Understanding Tax Returns Assessment - Prepare tax returns for individuals
To complete these activities you are required to:
a) Conduct independent research and analysis of relevant Tax Law.
b) Access the most up to date information on the Australian Taxation Office website.
c) Look up specific information about unusual items.
d) Collate and analyse the individual data / documents provided.
e) Calculate tax payable or refund amounts.
Note: You will be using tax rates and legislation for the 2015/16 tax year, so use the tax tables provided in the workbook.
Assessment Task Part A - Deductions
Refer to the section 3 of the Understanding Tax Returns workbook to assist you with answering the following questions.
Q1. Ben works as a salesman and purchased a 1.8 litre motor vehicle on 30 November in the current tax year for $23,750.
He kept a log book showing that he travelled 11 230 km. Of those kilometres, 7490 were for client visits.
During the financial year he incurred the following expenses related to the vehicle and kept the necessary receipts;
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Fuel
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$2 879
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Services
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$520
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Tyres
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$847
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Registration
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$589
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Insurance
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1,258
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Interest on loan
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1,335
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Parking & Tolls
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125
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Depreciation/Decline in value
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3,464
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Q1A. Show calculations for both methods.
Q1B. Use the work related car expenses calculator on the ATO website for the 2015/16 tax year.
Q1C. Explain to Ben which method he would be better off applying and why?
Q1D. What code should be entered at D1 - Work related car expenses.
Q2. Fiona purchased compulsory uniform that cost her $180 and washed the uniform three times a week for 48 weeks as a separate wash. Fiona has not kept receipts and would like to know the maximum amount she can claim.
Q2A. What amount will Fiona claim? Show your workings.
Q2B. What code should be entered at D3?
Q3. Kelly is employed as an accountant. In order to improve her skills and gain a promotion, she has enrolled in a course to obtain membership of a professional accounting body. During the year Kelly incurred the following expenses below (all receipts kept).
Q3A. Determine if the expenses are (a) deductible and (b) identify the category.
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Expenses
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Amount
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a. deductible
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b. Category
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Course fees
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$2,150
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Textbooks
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$520
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Cost of Computers
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$899
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Repair to computer
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$65
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Child Care
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$650
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Stationery
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$85
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Car travel expenses home-college-home (cents per km method)
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$184
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Decline in Value - Computer
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$250
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Q3B. Transfer the amounts to each category.
Q4. What is the total amount Kelly can claim at Self-education expense?
Q4A. Use the work related self-education calculator on the ATO website for the 2015/16 tax year.
Q4B. Complete D4 of the tax return and select the code that best describes Kelly's self-education expenses.
Q5. What is the formula used to calculate decline in value using the diminishing value method where an asset was acquired after 10 May 2006?
Q6. What is the formula used to calculate decline in value using the prime cost method?
Q7. Using the formulas above calculate the decline in value for the following assets which are all used 100% for work.
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Asset
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Date purchased
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Cost
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Effective life
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Method
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Air Conditioner
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30/09/2015
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$ 2,345
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10
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Diminishing Value
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Motor Vehicle
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31/08/2015
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$27,450
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8
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Diminishing Value
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Laptop
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30/07/2015
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$ 1,235
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3
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Prime Cost
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Computer
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01/12/2015
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$ 2,689
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4
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Diminishing Value
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Photocopier
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01/04/2016
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$ 3,265
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5
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Prime cost
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Q7A. Show workings and ignore cents.
Q7B. Use the decline in value calculator on the ATO website to calculate the Motor Vehicle amount claimable for the 2015/2016 tax year.
Assessment Task Part B - Other Assessable Income
Refer to Section 5 of the Understanding Tax Returns workbook to assist you with answering the following questions.
Q8. Kevin owns a butcher shop and he has a partner and two children, Alana who is 14 and Michael who is 12.
During the income year he has taken some stock but has not kept records. Kevin would like to know if he needs to declare stock taken for personal use as income.
Q8A. What advice would you provide Kevin?
Q8B. What is the amount that Kevin must include on his tax return as other business income? Show your workings.
Q9. Ben uses the simplified deprecation rules for his small business. The general pool has an opening balance of $5,200.
During the financial year Ben purchased the following assets.
