Prepare tax documentation for individuals Assessment
Case Study Assessment Task 1
For this assessment, you are required to go through the case study and answer the questions that follow case study.
Question 1 -
You are a tax agent and on 2 August 2016 one of your clients, Rebecca, has come to you for assistance Rebecca is employed as a computer systems engineer and, due to her heavy work commitments, has not yet sorted out her tax matters. She currently earns $80,000 and has only $17,850 PAYG withheld from her gross income. Rebecca also received an unfranked dividend from BHP shares of $600. After sorting through the shoebox that holds all of Rebecca's paperwork, you uncover the following receipts and expenses.
Software programmer annual subscription - $300
3 Mobile accounts totalling - $800
Adam's Technical bookshop receipts totalling - $650
Home office expenses (stationary, electricity 20%, intemet, printer consumables - $3500
Bank interest - $1 000
- Rebecca also advised that she has additional self - education expenses of $3500, but could not locate the receipts.
- Rebecca has no private health insurance and she is single and has no dependents
- Rebecca often works from home office.
Required:
1. As her tax agent, what advice can you give Rebecca about the ATO's lodgement process and deadlines?
2- What are Rebecca's lodgement options?
3. What can you tell Rebecca about the self - assessment process?
4. What range of powers does the ATO have for auditing and reviewing a taxpayer's tax affairs?
5. What advice can you give Rebecca about future tax preparation?
6. Calculate Rebecca's taxable income.
7. Calculate Rebecca's tax payable/refundable for the 2015-2016
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Taxable income
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Tax on this income
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0 - $18,200
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Nil
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$18,201 - $37,000
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19c for each $1 over $18,200
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$37,001 - $80,000
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$3,572 plus 32.5c for each $1 over $37,000
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$80,001 - $180,000
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$17,547 plus 37c for each $1 over $80,000
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$180,001 and over
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$54,547 plus 45c for each $1 over $180,000
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* Excludes Medicare levy of 2%
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Taxable income
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Flood Levy on this income
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0 - $50,000
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Nil
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$50001
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0.5 cent for each $1 over $50000
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$100000 and over
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$250 plus 1 cent for each $1 over $100000
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Question 2 -
Using the information provided below for 2A15 for an individual taxpayer, complete the relevant income tax return for the current year of income.
You will need to download a copy of form current NAT 2541-6-2016 to complete these questions
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Client information
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Name
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Angelo
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Tax file number
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345 345 324
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Date of birth
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02/1/1970
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Postal Address
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14 Footscray Vic 3032
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Home address
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As above
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Occupation
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Fitter Machinist
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Daytime phone number
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(03) 99732449
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Spouse
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Jennat
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Spouse date of birth
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1/5/1979
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Spouse income
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$36,150 (includes 50% portion of bank interest)
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Payment Summary
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Employer
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A2Z TD Solutions
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Employer's ABN
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15 234 888 789
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Gross wage
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$55000
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Allowance
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Uniform $285
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PAYG tax withheld
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$10350
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Period of employment
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1/7/2012 - 3116/2013
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Other income
- Bank interesi $300 at NAB Hamersley Branch, Joint account with his spouse Jennat
- Shares sold during the year: BHP shares at a profit of $2000; Angelo elected to apply the 50% discount to his capitalgain
- Distribution from a property investment trust; %670
- Dividends from Westpac share held; Dividend $200, franking credit $54
- Union subscription:AWU $230
- Laundry Expense $150
- Donations: Red Cross $20 mission Australia $40
Other information
- Angelo and Jennat have one child
- Angelo incurred $55000 net medical expenses on behalf of himself and his family. The threshold for 2015-16 is $1500
Question 3 -
Marry is a florist with a business called "Marry rose stems" using the information and tax rates below for the financial year ended 30 June 2013, download and complete a form I income tax return
Personal Details:
Marry John
TFN: 145 687 1 16
Date of birth: 15/5i1969
Address: 25 Bell St. Coburg VIC 3057
Business Address: 276 Sydney Road VIC 3058
Phone (03) 97774559
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Receipts
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Accounts Receivables (received from debtors)
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Cash Sales
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$160000
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Insurance recovery on damaged stock
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$50000
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Misc Income
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$5000
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Bad Debts
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$2000
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Loan
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$3500
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$20000
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Payments
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Drawings
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$15000
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Repayment of load - Principal
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$5000
