Gareth wants to use the diminishing value method to

Question

Assignment: Australian Tax Law

INSTRUCTIONS:

In your groups you are required to use the following client information to complete your client's individual Tax Return for 2016 (available to download from https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Tax-return-for- individuals-2016.pdf). You may also wish to download the Instructions available via https://www.ato.gov.au/Individuals/Tax-return/2016/. In addition, groups are to write a cover letter to your client explaining what you have included and not included in the tax return and why.

Each group's submitted assignment will be graded on the group's ability to correctly apply the law to the various issues, whilst citing the relevant law and showing their calculations where relevant. Please note that the issues are not weighted equally. Some issues will be minor and others major. The marks will be distributed across the various issues accordingly.

As a new initiative to ensure that all group members make a significant contribution to their group's assignment, students will be responsible for allocating their group's assignment mark to their fellow group members. Under this process, the group as a whole can recommend an assignment mark for particular group members that is lower than the actual mark gained by their group. The unit co-ordinator will have the final say regarding individual marks.

General Facts:

CLIENT INFORMATION:

Gareth Morgan is 49 years old and an Australian resident for tax purposes. Gareth is an employee teacher working for Hobart Secondary College. Gareth has been working as an English teacher since he completed his Diploma of Education degree fifteen years ago. He lives in a house in Sandy Bay with his Partner Gail (44 years old) - they are not married and they have no dependants. Gail owns the house at Sandy Bay , which she purchased in 2003.

Gareth is completing a Master of Education at Hobart University part time. He attended classes two nights a week during each semester.

Gareth has supplied you with the information below relating to his personal income tax affairs for the year ended 30 June 2016. However, he is not certain whether everything he has provided you with is assessable or deductible. Because of his uncertainty, he has asked you to carefully consider each item and determine whether it is assessable or deductible. Gareth wishes to minimise his 2015/16 taxable income wherever legally possible. Assume that the amounts detailed below are all of Gareth's receipts and expenditure for the 2015/16 income year, and that all of his expenses are correctly substantiated (unless stated otherwise).

1. Personal information

	Client
Full Name:	Gareth Morgan
Date of Birth:	30th May 1967
Occupation:	Teacher
Tax File Number:	111 222 333
Telephone Number:	[phone]
Home Address:	11 New St, Sandy Bay, 7006

Information about Gail:

Full Name:	Gail Ellis
Date of Birth:	26th February 1972
Occupation:	Engineer
Tax File Number:	111 222 334
Telephone Number:	[phone]
Home Address:	11 New St, Sandy Bay, 7006
Taxable Income 2015/16	$168,000
Reportable Super Contributions	$9,000
Reportable Fringe Benefits Amount	$nil

2. 2014/15 income tax return

Gareth used the services of his uncle (who is not a registered tax agent) to help him complete his 2014/15 tax return. His uncle sent him an invoice of $660 for the tax return preparation. Gareth paid the $660 on 25th July 2015.

Gareth gave his friend Neil a carton of beer (which had cost $60) for some tax advice about selling some shares during the year.

Gareth paid his 2014/15 income tax liability three months late and the Australian Taxation Office (ATO) imposed $146 in general interest charges (GIC), which he paid on 2nd February 2016.

3. Salary and Wages

During the 2015/16 income tax year, Gareth worked as a teacher for Hobart
Secondary College.

Gareth was provided with a PAYG Payment Summary from his employer for the period from 1st July 2015 to 30th June 2016, which included the following information:

Name of Payer:	Hobart Secondary College
ABN of Withholder:	00 111 222 789
Gross payments:	$87,590
Laundry Allowance:	$184
PAYG tax withheld:	$21,948
Reportable Fringe Benefit Amount (RFBA):
Reportable Super Contribution (RSC):

Note that the gross payments figure of $87,590 includes an amount of $1,020 for annual leave that was paid to Gareth on 1st July 2015; he took the leave during the prior tax year ending 30th June 2015.

Gareth does not have a HELP debt nor a Financial Supplementary debt and he has not received any trust distributions in the 2015/16 income tax year.

4 Inherited Australian Shares

Gareth's grandfather, Greg left Gareth a share portfolio, which Gareth inherited on 22nd September 1999 (the date of Greg's death). Gareth did not receive the shares until 3rd February 2000, as the Executor of Greg's estate had to makes sure the correct procedure was followed. Gareth was disappointed that the value of the shares had fallen since September 1999.

The details of Greg's share portfolio as at 22nd September 1999 were as follows:

Company Name	Number of shares	Date of purchase	Total purchase price	Market value at 22 September 1999	Market value at 3 February 2000
BHP (#1)	300	31/7/84	$1,694	$7,146	$5,000
CBA	200	31/7/92	$1,440	$2,180	$1,500

On 1st December 2015, Gareth decided to sell all his shares in BHP (#1) and CBA, to help with the purchase of a rental property. His sale proceeds were: $16,200 from the sale of the CBA shares and $10,146 from the sale of the BHP shares.