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Date
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Item
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Cost $
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Effective Life Years
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02 March 2016
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Laptop
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899
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3
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01 August 2015
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Furniture
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11,250
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10
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24 September 2015
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Motor Vehicle
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9,000
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8
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28 October 2015
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Office equipment
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8,200
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5
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Q9A. Complete the table.
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General Pool
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Amount
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Rate claimable
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Total claimable
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Opening balance
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Immediate deduction
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TOTAL
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Q9B. What is the total amount Ben can claim for the current financial year?
Q9C. What is the closing pool balances for the general pool as of 30 June? Show your workings.
Q9D. What advice would you provide Ben so that he can claim the maximum deduction for the future?
Q10. Case study - Business Income
Vincent Wong, a resident taxpayer runs a Greengrocer business which supply fruits and vegetables to local restaurants.
Vince is married and has a son who is 15 years old and a daughter 2 years old. He has taken some supplies home from the stock but has not kept records of how much they have used.
Vince has provided the following information for the year ending 30 June 2016.
Receipts:
Cash sales $150,700
Cash received from debtors (accounts receivable) 39,750
Payments:
Cash purchases $49,300
Payments to creditors (accounts payable) 21,000
Cash Drawings 3,500
Additional information:
- Vince choses to use the Commissioner's (ATO) standard value to account for stock taken for his own consumption
- All figures are net of GST where applicable
- The taxpayer is a small business entity and he lodges returns on an accruals basis
- Vince has chosen to account for the change in value of his trading stock, and has conducted a stocktake to determine the closing stock value(s).
Account balances were:
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1 July 2015
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30 June 2016
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Debtors
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$13,600
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12,300
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Creditors
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3,200
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3,500
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Stock
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17,350
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26,450
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Q10A. Calculate credit sales and credit purchases for the financial year
Q10B. Calculate gross business income for the current financial year
Q11. Case Study - Foreign Income
Miley Cybil, an Australian resident aged 52, derived the following income during the current tax year.
Gross Salary - Australia (PAYG tax withheld $13,200) - $76,300
Gross rent - Spain 11,780
Miley also incurred the following deductions during the year:
Work-related deductions - 1,340
Rental deductions - 3,420
Miley paid Spain tax of $3,560 (included gross rental income from Spain amount) on the above rental transactions.
She was covered by adequate private health insurance.
Q11A. Calculate Miley's taxable income
Q11B. Calculate foreign income tax offset using the s.770-75(4) assumptions.
Q11C. Calculate Miley's tax payable including tax credits and offsets for the current tax year.
Assessment Task Part C - ATO Tax Audit Enquiries
Refer to section 7 of the Understanding Tax Returns workbook, the Australian Tax Office website and Tax Practitioners Board to assist you with answering the following questions
Q12. What are some of the changes that have come in effect in the 2015/16 tax year that an individual taxpayer should be aware of?
Q13. What are some of the changes that will come in effect in the following tax year?
Q14. Registered tax agents are the only people allowed to charge a fee to prepare and lodge a taxpayer's income tax return.
True
False
Q15. Income tax returns must be lodged 31 October following the end of the year of income for individuals unless the taxpayer uses a tax agent.
Q16. In following scenarios discuss obligations and responsibilities of the tax agent and /or any Code of Professional Conduct issues under the Tax Agent Services Act (TASA) and Tax Agent Services Regulations (TASR).
Q16A. A tax agent spent very little time with clients which resulted in the tax agent not explaining to clients the documentary evidence required for substantiation, clients being asked to sign blank tax returns and many tax returns having the same claims.
Q16B. Sammy a registered tax agent. His major client (family friend) will have to pay a very large bill if the return prepared by Sammy is lodged. The client tells Sammy to use whatever methods he can to reduce the bill. Sammy noticed that purchases of trading stock amount of $42,000 and he decided to claim it twice. The client tells Sammy "don't worry; I'll take all responsibility" After the assessment issued, the ATO advised Sammy that there will be an audit on the client's tax return. Does Sammy have any cause for concern?
Q17. An assessment cannot be amended more than once.
True
False
Q18. What is the difference between an audit and review?
Q19. A Private Ruling is a written expression of the Commissioner's opinion about the way a tax applies.
True
False
Q20. Taxpayers have no right of objection against a Public Ruling.
True
False
Q21. Taxpayers who fail to meet their tax obligations may be liable for penalties and interest charge.