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- Interest
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$1000
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Employee wages
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$40000
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Superannuation guarantee contributions
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$60000
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Insurance
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$3600
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Store rental
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$3000
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Subscriptions to flowers monthly
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$24000
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Accounting and bookkeeping fees
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$200
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Electricity
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$1200
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Motor Vehicle expenses
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$1600
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Gifts and donations
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$200
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Entertaining suppliers
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$600
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Additional information
-Marry does not want to access the small business entities concessions
-All figures are net of GST where applicable
-Marry used $2000 of trading stock for personal use'
-Decline in value at taxation rates: plant and equipment $5000, monitor vehicle $700
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Balances
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1 July 2012
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30 June 2013
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Debtors
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$15000
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$17000
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Creditors
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$11000
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$12450
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Trading Stock (cost)
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$12000
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$11000
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Current tax rates
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Taxable income
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Tax on this income
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0 - 6000
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Nil
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$6001-$37000
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15C for each $1 over 6000
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$37001 - $80000
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$4,650 plus 30C for each $1 over 37000
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$80001 - $180000
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$17,550 plus 37C for each $1 over $80000
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$180001 and over
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$54,550 plus 45C for each $1 over $180000
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* Excludes Medicare levy
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Taxable income
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Flood Levy on this income
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0 - $50,000
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Nil
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$50001
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0.5 cent for each $1 over $50000
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$100000 and over
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$250 plus 1 cent for each $1 over $100000
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Question 4 -
Frank is the owner of a garden maintenance and landscaping business which services the Melboume cBD area. He drives a Holden Victoria Utility he purchased in 2010 at a cost of $32000. lt has a 3200-CC capacity engine and it is primarily used or picking up supplies and transpofting materials and tools to his various jobs.
Frank was conscientious with his record keeping and for this reason kept a comprehensive log book for the current tax year.
lnformation included in his log book included the following:
Travel to suppliers and customers - 2300KM
Travelfrom home to work - 1890KM
Private family travel- 160 KM
Total - 4350KM
Frank,s running costs forthe year including the decline in value (depreciation) totalled $12800.
Required:
(a) Using the information above, calculate the maximum amount that Frank would be able to include as deduction for car expenses for the year from the method available to him.
(b) What other vehicles are treated in the same wayas Frank's?
Question 5 -
Linda works as a real estate agent for the professional Melbourne. Her work requires her to travel between various client meetings and properties. Linda purchases a 22ao-cc Holden Astra in July at a cost of $18500. She had additional expenses for registration and insurance of $1200
During the same tax year, Linda incurred the following expenses:
Petrol- $5000
Parking - 50
Car washes - 200
Parking fines (client premises) - 450
Freeway tools (work - related travel) - 230
Taxi fares from work Christmas party - 50
Taxi fares to work while car is being repaired - 400
Gas Conversion for the Astra - 2300
Car Loan repayments (including interest of $2500) - 6800
Insurance excess (car accident) - 400
Any calculation for depreciation will be calculated using the diminishing value method.
What is the total of Linda's allowable car expenses for the purposes of using Division 28 methods of calculations?
Written Questions Assessment Task 2
1. Describe what is meant when a taxpayer is classified as a "small business entity" (SBE)
2. What rules apply to the valuation of trading stock if a taxpayer is classified as an SBE?
3. If a taxpayer business chooses not be assessed under the simplified taxation system (STS) what other methods of trading stock valuation are available to be used?
4. Explain what happens with the valuation of trading stock which has become obsolete or will no longer attract the full market price at sale.
5. Ben is the proprietor of a corner delicatessen which opened for business during the current financial year. Over the course of the year, Ben takes approximately $25000 for personal consumption
You have been appointed as the tax Agent for Ben's deli and as such are required to explain to Ben the treatment of trading stock which has been taken for private use or consumption by the taxpayer during the current income year. What would you be telling him?
6. Answer whether true or false.
A taxpayer can claim for a dependent who resides overseas
A taxpayer is not entitled to a spouse tax offset for any period during which that taxpayer or their spouse was eligible for family tax benefit
A child of a taxpayer student attending university and under 25 years is classed as a dependent for tax purposes
General rules dealing with liability to tax are contained in the ITAA97.
The income year for tax purposes is normally the same as the financial year unless the taxpayer has a special dispensation from the tax office
Income tax is a tax imposed on individuals and some other entities. It is worked out by reference to a taxpayer's taxable income for the income year
7. Kerry is a qualified nurse who was offered employment in Eritrea for six months during the current financial year on an approved overseas aid project. She is a single resident taxpayer aged 45. During her six months overseas. Kerry earned a total of A$25000 wages from which $4000 tax was withheld for tax purposes in Eritrea.
