OVERVIEW
The following Case Information relates to a typical client that an accountant may be asked to provide various taxation services to in any tax year. Assume that you are the accountant presented with this information and it is your job to provide advice and annual compliance services to the client for the year ended 30 June 2017.
Assume that all amounts are GST exclusive.
Marks will be allocated not only for the technical accuracy of your answers but also your research skills demonstrated and the presentation/communication skills shown in your letters of advice.
Both Assessment One and Assessment Two are linked to the same case study information and are designed to represent a real life practical client engagement. You will be providing Letters of advice to Joe and Angela Silkman, about various tax issues. The assessments require come calculations as well as tax research.
The overall case study/engagement is to be completed in two (2) parts as follows;
Part 1 - this is worth 20% and is covers income
Part 2 - this is worth 30% and is covers deductions
CASE INFORMATION
Joe operates a painting business in Australia. He employs an apprentice and works from home. He is 59 years old and is married to Angela who is 56 years old. They have two adult children. Angela does the bookkeeping for Joe's painting business as well as working as a school teacher. They also have several investments. They have provided you with the following details:
- Angela has received a salary of $85,000 from the Education department. In addition, Joe has given her $20,000 cash from the business for her contribution from the profits of the business. No formal payg payment summary has been provided to her.
- Joe has received cash of $440,000 for the year which includes GST from his customers. Included in this is $22,000 (inc GST) which relates invoices in the 2015/2016 year. He has also invoiced an additional $55,000 (inc GST) in June 2017 which is not received until July 2017.
- Joe's mother passed away in the UK during the year and he received an inheritance of $420,000. Before the amount was transferred to his Australian bank account, it was put into a UK bank account for him and he earned A$3,500 in interest.
- Angela has a term deposit which earns interest. This accrued interest of $560 to 30 June 2017, but this, together with additional accrued interest was not paid until August 2017 when a total amount of $780 was received.
- Angela has some Telstra shares which paid dividends of $4500. They are fully franked and Angela allocates the shares to a Dividend reinvestment plan that the company operates so there is no physical cash received for the shares.
- Joe and Angela own a joint rental property. The rent earned for the year was $22,500 but $500 of this was paid in July 2017.
- Angela is passionate about gardening and grows an abundance of vegetables in her garden. She sells the excess produce which she can't eat to her neighbours at a small profit. However, she does not market this and really does it because she wants to share it. During the year, she made a profit of $1500 from this.
- Joe also contributes his time to the army reserve and is paid an amount of $15000 for the year.
ADDITIONAL INFORMATION FOR CASE 2
After drafting the 2016/2017 returns for Joe and Angela, they provide you with some additional information to help get their taxable income levels down. This includes:
- Joe had to pay $5,000 in legal fees in relation to the inheritance from his mother
- Angela took withdrew $50,000 from her home loan to buy the Telstra shares a few years ago. The loan balance before the withdrawal was $100,000 and no other withdrawals have taken place. During the year, she paid $2,900 in interest on the loan overall.
- On the joint rental property, the carpets had to be replaced on 1 January 2017 at a cost of $3,500.
- Angela acquired a new laptop for $900 to use for her teaching work on 1 January 2017.
- Joe paid his apprentice $45,000 during the year. In addition, he paid superannuation of $4,275 for the apprentice and $21,000 for himself.
- Joe acquired a new rental property on 1 June 2017. The negotiated price was $450,000 but he also paid $23,000 in stamp duty and legal fees. There was also a rates adjustment of $150 paid. The property was available for rent from the date of acquisition.
- Joe paid $990 (inc GST) in subscriptions to the industry association.
- Joe has a ute which he uses for the business. He paid $19,000 for it on the 3rd March 2017. He spent $900 in fuel and $459 in insurance on the car.
- Angela buys various files and teaching aides for the students. She spent $320 during the year.
- Both Angela and Joe operate a separate home office. Joe uses it approximately 5 hours/week and Angela approx. 15 hours/week.
- Angela uses her car to drive to work every day. She estimates that she travels approx. 60km/wk to and from work.
- Joe pays $4,100 pa in life insurance.
ASSESSMENT - CASE STUDY
REQUIRED
Prepare a letter of advice to Joe and Angela advising on the assessability of the various items they have presented you with for the 2016/2017 income year.
Your answers should include appropriate legislative, case or ruling references.
(Up to 3 marks will be deducted for failing to provide references and up to 2 marks for not providing an appropriate letter of advice format)
REQUIREMENTS
STRUCTURING YOUR LETTERS OF ADVICE
- Details of all calculations should be placed in Appendices after your letter of advice.
- The letter should be a maximum of two (2) page in length for Assessment 1. This excludes any references and appendices eg 2 pages plus references and appendices.
- Your letters of advice should be prepared and presented in a professional manner, which means professional looking format, correct spelling and grammar, as well as correct referencing to legislation, cases and rulings only (ie no MTG or lecture notes or textbook references). Marks will be deducted if you do not do this.
- Assume that Joe and Angela are sophisticated taxpayers and questions every piece of tax advice that they receive. Therefore, you will need to provide sufficient (but concise) explanations.
- It may be necessary to make assumptions in the absence of specific information that will be provided by Joe and Angela later. Therefore, you may need to make a decision as to assessability, but provide a brief explanation if another course of action is appropriate.
- At a minimum, your letter of advice should include
a) Formatting components of a letter eg your name and address, date, recipients address, greeting, complimentary close and your signature and title
b) Executive Summary (which incorporates the final advice)
c) Introduction
d) Discussion/Analysis
e) Final advice and recommendation