Besides the inherited shares Gareth had another parcel of BHP shares (#2) which he acquired on 3rd March 2007 when he made a $600 dividend reinvestment acquiring 100 shares. He also sold these BHP shares (#2) on 3 March 2016 for $75 per share.On 6th July 2015 Gareth received a $10 dividend (fully franked) per share from the CBA shareholding.

5. Unexpected receipts

• Gareth received $200 cash from his sister as a birthday present.
• He also received a Christmas present (a $50 Myer gift card) from the School Principal. The principal gives a similar type of Christmas gift to all staff every year.
• Gareth received a National Teaching Award of $5,000 for Outstanding Contribution to Student Learning in November 2015. Gareth can use the money for development of his teaching expertise and to attend teaching conferences.

6 Interest

Gareth maintains several bank accounts. He has provided you with the following information in relation to interest earned during the 2015/16 income year:

Suncorp Bank savings account (net interest)	$219
(TFN withholding tax of $211 deducted by bank - refer to note (a) Macquarie Bank term deposit (gross interest) - refer to note (b)	$1,110

Notes:

(a) Gareth opened his Suncorp Bank savings account on 15th July 2015 as they offered a higher interest rate than his previous bank. When opening the bank account, Gareth was in a hurry and inadvertently forgot to provide the bank with his tax file number. Accordingly, for the 2015/16 income year Suncorp bank has deducted 49% (or $211) TFN withholding tax in respect of the interest earned. The net amount of $219 was credited to his account.

(b) On 28th July 2015, Gareth deposited $30,000 in a six month term deposit with Macquarie Bank paying 4% p.a. interest. Rather than receiving the interest on the maturity of the term deposit on 28th January 2016, Gareth elected to rollover the interest of $600 together with the principal of $30,000 for a further six months to mature on 28th July 2016. Gareth estimates that approximately $510 in interest would be accruing on this new term deposit from 28th January 2015 to 30th June 2016.

7 Expenses

During the 2015/16 income year, Gareth incurred a number of expenses that he believes are related to his employment as a teacher. Gareth informs you that he has receipts for all the following expenses.

Expenses	Amount
Australian Education Union membership For the year 2015/16	$1,320
Annual membership of the English Teachers Association of Tasmania	$420
Annual  subscription  to  the  Weekend  Australian  which Gareth uses as a teaching resource	$156
Attendance at Teaching Conference Gareth attended an annual two-day education conference for secondary teachers held in Adelaide in April 2016. The school did not require any of its teachers to attend the conference. Gareth attended with two of his colleagues who usually go to the conference every year as they see it as useful and informative. Gareth paid for the following expenses (using the funds from his teaching award prize) Conference registration fee Airline tickets Accommodation for one night Taxi travel to and from the airport in Adelaide and Hobart Lunch was provided at the conference, Gareth paid for his other meals on each of the two days: -Breakfast ($22 and $29) -Dinner ($38 and $45) Note: The school reimbursed Gareth for the cost of the taxi travel ($244).	$750 $590 $175 $244 $51 $83
Home office expenses Gareth  often  prepares  for  his  teaching  and  marks  his student's work at home (an average of five hours a week for 40 weeks of the year). He set up a 'home office' in a separate area of his house; this takes up 15% of the entire floor space of his house. A  colleague  at  his  school  told  him  that  he  can  claim deductions for a proportion of the following expenses: Interest on mortgage loan Council rates Water rates Home insurance Electricity  (15 cents per unit and there are an average of 3 units per hour used)	$3,000 $1,500 $800 $700 $1,400
Vehicle Information Gareth has salary packaged a car with  the school. The School leases the car from a finance company and then allows Gareth exclusive use to it while he is employed by the school. Gareth uses this car when he has to travel between the Hobart and Teneriffe campus for a weekly staff meeting. The vehicle is a 2.0 litre Toyota Corolla which the School started leasing on 1st July 2015 - it has a value of $26,000 (including GST). Gareth has kept a logbook for the vehicle and according to his logbook, over a twelve-week period the car travelled 1,212 kilometres. This total was made up of: Travel from home to usual workplace and back home 552 km Travel from usual workplace to Teneriffe campus 89 km Travel from Teneriffe campus to home 95km Travel to visit friends and family 454 km Travel from work to Hobart Campus 10km Travel from Hobart Campus to home 12km The expenses that Gareth incurred over the whole income year in relation to the vehicle were as follows: Fuel $3,160 Car washes $ 240
The school paid for the registration and insurance for the car.
Ties Gareth's employer requires all male teachers to wear a tie to work. In order to comply with  the school's dress policy, Gareth purchased three ties during the year for a total cost of $150. Gareth has never worn the ties outside of work and he does not intend to do so.	$150
Gareth purchased stationery items on 6 occasions during 2015/16, in each case  he  spent less than $10. He has misplaced all the receipts for these purchases.	$55
In 2015/16, Gareth purchased several books and DVDs that he used exclusively for his teaching at a total cost of $330. Each individual book and DVD cost $20 or more.	$330

