Jimmy operated his own shoe design and manufacturing business from a warehouse in the CBD. Jimmy purchased the warehouse on 1 July 2018 for $1.5 million, it had been constructed in 2010 and the cost associated with construction was $500,000. He also offered weekend classes in shoe design to up and coming designers. Students signed up for a 20 week course which was paid in advance. Jimmy offered refunds to students who cancelled their courses. Income received was kept in a suspended income account. At the end of each month the value of classes run that month were removed from the suspended income account and accounted as income. While many students bring their own materials, Jimmy maintains a stock of cotton, fabric and accessories which he buys from a number of suppliers. They give his 30 days credit which he always uses. The stock is used very quickly so Jimmy treats them as consumables rather than trading stock.
Jimmy’s income and expenses for the current year are as follows:
Sale of shoes 2,250,000
Jimmy had issued invoices totalling $2,280,000 but at 30 June 2019 he had only received $2,245,000. He also received $5,000 which related to invoices from the previous yea
Shoe design classes income. Cash received $60,000, of which $10,000 was for courses not yet taken 60,000
Compensation payment for loss of business profits when he broke his ankle trying out a new style of shoe and couldn’t work. 40,000
Interest on savings account 1,345
Dividends from Sparkles Galore Ltd 5,890
(franking credits attached to the dividend were $1289)
Unfranked Dividend from High Heels Pty Ltd2,000
Jimmy is a member of the army reserves and received wages for his duties undertaken for the year 10,000
Membership of Shoe Designers Association 650
Purchase of materials for use in the classes. 10,500
On 15 June 2019 Jimmy bought $1,500 of new materials for which he had not yet paid.
Purchases of stock for use in manufacturing shoes 965,000
Drycleaning of army reserve uniform 200
Purchase of uniforms for himself and his staff
That was branded with the shops logo 5,800
Motor vehicle expenses for Jimmy his records showed 80% business use 25,000
Parking fines incurred whilst attending client premises 300
Jimmy often took some work home with him and incurred the following expenses, he estimated that he spent around 30% of him time working from home
Home electricity 1,200
Home insurance 700
Home Rates and taxes 1,400
Donation to Red Cross 500
Annual Shoe Designers Conference in Paris 350
Travel expense to attend the conference included
-Sightseeing eg Eiffel Tower500
Wages for staff 890,000
Payment to his sister for taking his place at the sewing classes whilst he was on holiday. If he had paid a casual from an employment agency it would have cost $2000 but he wanted to help out his sister and paid her a bit more. 3500
Superannuation for employees 9.5% of gross wages
Personal superannuation 25,000
Jimmy took out a loan on 1 September 2018 to help with the purchase of some new plant and equipment. He borrowed $27,300 of which $17,300 went towards the purchase of new plant and the rest he used as spending money on his holiday. The repayments were due on the 1st day of each month starting as from 1 October 2018 of $1500 consisting of $1300 capital and $200 interest. 13,500
The costs associated with obtaining the loan were $400 and the loan was for 3 years
On 30 June 2019 Jimmy prepaid the loan repayments for the next 12 months 1 July 2019 to 30 June 2020 18,00
Payment to his accountant for completing his income tax returns 4,300
Advice from his legal advisor on the benefits of changing his structure from its current mode of a sole trader to a company 1,500
Plant and equipment
1. In the previous year Jimmy had incurred a loss of $29,000 after a deduction of $12,000 for superannuation for himself and a donation to World Vision $2,000.
2. Jimmy has paid $57,000 in PAYG instalments against his business income for the financial year ended 30 June 2019
3. Opening stock was valued at $150,000 and the closing stock as at 30 June 2019 was based on several methods a) Cost $165,000 b) Market $175,000
c) Base Value $145,000. Jimmy wished to minimise his profits on the business
4. Jimmy was depreciating plant and equipment as per below and during the year additional plant was purchased and existing plant sold or scrapped. Jimmy does not use any pooling or SBE concessions for his plant and equipment.
1.Jimmy sold off some of his assets during the financial year so he could buy the warehouse for his business.
A) Sale of vacant land on 28 May 2019 290,000
The land had been bought on 28 October 1984 at a cost of $95,000. Stamp duty of $2,358 was paid at purchase. Rates and taxes of $15000 were paid during ownership. He paid $10,000 to the agent for the sale of the land and $1299 in settlement fees, these were both paid on 28 May 2019. The land had been bought by Jimmy with the intention of building a factory for his business
B) Sale of shares in public company on 23 September 2018 55,000
The shares had been bought on 3 March 2018 for $48,000
Brokerage on purchase and sale was 1% payable at the time of the transaction.
C) Sale of holiday house on 12 August 2018 400,000
The house had been purchased on 22 November 2005 for $290,000. He had paid interest during his period of ownership which totalled $40,000. Stamp Duty of $6,320 had been paid at purchase. At purchase He arranged to have a new kitchen fitted at a cost of $23,000. This was paid on 15 January 2006. During the period of ownership He had a dispute with his neighbour over the boundary of the property and on 1 March 2011 He paid his lawyer $2,500 for resolving the dispute.
Jimmy had a previous capital loss of $15,000 from the sale of shares in 2018.
Calculate Jimmy’s taxable income and his net tax payable including Medicare Levy for the year ended 30 June 2019. Please provide reasons for any exclusion of items from your answer.