Problem - Troy and Jenny (both Australian residents) have a takeaway coffee outlet in Brisbane city. They are carrying on the GST-registered business together in a partnership using the accruals basis to account for income tax and the non-cash basis for GST. Under the partnership agreement, Troy receives an annual salary of $70,000 as he is actively running the business and Jenny receives interest on capital contribution of $10,000, as she contributed $200,000 of capital when the partnership commenced. The balance of the net income is to be equally shared between the two partners. Troy had made a loan to the partnership and in 2016/17 he received interest income of $1,000 in relation to this loan.
During the 2017 income year, the partnership had received $491,500 in cash, and had one outstanding invoice for coffee beans from CBC Bank Ltd for $500 as at 30 June 2017.
On 3 March 2017 income year the two partners disposed of office premises that they had acquired under a contract dated 1 July 2016 (with a 60% interest for Troy and 40% interest for Jenny) - the sale of the premises gave rise to a capital gain of $80,000.The partners were going to convert the premises into a café, but the location was found to be unsuitable.
Receipts and expenses for the partnership during the 2016/17income year are as follows:
Receipts:
Sales - coffee $ 462,000 (including GST)
Sales - coffee beans $ 30,000
Expenditure (inclusive of GST where applicable):
Coffee supplies (coffee beans, milk, & sugar) $ 124,500
Supplies (disposable coffee cups, etc.) $ 30,800 (including GST)
Bank charges $ 1,100
Bribe to health official $ 5,000
Electricity $ 16,500 (including GST)
Rental expenses $ 44,000 (including GST)
Telephone expenses $ 6,050 (including GST)
Salaries - staff $ 85,900
Salary Troy $ 70,000
Drawings - Troy $ 20,800
Drawings - Jenny $ 20,800
The partners advise you that they hold valid tax invoices for all their acquisitions (that is, for all of the above expenditure).
Required:
1) In relation to the above facts, DISCUSS and CALCULATE the 'NET INCOME' of the partnership for the income year ending 30 June 2017. Please ensure you include in your answer whether the assessable income and the allowable deductions should include or exclude GST (where applicable), and why.
2) Calculate the partnership's NET AMOUNT OF GST PAYABLE OR (REFUNDABLE) to / (from) the ATO for the income year ending 30 June 2017.
3) Calculate each partner's SHARE OF THE NET INCOME of the partnership as well as their TAXABLE INCOME.
4) Calculate TROY'SINCOME TAX PAYABLE for the income year ending 30 June 2017, assuming that he has no private health insurance, no dependants and no other income. You are also advised that Troy has net capital losses carried forward of $8,000, plus net capital losses carried forward from collectables of $900.
Notes:
(i) For all the above questions, make sure you support your answer with appropriate legislative references.
(ii) Assume that the partnership is not a small business entity (ignore the small business CGT concessions in Div 152).