ATL003 CTA2A Advanced SP2 2021
Practice Exam 1
ID: <insert your ID number here>
Questions and marks structure
Part A CGT & Small Business CGT concessions [30 marks]
Question 1 [14 marks]
Question 2 [4 marks]
Question 3 [12 marks]
Part B Partnerships and Tax Agent Services Act 2009 [20 marks]
Question 4 [9 marks]
Question 5 [6 marks]
Question 6 [5 marks]
Part C Trusts and Tax Administration [20 marks]
Question 7 [15 marks]
Question 8 [5 marks]
Part D Superannuation [30 marks]
Question 9 [13 marks]
Question 10 [17 marks]
Total 100 Marks
Page 1 of 17
, ATL003 CTA2A Advanced SP2 2021
Practice Exam 1
ID: <insert your ID number here>
Part A CGT & Small Business CGT Concessions [30 marks]
All dollar amounts are in Australian dollars.
Jeremy is 51 and had a successful sole trader business for 11 years producing music videos and DVDs. He started the
business himself in 2008. With rapid changes in technology and the move to digital streaming, he decided to get out of
the business and look around for another small business to buy in the next year or two to tide him through to
retirement age.
Unfortunately, Jeremy’s mum is very ill so he needs to spend more time with her. He is likely to inherit a substantial
cash amount when she dies.
In July 2019, he sold the whole business to Mike for $4m, comprising a music and film studio-building, some tangible
depreciating assets, and a large stock of DVDs and master tapes. The land and building were bought in 2012 for
$900,000. The values of the individual assets were as follows:
Assets $
Land and studio building 2,200,000
Depreciating assets 500,000
Trading stock 300,000
Goodwill 1,000,000
At the time of sale, Jeremy owned a number of other assets with market values as follows:
• Main residence in Sydney - $2.5m
• Holiday home in Byron Bay, NSW - $1.5m
• Share portfolio - $300,000
• Balance with Australian Super - $800,000
Jeremy’s initial investments in the stock market some years ago weren’t very successful so he has unutilised net capital
losses of $100,000 carried forward.
Question 1 [14 marks]
What is Jeremy’s net capital gain for the 2019-20 income year?
Explain your answer by showing all calculations, reasons for exclusions, and supporting legislative references where
appropriate. Consider the application of the small business CGT concessions where appropriate. Ignore any Division
43 ITAA97 implications.
Answer to Question 1
Page 2 of 17
, ATL003 CTA2A Advanced SP2 2021
Practice Exam 1
ID: <insert your ID number here>
What the marker was looking for
Materials Marking
reference guide
CGT events A1 on sale of business and assets 3.6.1 1.00
Trading stock disregarded per s.118-25 ITAA97 3.1 1.00
Depreciating assets disregarded per s.118-24 ITAA97 3.1 1.00
Gain on building $1.3m 3.6.1 1.00
Gain on goodwill $1m (difference) 3.3.1 1.00
Use capital loss c/f so net gain before discount $2.2m 3.7; 4.1 1.00
Div 115 ITAA97 50% discount as owned > 12 months = $1.1m 3.7 1.00
Basic conditions satisfied, CGT event not K7 4.3.1 1.00
$6m MNAV test satisfied - ignore main residence, holiday home 4.3.3 1.00
and super - $4.3m
Active asset test being business - s.152-35 4.3.7 1.00
No 15-year exemption - less than 15 years 4.4 1.00
50% discount subdiv 152-B ITAA97 - no extra conditions $550k 4.4 1.00
Can choose $500k into super (<55) - not cash poor 4.6 1.00
Could choose rollover - defer 2 years in any case 4.7 1.00
Further information:
By early 2020, Mike had realised that he wasn’t suited to being a self-employed businessman and was thinking about
getting a job as an employee in the same industry instead. In January 2020, Mike decided to grant a 9-month option to
Mary to acquire all of the business assets, except for the land and studio. The non-refundable option fee was $15,000.
Mike paid a lawyer $1,000 to draw up the contract.
In July 2020, Mary surprised Mike by exercising the option and acquired all of the business assets (except for the land
and studio) for $1.5m. At 30 June 2020, the depreciating assets and trading stock had a combined valuation of
$750,000. Mike agreed to rent the studio building to Mary on an arms-length basis. The business had fallen in value
due to Mike’s lack of experience.
Question 2 [4 marks]
What are the CGT consequences for Mike of the grant of the option in January 2020, and the subsequent sale of the
relevant business assets to Mary?
