Accounting Q&A · Taxation · Topic 10
Practise 25 questions on tax planning, professional ethics, commercial substance and anti-avoidance rules. Try each question before opening the answer. The examples use hypothetical amounts and rates. Check the rules for your jurisdiction and tax year before applying them.
Worked example
Two suppliers provide equivalent services. One costs 12,000 and qualifies for a documented deduction in the exercise. At 20%, the tax effect is 2,400 and the after-tax cost is 9,600, assuming the deduction is usable.
Key concepts
1. What is tax planning?
Evaluating the tax consequences of choices under applicable law.
2. What is tax evasion?
Illegal conduct to escape tax, such as deliberately concealing taxable income.
3. What is tax avoidance?
A term often used for arrangements seeking tax advantages that may be challenged under applicable rules.
4. Why check commercial purpose?
It helps explain why an arrangement exists and whether the facts support its treatment.
5. What is a general anti-avoidance rule?
A jurisdiction-specific rule that may counter certain arrangements producing tax advantages.
6. What is a specific anti-avoidance rule?
A rule targeting a defined transaction or practice.
7. What is economic substance?
The actual economic effects and activities underlying an arrangement.
8. Why compare contracts with actual conduct?
The documented terms may differ from what the parties do.
9. What does a credible basis mean in a tax planning review?
The position should have a supportable basis in the applicable rules and facts.
10. Why document assumptions?
The outcome may depend on facts, dates or interpretations that change.
Applying the rules
11. What is a tax incentive?
A relief designed to encourage qualifying activity.
12. Why verify incentive conditions before forecasting savings?
Benefits may depend on eligibility, evidence, timing or later compliance.
13. What is after-tax cost in a simple deduction example?
Cash cost less the usable tax saving.
14. An eligible cost is 10,000 and the rate is 20%. What is the tax saving?
2,000 if fully deductible and usable at that rate.
15. What is the after-tax cost in that example?
8,000, ignoring timing and other effects.
16. What if only half of the 10,000 is deductible?
Tax savings are 1,000 and after-tax cost is 9,000.
17. Why compare tax and non-tax outcomes?
Implementation, financing, risk and operations can outweigh the projected tax saving.
18. What is an ethical conflict of interest?
A competing interest that may compromise objective professional judgement.
19. How should confidential tax records be handled?
Limit access and disclose only when authorised or otherwise required or permitted.
Review questions
20. What if a client asks you to omit income deliberately?
Explain the issue, decline to assist with the omission and follow applicable professional obligations.
21. Why preserve advice and approvals?
They show the facts, evidence and reasoning available at the time.
22. When might a ruling be useful?
When an authority offers a process to clarify treatment of specified facts.
23. What is a disclosure obligation?
A requirement to report specified arrangements, facts or positions under local rules.
24. Can an arrangement’s tax treatment change later?
Changes in facts, law or interpretation may require reassessment.
25. What should a planning memorandum cover?
Record options, business reasons, applicable rules, calculations, risks and approvals.
Official reference for Tax Planning, Ethics and Anti-Avoidance.