bob Brown, a school teacher, is required to substantiate his claims for postage of $50 and
stationery of $125. These items are part of a total claim of $1374 for work-related expenses. In his defence,
Bob produces:

■ Ten Australia Post stamp books purchased for cash. Each book had contained 10 × 50¢ stamps.
■ Receipts for stationery totalling $52, and a notebook record for the balance of $73. For each item,
the notebook record showed a description of the goods and the amount.

Page 8
Module 3 Principles of general and specific deductions (CPA 105)

If the taxation official applies the legislation on substantiation strictly as enacted in the Income Tax Assessment
Act 1997 (Cwlth), Bob Brown would be allowed to claim as a deduction in respect of the postage and stationery:

a. $52.
b. $123.
c. $125.
d. $175.

Question 20
Gee Pty Ltd makes a $65 000 superannuation contribution, which includes a salary sacrifice component,
on behalf of one of its employees during the 2007/08 income year. The employee was less than 50 years old.

Assuming the superannuation contribution was paid to a complying fund and met all the other conditions for
deductibility, what is the maximum deduction available to Gee Pty Ltd?

a. $65 000.
b. $50 000
c. $15 000
d. $nil.

Question 21
A capital protected borrowing (CPB) is entered into on 1 July 2007 for a period of 12 months. The amount
borrowed is $300 000 which is repayable at maturity date and the interest charged is fixed at 18%. Assume the
Reserve Bank personal unsecured loan rate is 14% p.a. at the time the CPB is entered into.

What is the interest deduction that can be claimed in relation to the capital protected borrowing arrangement?

a. $54 000
b. $42 000
c. $15 000
d. $12 000.

Page 9
Module 3 Principles of general and specific deductions (CPA 105)

Solutions

Question 1
Correct Answer: a

Only Statement I is correct.

Statement II is incorrect because an outgoing can be deductible whether incurred involuntarily (such as a
robbery of the day’s takings), or whether incurred voluntarily on the grounds of commercial expediency (such as
the costs of dismissing staff). (See Charles Moore and Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 and
W. Neville & Co v. FC of T (1937) 56 CLR 290.)

Statement III is incorrect because an outgoing may be deductible if it produces income in a future year, such as
self-education expenses or expenses incurred to keep up to date in the taxpayer’s field of expertise which lead to
a subsequent increase in the taxpayer’s salary (see FC of T v. Finn (1961)106 CLR 60).

Statement IV is incorrect because an outgoing can still be incurred where, although there has been no
disbursement of cash, there is a presently existing liability which the taxpayer is definitely committed to.
(See RACV Insurance Pty Ltd v. FC of T 74 ATC 4169 and Coles Myer Finance Ltd v. FC of T 93 ATC 4214.)

Question 2
Correct Answer: b

As the Royal Society for the Prevention of Cruelty to Animals (Victoria) is a deductible gift recipient (s.30-45(2)
Table 4.2.7), the market value of the gift of trading stock ($8000) is deductible (s.30-15 Table Item 1).

As Pets is a non-small business entity, the prepaid expense is apportioned over its eligible service period.
The amount deductible in the 2007/08 income tax year is $8000 × 91/365 = $1995.

The deduction for the two transactions is $8000 + $1995 = $9995.

Question 3
Correct Answer: c

The CPA course fee of $450 is deductible under s.8-1(1) as there is a direct relationship to the taxpayer’s work
activities. The fees for the postgraduate course would also be deductible insofar as the course related to the
taxpayer’s existing work (see FC of T v. Finn (1966) 12 ATD 348 and FC of T v. Hatchett 71 ATC 4184). However,
since the fee paid to undertake a postgraduate course at a university falls within the definition of ‘expenses of
self education’ in s.82A, only the excess over $250 is deductible. The deduction is $450 + ($950 – $250) = $1150.

Page 10
Module 3 Principles of general and specific deductions (CPA 105)

Question 4
Correct Answer: b

The taxpayer’s interest expenses must be apportioned. As the provision of financial benefits to the taxpayer’s
wife were used for private purposes that proportion is not deductible. The deduction is $10 000 × 2% = $200
(see Ure v. FC of T 81 ATC 4100).

The payments to both the accountant and the solicitor are not deductible outright as they are of a capital nature.
(Section 25-5 only extends to expenditure of a non-capital nature on income tax related matters.)

However, as the capital expenditure was incurred after 30 June 2001, and incurred in relation to Morris’ business,
the expenditure is deductible at 20 per cent per annum over five years (s.40-880). Consequently, 1/5 of $2600 is
deductible in the 2007/08 tax year. The total deduction available to Morris is $200 + $520 = $720.

Question 5
Correct Answer: b

ITAA97 s.32-5 does not provide a deduction for entertainment expenses. Instead, it has the effect of denying a
deduction for entertainment expenses under ITAA97 s.8-1. However, ITAA97 s.32-5 does not apply to the
extent that Fringe Benefits Tax is payable in respect of particular entertainment expenditure (see ITAA97
s.32-20).