8 Gifts and Donations

During the 2015/16 income year, Gareth made the following payments:

Payment	Amount
Wynnum Hospital (cash donation).	$300
50 tickets ($10 each) in a raffle organised by Mercy Aged Care Services; first prize is a new car.	$500
Political donation to the Liberal Party as part of the 2016 Federal Election.	$10,000

In addition to the above, Gareth spent 8 hours handing out how-to-vote cards at the March 2016 Hobart City Council election for a Liberal Party candidate. He estimates the value of his work to be $120, which he believes is deductible as a political donation.

9. Boat

Gareth sold his boat for $11,000 on 14th June 2016 to a private buyer. Gareth did not use the boat for income producing purposes during the time he had owned it. He had purchased the boat second-hand for $10,500 on 7th May 2011. Gareth had some repairs done to the boat in May 2013, at a cost of $1,100. Other costs of ownership include a total of $250 for the annual insurance premium that Gareth has paid since he acquired the boat.

10. Rental Property - House at 1001 View St, Sandy Bay

Gareth borrowed $300,000 from the Commonwealth Bank (CBA) on 1st July 2015, all of which he used to finance the rental property purchase. He incurred a $1,200 loan establishment fee. The term of the loan is 25 years.

On 7th July 2015, Gareth purchased a three-bedroom house (constructed in 1965) located at 1001 View St, Sandy Bay for $578,000. In acquiring the property, he incurred legal fees of $900 and transfer duty of $15,860. The house was listed with TAS Realty as ‘available for rent' as of 11th July 2015.

On 29th July 2015, the real estate agent advised Gareth that there had been no applications from tenants, even though many people had viewed the house. Gareth was convinced that the previous owner's decision to paint the walls of the house bright orange (two weeks before selling it to Gareth) was the main reason there were no applications from prospective tenants. On 30th July 2015, Gareth paid a total of
$10,000 for the walls to be repainted white.

On 18th August 2015, tenants signed a one-year lease and moved in. In the 2015/16 income year, Gareth derived gross rental income of $18,700.

Expenses relating to the rental property for the 2015/16 income year are as follows:

Council rates	$ 1,680
Cleaning	$ 370
Insurance	$ 1,420
Interest on CBA loan (paid in 2015/16)	$10,000
Pest control	$600
Pre-purchase building inspection	$ 350
Property management fees	$ 4,460

Gareth rents out the house partly furnished. On 28th July 2015, he purchased the

11. Apartment at Teneriffe

Gareth purchased a residential apartment at Teneriffe (Tas) on 13th May 1995 for $90,000 (with legal fees of $600 and stamp duty of $900). Gareth had borrowed $75,000 to fund the purchase, with loan establishment fees of $300 and stamp duty on the loan of $400. From 13th of May 1995 Gareth rented out the apartment for $200 per week until 30th June 2001. On 1st July 2001 Gareth moved into the apartment and lived in it as his main residence. Gareth renovated the apartment with the following expenditure:

following items for the house:
Air conditioner (room unit)	$1,280
Washing machine	$ 950
Microwave oven	$ 250

On 1st April 2016 Gareth decided to sell the apartment and engaged a real estate agent who charged a commission of $9,900 (including GST) and advertising fees of $2,000 (including GST). The real estate agent suggested to Gareth that the apartment needed some minor repair work so it presented well - which cost $900. On 25th May 2016 Gareth signed a contract to sell the apartment for $310,000 subject to building and finance approval by 9th June 2016, with settlement scheduled for 25th June 2016. Due to issues with the purchaser's bank, Gareth had to extend the subject to finance condition to 1st July 2016, with settlement finally occurring 4th July 2016. Gareth incurred $2,000 in legal fees related to the sale. In relation to the apartment Gareth had incurred the following additional expenses:

Item	1995 to June 2001	July 2001 to December 2014	January 2014 to settlement
Rates	$4,800	$13,000	$1,500
Contents Insurance	$nil	$3,900	$400
Body Corporate Fees	$3,600	$8,000	$1,000
Repairs	$22,000	$3,000	$nil
Interest	$20,000	$25,000	$3,000
Rental Management Fees	$6000	$nil	$nil

11. Additional information (for 2015/16)

Gareth wants to use the diminishing value method to calculate any decline in value deduction claims and he does not wish to pool any low value assets

Gareth does not have any private health insurance.

Gareth expects to lodge Australian income tax returns in future years.

Gareth does not want to use electronic funds transfer (EFT) if he is entitled to a refund. Gareth does not have a HECS/HELP debt, nor does he have a financial supplement debt nor any post-graduate FEE-HELP debt. Gareth did not receive any trust distributions.

Attachment:- Australia_Tax_Return.pdf