True
False
Q22. What are the three necessary criteria for the anti-avoidance provisions of Part IVA ITAA36 to apply?
Q23. Matt Fang disagrees with his assessment for the tax year 30 June 2015 and wishes to object.
Q23A. Identify the error
Q23B. Where would you go to seek advice to evaluate and moderate the ATO Notice of Assessment?
Q23C. Explain to Matt the objection process including any timeframe.
Q24. When and why may a taxpayer be liable for a penalty or an interest charge?
Assessment Task Part D - Prepare an Individual Tax Return
Refer to the Understanding Tax Returns workbook and also the Australian Tax Office website to assist you with answering the following Case Study- (See an example Section 8 of the workbook)
Q25. Case Study: Complete Form I- Tax return for Individuals using the following information:
Ms. Elise Lee, an Australian resident- date of birth is 25/8/1958 and TFN 123 456 999. Elise's home address is 21 Simpson Road WEST HOXTON NSW 2171 however since her last return she has moved and her previous address was 34 Dunston Avenue HINCHINBROOK NSW 2169. Her phone number is 0407 123 456 and email address [email protected]. Elise's bank details; BSB 062 786 A/C number 123456
Elise Lee has provided the following information:
Elise worked as a store manager (24 weeks in the tax year) and retired 19 December in the current tax year. Elise received lump sum payments and also received a Government Age Pension during part of the tax year.
Elise's income details:
INCOME:
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Pay As You Go Payment Summary - Individual non-business
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Gross Payments
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$37,630(Tax withheld $10,580)
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Reportable FBT Amount
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$4,520
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Lump Sum A
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$5,000 (Tax withheld $ 350)
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Lump Sum B
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$3,980 (only 5% assessable)
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Allowances - Meal allowance
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$288 (Overtime Meal Allowance- paid under an award)
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ABN
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65 111 177 778
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Other Income:
- A Superannuation Lump Sum Payment of $115,000 from the death of her spouse
- Interest from a joint savings account $3,780
- Dividends - franked amount $550 and franking credits $235
- Received Government Newstart Allowance - $6842
DEDUCTIONS
Work Related Car and Travel Expenses: During the current tax year Elise used her car for private and for work travel.
Odometer reading:
- Beginning 98120
- Ending 117249
She has kept a Log Book and provided the following information related to her kilometres travelled and expenses during the tax period.
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Kilometres travelled
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Total
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Home > work > Home
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6420 km
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Work related travel
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7200 km
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Private use
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4759 km
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Seminar
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750 km
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She has provided the following car expenses (all receipts kept)
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Fuel
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$2878
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Services
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$72
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Tyres
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$426
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Insurance
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$584
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Registration
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$489
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Car wash
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$80
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Parking Fees and Tolls
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$180
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Other Deductions (all receipts kept) -
- During the year she purchased 3 black pants which cost $120 each. She was provided with logo shirts which she washes twice a week separately and also paid $50 for dry cleaning (pants).
- Elise has a home office which she spends 2hrs every weekday working from home. Her internet costs $50 per month and she estimates that she uses 20% for work purposes.
- Phone costs $80 per month and work usage 40% Donation of $505 to World Vision.
- Paid her Tax agent $115 for the preparation of her previous year tax return.
- Elise spent $19.50 per week on meals when she worked overtime (she has no receipts).
Required:
Q25A. Explain to Elise any Income that is NOT assessable
Q25B. Explain to Elise any Deductions NOT allowable
Q25C. Show your workings for all allowable deductions (remember she only worked 24 weeks).
Q25D. Complete the Form I - tax returns for individuals using the information given above.
Q25E. Calculate Elise's Taxable Income and Net Tax Payable/Refund (Including any offsets, tax credits and Medicare levy for the current tax year).
26. Role Play - Discuss and confirm documentation with client
Contact the College to arrange to "role play" for the following case study. The following checklist can be used to help you prepare.
You are the tax agent and you have prepared the tax return for Elise Lee (at Q25). Discuss the following:
- Any amounts not declared on tax return.
- Medicare levy payable and any offsets applicable.
- Elise taxable payable/ refund amount.
- Lodgement requirements - including signatures and authorisation requirements.
- Processing time including amendments.
Attachment:- Assignment File.rar