For the remaining six months, Kerry earned a further $24000 from regular employment at St. John Hospital in Subiaco. PAYG tax of $3300 was withheld from her gross income.
Using the tax rates provided below, calculate Kerry's taxable income and the net tax payable/refundable.
Current tax rates
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Taxable income
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Tax on this income
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0 - $18,200
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Nil
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$18,201 - $37,000
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19c for each $1 over $18,200
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$37,001 - $80,000
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$3,572 plus 32.5c for each $1 over $37,000
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$80,001 - $180,000
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$17,547 plus 37c for each $1 over $80,000
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$180,001 and over
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$54,547 plus 45c for each $1 over $180,000
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* Excludes Medicare levy
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Taxable income
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Flood Levy on this income
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0 - $50,000
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Nil
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$50001
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0.5 cent for each $1 over $50000
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$100000 and over
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$250 plus 1 cent for each $1 over $100000
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8. Using the examples below, give reasons indicating whether each taxpayer is conducting a business or a hobby for tax purposes.
a. Marry is working as an artist on a part time freelance basis. During the financial year, she received $6000 as a commission for one of her artworks.
b. Pia makes pottery as a hobby and has sold some of her work to the value of $800. Her expenses in relation to her property are in excess of $1000
c. Dave carriers out gardening tasks in his local area over the weekend. He has received $5500 during the financial year for his services.
d. Angella designs wedding dresses and won a local fashion award which resulted in a payment of $5000
9. Assessable income from business.
John is a sport coach, offering his service to schools and local sports clubs. He operates his business on an accrual basis for tax purposes.
During the 2015/16 financial year he had the following receipts.
Cash takings from coaching session - $20000
Receipts from regular customer bookings - $150000
Capital contributed - $10000
GST received - $28000
Fully franked dividend - $2500
(John dividend amount x 30/70 = John credit)
John also had the following balances (excluding GST)
- Income received in advance as at 30 June 2015 - $15000
- Income received in advance as at 30 June 2016 - $12000
Calculate his assessable income for the year ended 30 June 2016.
10. For each of the following collectable, personal use or other use assets, state whether their disposal would give rise to a capital gain or loss. In each case, specify the type of asset. In each example, a resident taxpayer makes the disposal.
a. In September 2011, Jennifer sells some Wesfarmers shares for $20000. The shares were originally purchased in 1985 for $7500
b. In March 2012, Stefan sells some furniture that he purchased in July 2000 for $3000. The furniture was approx. 50 years old and he receives an amount of $4500 for the sale.
c. Fabio sells his Peugeot sports car for $60000 in January 2012. He originally purchased the car for $85000 in September 2005
d. In March 2011, Margot sells her antique dresser for $1100. The dresser is more than 100 years old and was purchased in April 1999 for $4000.
11. What are the three methods of calculating a capital gain and what determines which method should be used when a capital gains tax (CGT) event occurs?
12. A taxpayer, Janet King, Purchased a block of land on 25 February 1996 for the cost of $100000. On 18 September 2012, the block was sold for $200000.
a. Calculate the capital gain using the frozen indexation method
b. Calculate the capital gain using the discount method.
13. 1. What are the legal and taxation requirements of a partnership?
2. Explain how partners in a partnership derive their net income under s.90 ITAA36
3. Ben Smith and Elias Jones commenced a partnership in a business erecting pergolas and garden furniture. After their first year of trading they showed a net profit of $50000. In their partnership agreement, profit are shared equally between the partners after adjusting for the following:
Partners salaries - Smith $10000, Jones $10000
Interest on Capital - Jones $5000
Interest paid on advance from Smith - $3000
Interest on drawings - Jones $2000
Required
a. Calculate s.90 partnership net income.
b. Prepare a distribution statement.
c. Calculate assessable income
14. Define the following terms relating to trusts:
a. Senior
b. Trust property
c. Trustee
d. Beneficiary
e. Corpus Calculating net trust income
15. For the following transactions, calculate the net trust income for that period:
- Gross income - $50000
- Operating expenses - $19000
- Education expenses paid by the trustee on behalf of the beneficiaries - $10000
16. Describe the tax returns and information required to be lodged by trusts for an income year. What is a statement of distribution and what information should it contain?
Each of them is 1000 words and calculations.