Taxation Law - Tax Practice Assignment
Assessment Description
Learning Outcome: "Tax Practice Assignment" through the preparation of an "I" Return using the GovReports government reporting software package.
Details of the assignment: The assignment consists of four parts. The main Part ("Part A") requires the preparation and lodgement of a 2016/17 individual ("I") income tax return for Percy Grainger ("Percy") using GovReports.
The completion of Part A will require the input of data either contained in the following attachments to this document, or which you determine as a consequence of completing the other three parts of the assignment:
1. background information and Percy's personal financial transactions for tax purposes (Attachment 1);
2. the financial records of his business Music While You Work (Attachment 2)
3. the financial records of the partnership Musicale (Attachment 3); and
4. extracts from the financial records of The Grainger Family Trust (Attachment 4).
The other three parts of the assignment are:
Part B - the calculation of the net income of Music While You Work;
Part C - the calculation of and the distribution of the net income of Musicale; and
Part D - the calculation of the tax payable by the trustee of The Grainger Family Trust.
Each of these parts is to be completed as separate exercises which will require students to show their workings, where necessary, and describe the reasoning behind their treatment of the items of data for taxation purposes. It is recommended that these parts be completed prior to the commencement of Part A.
The completion of Percy's "I" return using the GovReports system will require students researching the ATO's internet sites for instructions regarding the completion of an 'I' return.
Attachment 1 -
Background information and Percy Grainger's personal financial transactions for tax purposes -
Percy Grainger is a resident and is employed by a news syndicate as a music critic. As well, he owns a business, Music While You Work, which operates a music concert hall and sells musical instruments both new and second hand. He is also a partner in a music school, Musicale, with his friend Johann.
During the 2016/17 tax year, Percy was paid a salary of $200,000 as a music critic.
He sold some antique sheet music for $33,000 which he had purchased for $25,000 when he lived in Europe in 2001. Percy holds 12,000 shares in the Big Bass Drum Company and during the year received a dividend of 40 cents per share. He is advised by the company that the franking percentage was 45% franked at the company tax rate of 30%. He is also a beneficiary of The Grainger Family Trust.
Personally, Percy believes he is entitled to the following deductions: $1,000 for the cost of a seminar, Blowing Your Own Trumpet, he attended on how to sell musical instruments; $700 for the decline in value of a laptop computer he uses for work-related matters; $5,600 for tickets to attend music concerts; $6,800 for travel to musical venues; $7,300 for communicating with the news syndicate via telephone and the internet (business mobile telephone calls: $1,500; business telephone calls: $1,600; internet usage): $4,200; $540 for fees charged by his accountant for the preparation of his tax return for the previous income year, and $1,000 purchasing of 5 tickets in a raffle held by a registered charity which is a deductible gift recipient.
Percy paid $4,000 for private health insurance for he and his wife, for the whole tax year. PAYG withheld on Percy's behalf amounted to $70,000.
Attachment 2 - Part B: Music While You Work
In his business Percy uses the accrual accounting. He provides you with the following information for the year ended 30/6/2017. Music While You Work is not a small business. All amounts exclude GST.
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Receipts
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$
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Cash sales of tickets and musical instruments
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432,000
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Cash received from debtors (Note 2)
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38,000
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Bad debt recovered (debt written off in 2015/16)
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1,000
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Bank loan to enable the existing acoustic tiles in the concert hall to be replaced with an improved electronic system of acoustics (Funds were borrowed on
1/10/2016 at 5.3%. The loan is due for repayment on 30/9/2021.)
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33,000
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Insurance proceeds: stock damaged by water (burst water pipe)
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7,000
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Insurance proceeds: storm damage to windows and carpets
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13,000
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Payments
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|
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Advertising (Note 4)
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7,000
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Cash drawings
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90,000
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Cash purchases of trading stock
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80,000
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Cash paid to creditors (Note 3)
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138,000
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Council rates
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6,000
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Entertainment of suppliers and large customers
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1,660
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Income tax paid
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23,000
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Legal expenses in relation to the bank loan
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2000
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Payments for new acoustics (Note 5)
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45,000
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Repairs: water damaged stock
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8,000
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Repairs: storm damage
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14,000
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Staff wages
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121,500
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Superannuation for staff
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7,600
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Other expenses (all deductible)
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60,000
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Note 1: Stock on hand at 1/7/2016: $33,000; 30/6/2017: $14,000
Note 2: Debtors at 1/7/2016: $10,000; 30/6/2017: $6,000
Note 3: Creditors at 1/7/2016: $23,000; 30/6/2017: $28,000
Note 4: Percy advertises his store at the local movie-theatre. He entered into an eighteen-month contract on 1/5/2017 that cost $7,000. The amount pre-paid at 30/6/2016 on a previous contract was $4,000. That contract expired on 31/10/16.
Note 5: The work commenced on 1/9/2016 and were completed on 30/11/2016.
Note 6: Percy has advised that he had taken an instrument from stock which had cost $2,500.
Showing all workings, calculate the net income of the business for 2016/17.
Attachment 3 - Part C: Musicale
Musicale opened for business on 1 July 2016. The accounting profits and losses are to be shared equally after adjusting for special partnership items. The following transactions were recorded in the partnership's cashbook in the year ended 30 June 2017.
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Receipts
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$
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Fees received
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230,000
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Bank loan
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45,000
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Loan from Johann
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33,000
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Interest on drawings - Percy
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400
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Interest on drawings - Johann
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860
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Payments
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Bank loan repayments - principal
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2,800
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Bank loan repayments - interest
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1,500
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Drawings - Percy
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6,000
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Drawings - Johann
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12,000
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Interest on capital - Percy
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2,300
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Interest on capital - Johann
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1,700
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Interest on loan from Johann
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2,500
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Purchase of metronomes
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3,800
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Rent of the music school venue and sundry expenses (all deductible)
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35,000
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Salaries of part-time music teachers
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125,000
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Salary of Percy
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35,000
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Salary of Johann
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60,000
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Superannuation contributions for part-time music teachers
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11,900
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Showing all workings, calculate Percy's net income from the partnership for the tax year ended 30 June 2017.
Attachment 4 - Part D: The Grainger Family Trust
The Grainger Family Trust (a family trust election having been made by the trustee) was created by Percy some years ago for investment purposes. The Trust Deed provides that all the trust's income may be either retained by the trustee or distributed to the beneficiaries.
In the year 2016/17 the trust derived trust net income of $43,000.
The trustee used his discretion to distribute the following cash amounts to the stated beneficiaries:
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Percy Grainger
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$10,000
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James Grainger
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Percy's brother
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10,000
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Scott Grainger
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James' 17 year old son
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2,000
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Jennifer Grainger
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James' 12 year old daughter
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2,000
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Oliver Grainger
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James' 1 year old son
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1,000
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The trustee also applied some of the remaining net income as follows:
- $2,000 was set aside to pay for any future veterinary care of two ferrets 'Basher' and 'Masher' which had belonged to Percy's father, now deceased.
- $3,500 was paid for Scott's university fees, books and a new lap-top computer.
- $1,500 was set aside to help Oliver's parents to pay for his day-care if they decide upon this course of action when he reaches 3 years of age.
- $1,000 was used to pay James' speeding fines.
Showing all workings, calculate the gross tax and Medicare Levy payable by the trustee (if any) for the tax year ended 30 June 2017.
Attachment:- Assignment Files.rar