Question 6
Correct Answer: c

Lucas can claim:

$
Accommodation 3 000
Travel 2 000
Meals 1 500
Telephone calls 100
6 600

Entertainment of clients by Lucas is not deductible (s.32-5). The other expenses would be deductible because
there would be a clear and close connection with work in accordance with the essential character test.

Page 11
Module 3 Principles of general and specific deductions (CPA 105)

Question 7
Correct Answer: b

Apart from the interest paid under the loan, all the expenses of borrowing fall within s.25-25. The expenses of
borrowing are deductible over five years, the period of the loan, or period of repayment whichever is the lesser.

Borrowing expenses $112 000 ÷ 1826 days = $61.34 per day. The deduction in the 2007/08 tax year is 335 days ×
$61.34 per day = $20 549.

The interest on the loan of $100 000 is deductible under s.8-1(1) (see the High Court decision in Steele v.
Deputy Commissioner of Taxation 99 ATC 4742).

The total deduction for year ended 30 June 2008 is $120 549.

Question 8
Correct Answer: b

Before a tax deduction is allowed the debt must be bad. This means that a reasonable business would regard it
as unlikely that the debt would be paid. The bad debt is 25% of $100 000 = $25 000.

Question 9
Correct Answer: a

In determining the current year’s tax loss:

■ the tax loss carried forward is ignored; and

■ gifts to charities cannot increase the loss.

$
Assessable income 600 000
Allowable deductions 800 000
(200 000)
Less gifts 5 000
Current year tax loss (195 000)

Page 12
Module 3 Principles of general and specific deductions (CPA 105)

Question 10
Correct Answer: c

The following are deductions:

$
■ Rewiring of surgery due to electrical fault
1 000
■ Business proportion of motor vehicle servicing (80% of $400)
320
■ Painting outside of surgery
750
■ Sealing car park—a structural improvement commenced after 26 February 1992 (s.43-20(2)
and (3))—2½% of $1800 for 108/365* days (refer to Module 5 for further information)
13
2 083
* The formula in s.43-235 specifies 365 as the denominator, even if the tax year was a leap year.

Question 11
Correct Answer: c
$
Decline in value of horses (s.40-30 and s.40-72)*
(366 – 0) 200%
$4000 × ×
365 10 802
Expenses in borrowing working capital (s.25-25), spread over 5 years
$500 ÷ 1826 days = 27¢ per day × 91 days 25
Veterinary expenses (s.8-1(1)) 750
1 577

* To maximise his deductions for the 2007/08 tax year Adam would elect to use the diminishing value method and not
prime cost.

Question 12
Correct Answer: d

As the loan commenced on 1 January 2005, and the period of the loan was 15 years, Andrea would be claiming
the initial deduction for the borrowing costs over a five-year period under s.25-25. Therefore, her previous claims
would have been:

1 January 2005 to 30 June 2005: $1826 ÷ 1826 days = $1 per day × 181 days = $181
1 July 2005 to 30 June 2006: $1826 – 181 = 1645 ÷ 1645 days = $1 per day × 365 = $365
1 July 2006 to 30 June 2007: $1826 – 181 – 365 = 1280 ÷ 1280 days = $1 per day × 365 = $365
$911

Page 13
Module 3 Principles of general and specific deductions (CPA 105)

As the loan was paid out in the 2008 year of income, Andrea would be entitled to deduct the balance of the
borrowing costs (i.e. $1826 – $911 already claimed = $915).

Question 13
Correct Answer: c

Based upon Cameron’s chain of computer stores, expenses incurred in attending the computer conference are
deductible under either paragraph (a) or (b) of ITAA97 s.8-1.

As the purpose of the trip was to attend the computer conference, the entire $4000 in respect of the airfare will
be deductible. The conference fee will be wholly deductible. However, only 50 per cent of the accommodation
expenses will be deductible as half related to private holiday travel after the conference. Notwithstanding that
the magazines were purchased for Cameron to read on the way home, they still possess the necessary nexus
with his income-producing activity and the magazine expenditure is therefore deductible.

The correct answer and other alternatives are calculated as follows:

A B C D
$ $ $ $
Airfare 2000 2000 4000 4000
Conference fees 800 800 800 800
Accommodation 2000 4000 2000 4000
Magazines nil nil 50 50
Total 4800 6800 6850 8850

Question 14
Correct Answer: d

Repairs are deductible under ITAA97 s.25-10.

The repairs to the CB radio would be initial repairs and therefore non-deductible following the decision in
Law Shipping Co Ltd v. IR Commrs. Whilst replacing an engine which exploded would ordinarily be deductible,
in this case the engine had been replaced with a different, more powerful engine. Therefore, the repair takes on
the characteristics of an improvement and is not deductible as a repair. The replacement of the entirety of the
forklift truck (as opposed to a part of it) is not a repair.