Answer to Question 2
What the marker was looking for
Materials Marking
reference guide
CGT event D2 for Mike - capital gain of $14k disregarded 3.6.5 1.00
Capital loss on sale of goodwill of $750k-$1m = $250k 3.1 1.00
Loss reduced by D2 gain disregarded - net loss $236k 3.6.5 1.00
Trading stock and depreciating assets disregarded 3.1 1.00
Page 3 of 17
Practice Exam 1
ID: <insert your ID number here>
Questions and marks structure
Part A CGT & Small Business CGT concessions [30 marks]
Question 1 [14 marks]
Question 2 [4 marks]
Question 3 [12 marks]
Part B Partnerships and Tax Agent Services Act 2009 [20 marks]
Question 4 [9 marks]
Question 5 [6 marks]
Question 6 [5 marks]
Part C Trusts and Tax Administration [20 marks]
Question 7 [15 marks]
Question 8 [5 marks]
Part D Superannuation [30 marks]
Question 9 [13 marks]
Question 10 [17 marks]
Total 100 Marks
Page 1 of 17
, ATL003 CTA2A Advanced SP2 2021
Practice Exam 1
ID: <insert your ID number here>
Part A CGT & Small Business CGT Concessions [30 marks]
All dollar amounts are in Australian dollars.
Jeremy is 51 and had a successful sole trader business for 11 years producing music videos and DVDs. He started the
business himself in 2008. With rapid changes in technology and the move to digital streaming, he decided to get out of
the business and look around for another small business to buy in the next year or two to tide him through to
retirement age.
Unfortunately, Jeremy’s mum is very ill so he needs to spend more time with her. He is likely to inherit a substantial
cash amount when she dies.
In July 2019, he sold the whole business to Mike for $4m, comprising a music and film studio-building, some tangible
depreciating assets, and a large stock of DVDs and master tapes. The land and building were bought in 2012 for
$900,000. The values of the individual assets were as follows:
Assets $
Land and studio building 2,200,000
Depreciating assets 500,000
Trading stock 300,000
Goodwill 1,000,000
At the time of sale, Jeremy owned a number of other assets with market values as follows:
• Main residence in Sydney - $2.5m
• Holiday home in Byron Bay, NSW - $1.5m
• Share portfolio - $300,000
• Balance with Australian Super - $800,000
Jeremy’s initial investments in the stock market some years ago weren’t very successful so he has unutilised net capital
losses of $100,000 carried forward.
Question 1 [14 marks]
What is Jeremy’s net capital gain for the 2019-20 income year?
Explain your answer by showing all calculations, reasons for exclusions, and supporting legislative references where
appropriate. Consider the application of the small business CGT concessions where appropriate. Ignore any Division
43 ITAA97 implications.
Answer to Question 1
Page 2 of 17
, ATL003 CTA2A Advanced SP2 2021
Practice Exam 1
ID: <insert your ID number here>
What the marker was looking for
Materials Marking
reference guide
CGT events A1 on sale of business and assets 3.6.1 1.00
Trading stock disregarded per s.118-25 ITAA97 3.1 1.00
Depreciating assets disregarded per s.118-24 ITAA97 3.1 1.00
Gain on building $1.3m 3.6.1 1.00
Gain on goodwill $1m (difference) 3.3.1 1.00
Use capital loss c/f so net gain before discount $2.2m 3.7; 4.1 1.00
Div 115 ITAA97 50% discount as owned > 12 months = $1.1m 3.7 1.00
Basic conditions satisfied, CGT event not K7 4.3.1 1.00
$6m MNAV test satisfied - ignore main residence, holiday home 4.3.3 1.00
and super - $4.3m
Active asset test being business - s.152-35 4.3.7 1.00
No 15-year exemption - less than 15 years 4.4 1.00
50% discount subdiv 152-B ITAA97 - no extra conditions $550k 4.4 1.00
Can choose $500k into super (<55) - not cash poor 4.6 1.00
Could choose rollover - defer 2 years in any case 4.7 1.00
Further information:
By early 2020, Mike had realised that he wasn’t suited to being a self-employed businessman and was thinking about
getting a job as an employee in the same industry instead. In January 2020, Mike decided to grant a 9-month option to
Mary to acquire all of the business assets, except for the land and studio. The non-refundable option fee was $15,000.
Mike paid a lawyer $1,000 to draw up the contract.
In July 2020, Mary surprised Mike by exercising the option and acquired all of the business assets (except for the land
and studio) for $1.5m. At 30 June 2020, the depreciating assets and trading stock had a combined valuation of
$750,000. Mike agreed to rent the studio building to Mary on an arms-length basis. The business had fallen in value
due to Mike’s lack of experience.
Question 2 [4 marks]
What are the CGT consequences for Mike of the grant of the option in January 2020, and the subsequent sale of the
relevant business assets to Mary?
Answer to Question 2
What the marker was looking for
Materials Marking
reference guide
CGT event D2 for Mike - capital gain of $14k disregarded 3.6.5 1.00
Capital loss on sale of goodwill of $750k-$1m = $250k 3.1 1.00
Loss reduced by D2 gain disregarded - net loss $236k 3.6.5 1.00
Trading stock and depreciating assets disregarded 3.1 1.00
Page 3 of 17
