Case Study
Part A
Toni Pty Ltd, a resident company, carries on a motor vehicle insurance business and the following three transactions are relevant to determining the company's allowable deductions for the year ended 30 June 2012:
- The accountants for Toni included a provision of $9,000 for annual leave in the financial statements for the year ended 30 June 2012. The actual annual leave paid for the year ended 30 June 2012 was $8,000.
- On 29 June 2012 one of Toni's clients who had motor vehicle insurance reported that they had an accident in their car and that the cost of repairs was $15,000. The client is entitled to be covered for this accident under their policy of insurance.
- The accountants for Toni included a provision for future insurance claims of $20,000 in the financial statements for the year ended 30 June 2012. None of these claims constituted a presently existing liability at 30 June 2012.
Required:
Based on this information what amount can Toni Pty Ltd claim as a tax deduction under s 8-1 ITAA 97 for the year ended 30 June 2012? Support your answer with reference to appropriate authority.
Part B
Caroline, a resident, is a qualified lawyer and a specialist in contract law. She works for Offer Pty Ltd and in the current year she had the following transactions which are relevant to determining what amount of tax deductions are available to her:
- Caroline takes the train to work each day from her home and she paid $780 for train fares during the year ended 30 June 2012.
- Caroline regularly has to attend the court to defend her clients and she incurred $1,500 in taxi fares for travelling from her normal workplace at Offer Pty Ltd to the court and returning to her workplace. Her employer did not reimburse her any of this amount.
- Caroline paid $900 in taking clients of her employer to dinner at a very stylish restaurant with city views during the year. Her employer paid her an entertainment allowance of $800 during the year.
Required:
Based on this information what amount can Caroline claim as a tax deduction under s 8-1 ITAA 97 in the year ended 30 June 2012? Will she have to include any amount in assessable income as a result of these transactions? Support your answer with reference to appropriate authority.
Part C
Andrew, a resident, carries on a business providing accounting services to clients in Toowoomba. Andrew has 15 staff and he accounts for his income on an accruals basis. The following information relates to his accounts receivable/trade debtors for the year ended 30 June 2012:
- During the current year one of Andrew's clients who owed him $2,000 as at 30 June 2011 was experiencing financial difficulties and Andrew forgave the debt on 15 April 2012. Andrew wrote off the debt on 30 June 2012.
- Andrew made a provision of $27,000 for bad debts in his financial statements for the year ended 30 June 2012 based his expectation that 10% of his accounts receivable would not pay him.
- On 29 June 2012 Andrew identified that one of his clients that owed him $7,000 was declared bankrupt and Andrew made a written note evidencing that the debt had been written off.
Required:
Based on this information what amount can Andrew claim as a tax deduction for bad debts under s 25-35 Income Tax Assessment Act 1997 in the year ended 30 June 2012? Support your answer with reference to appropriate authority.
Part D
Katie, a resident, carries on a business providing engineering consulting services to the construction industry and had the following transactions in the year ended 30 June 2012 which are relevant to determining the amount of tax deduction available to her under s 25-10 ITAA 97:
- Katie purchased a new laptop computer costing $1,500 on 1 September 2011 and she expects that the computer will have a useful life of 4 years. She will use the computer 100% in earning her assessable income. Katie's old computer was worn out and the new computer did not have any improved features when compared with the old one.
- Katie paid $800 for putting a new set of tyres on her car which she uses 70% for income earning purposes. The original tyres were worn and needed replacing.
- Katie paid $350 to have the screen replaced on her ipad. The screen was broken when the ipad fell on a concrete floor. Katie had purchased the ipad on 23 May 2011. Katie uses the ipad 50% for income earning purposes.
Required:
Based on this information what amount can Katie claim as a tax deduction under s 25-10 ITAA 97 in the year ended 30 June 2012 (nearest $1)? Support your answer with reference to appropriate authority.
Part E
Elizabeth is a property investor and she purchased a new residential property on 1st October 2011 for $350,000. The builder had indicated to her that the construction costs were $167,000 and in addition the land had cost the builder $72,000. Elizabeth immediately rented out the property to tenants for $320 per week.
Required:
Based on this information what amount can Elizabeth claim as a capital works deduction for the year ended 30 June 2012 under Division 43 ITAA 97 (nearest $)? Perform any necessary calculations. Support your answer with reference to appropriate authority.