Page 14
Module 3 Principles of general and specific deductions (CPA 105)

Question 15
Correct Answer: b

ITAA97 s.26-35 operates to limit certain payments to related entities to amounts which the Commissioner
considers reasonable. The definition of ‘related entity’ is contained in ITAA97, s.26-35(2), and includes relatives
of the taxpayer and partnerships with relatives as partners.

Accordingly, the payments to his wife’s partnership and to his niece would be payments to associated persons
per ITAA97 s.26-35. The payment to the graduate accountant would not.

The payment to his wife’s partnership would not be affected by ITAA97 s.26-35 as the payment is not
excessive. There is nothing in ITAA97 s.26-35 which allows a taxpayer to claim an increased deduction where
the actual amount paid is below a reasonable amount. It is likely that the payment to his niece would be deemed
excessive by the Commissioner and therefore a deduction would only be allowed for $5000.

The alternatives are calculated as follows:

A B C D
$ $ $ $
Payment to wife’s partnership 5 000 5 000 5 000 10 000
Payment to graduate accountant 34 000 38 000 38 000 38 000
Payment to niece 5 000 5 000 8 000 8 000
44 000 48 000 51 000 56 000

Question 16
Correct Answer: c

Donations cannot give rise to a tax loss and therefore the losses available in the 2001 and 2002 years are $10 000
and $3000 respectively.

Therefore, Lauren’s taxable income in the 2008 year of income would be:

$50 000 – $1000 [donations] – (13 000 (losses) – $3500 ($1500 + $2000)) less $300 (($100 + $200). Taxable income
in 2007/08) = $39 200

Page 15
Module 3 Principles of general and specific deductions (CPA 105)

Question 17
Correct Answer: b

Law Shipping established that initial repairs are non-deductible. Initial repairs are repairs to defects existing at
the time of acquisition.

Accordingly, the repair to the faulty component on the computer just purchased would be an initial repair and
therefore non-deductible as a repair.

All other options are deductible under ITAA97 s.25-10 as repairs. The routine maintenance would be deductible
under either ITAA97 s.25-10 or ITAA97 s.8-1.

Question 18
Correct Answer: d

A deduction is not available in A as the parent (the person who incurred the motor vehicle expenses) is not
using the car for income-producing purposes. Accordingly, there is no nexus between the earning of the income
(Austudy) and the incurring of the expense. Self-education claims against Austudy ceased from 1 January 1998.

It is accepted that the costs of travelling from home to work and back are not deductible, unless the taxpayer
was required to transport bulky equipment. Section 25-100 does not apply because the taxpayer is not travelling
between workplaces.

Club fees and other expenditure in respect of leisure facilities are non-deductible by virtue of ITAA97 s.26-45.
The exception is where the expenditure on club fees or leisure facilities constitutes a fringe benefit. However,
as the doctor is self employed, he cannot be in receipt of a fringe benefit.

Whilst HELP fees are made non-deductible by ITAA97 s.26-20, where the payment of the HELP constitutes a
fringe benefit (i.e. in this case, the payment of an employee’s expense by the employer) ITAA97 s.26-20(2)
operates to deem ITAA97 s.26-20(1) not to apply. Accordingly, a deduction would be available to the employer
in D on the assumption that the HELP fees would be a fringe benefit.

Question 19
Correct Answer: a

The strict rules of substantiation require a taxpayer with work-related expenses totalling more than $300 to
provide ‘written evidence’ of the expenditure (Subdivision 900-E).

Receipts should meet the tests for written evidence from the supplier. Blank Australia Post stamp books would
not normally qualify as they would not indicate the date on which the expense was incurred, and by paying cash
for the stamps the taxpayer would not be able to produce independent evidence to show the date on which the
expense was incurred. The notebook entry would also not qualify because it fails to show the name of the
supplier and the date of the expense.

Page 16
Module 3 Principles of general and specific deductions (CPA 105)

Question 20
Correct Answer: a

From 1 July 2007, employers will be entitled to a full deduction for all contributions to superannuation on behalf
of their employees provided certain conditions are met.

The employee’s recipient superannuation fund will tax the concessional contribution of $65 000 at a rate of 15%.
Excess concessional contributions tax of 31.5% will also apply on the excess contribution of $15 000 ($65 000
less annual cap amount of $50 000). Gee Pty Ltd is unaffected by excess contributions above the cap and will be
able to claim a full deduction of $65 000.

Question 21
Correct Answer: b

Essentially the non-deductible interest component is the amount by which the interest incurred under the CPB
exceeds the Reserve Bank unsecured personal loan rate.

In this example the non-deductible capital protection component will be $12 000 (4% of $300 000) and the
deductible portion will be $42 000.

Page 17