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LAWS19033 Taxation Law And Practice A

tag 0 Download 11 Pages / 2,581 Words tag 27-07-2021

Questions:

Part A

You have just started a new job as a graduate accountant. Your managing partner has to do a media interview and he asks you to provide answers to some questions that will be asked. He has given you a list of questions that he has to address in his interview and he needs you to provide him with short answers to these questions and provide references so that he can check the answer if required.

  1. Who is the Inspector-General of Taxation?
  1. What legislation governs the powers of the Inspector-General of Taxation?
  1. What topic does Taxation Ruling TR 2016/3discuss?
  1. Which Division of the Income Tax Assessment Act 1936contains the definitions related to the Act?
  1. Which Division of the Income Tax Assessment Act 1997discusses the deductibility of gifts?
  1. Which section of the Income Tax Assessment Act 1997allows a taxpayer to deduct a loss caused through theft by an employee?
  1. Is a deduction allowable for membership of an association? If so, are there any limits to such a deduction?
  1. How are compensation amounts for loss of trading stock treated?
  1. What is the applicable tax rate for a taxpayer who has $30,000 taxable income in 2016/17?
  1. For tax purposes, what is considered to be the ‘income year’ for most taxpayers?

Part B: Case Study

In 2016, Julia Jenkins, a citizen of England, arrives in Australia for a long-awaited holiday. She arrives on 1 September 2016 and departs on 30 October 2016. During this time Julia travels extensively throughout Australia, as she wishes to see as many different elements of the country as she can. She also works for one week of her stay picking fruit in Bowen, for which she earns $1,000. Upon return to England, Julia misses the sunny weather in Australia and decides to return there on a permanent basis. She gives up her job, sells her family home, settles her affairs and moves to Australia permanently on the 7 January 2017.

Julia has approached you for preparation of her 2016/2017 tax return, and determination of her tax liability. Julia has been meticulous in keeping records, and provides you with the following information. It should be noted that the information provided represents her understanding of what may be relevant for income tax purposes, and you will need to form your own judgement on various matters based on your knowledge of Australian income tax law. If any doubt arises on a particular point, or further information would normally be required, you may assume such further details as are necessary to complete the return.

All such assumptions, and the basis of any decisions you make in various matters, must be made clear by full discussion where appropriate.

While the assignment is largely calculation based, there are some matters which you will need to consider and decide upon before you can proceed with the calculations. You should include your discussion of these matters, and any conclusion you reach, as part of your assignment.

Business:

On arriving back in Australia, Julia used the money from the sale of her house to purchase a corner store in Mackay, North Queensland. Julia owns the store as a sole trader but she has a store manager who looks after the day-to-day running of the store. The store has a residence attached where the manager lives, which was originally built in July 2001. Settlement took place on 12 February 2017.

The purchase price of $500,000 included:

Residence

100,000

 

Plant and equipment

220,000

 

Vehicle

35,000

 

Trading stock (at cost)

80,000

 

Goodwill

50,000

 

Debtors

15,000

 

The equipment consists of:

 

 

 

Opening

Effective life/Years

 

Adjustable Value

 

Office furniture

$10,000

13 1/3

Office equipment

20,000

5

Computer system (network)

15,000

4

Shop fittings

45,000

15

Floor coverings

15,000

5

Programmable cash register

25,000

5

Refrigeration unit

20,000

10

Simulated indoor plants

2,500

13 1/3

Sundry plant and equipment

38,500

13 1/3

Residence:

 

 

Furniture and fittings

25,000

13 1/3

Stove

1,500

20

Refrigerator

1,200

13 1/3

Hot Water System

1,300

20

Diminishing value method was used to calculate depreciation.

Trading figures for the business from 12 February 2017 to 30 June 2017 include:

Gross Sales of $450,000

Consisting of:

Cash sales

$300,000

 

 

Credit sales

$150,000 (of which $18,000 is still outstanding)

Expenditure:

 

 

 

Manager’s salary

 

 

(10% of store turnover)

 

$45,000

Staff wages

 

8,000

Interest on bank loan

 

 

(used to purchase trading stock)

2,500

Borrowing expenses

 

500

General operating expenses

2,000

(electricity etc.)

 

 

Vehicle expenses

 

2,000

(manager’s vehicle)

 

 

Trading stock purchased

 

90,000

Conference fee

 

 

4,000

Airfares

 

 

2,800

Accommodation

 

4,200


As at 30 June 2017, trading stock on hand (at cost) is valued at $28,000. However, $8,000 of this amount represents the cost of items which are past the expiry date and so cannot be sold in the course of the business. Julia plans to send these items to developing countries where they can be used. Julia seeks your advice on valuing closing stock for the best tax advantage. The manager of the store was also selling illicit drugs through his contacts in the industry. Monies from this practice amounted to $100,000 and were not included in the store accounts.

In March 2017 Julia and the store manager attended a buyer’s conference in Melbourne, which ran for one week. Following the conference they stayed on in Melbourne for 2 weeks to enjoy a short holiday. The manager’s wife accompanied them on this trip. One third of the cost of accommodation and airfares cited above relate to the manager’s wife.

Julia also owns a motor vehicle for which she has maintained a log book. This log book shows she has travelled 8,000km to 30 June 2017 of which 4,000km were in connection with her business.

Of the $15,000 of debt outstanding at 12 February 2017, $8,000 was written off as bad debts, the remainder having been collected.

Required:

  1. Set down in statement form full details of Julia’s assessable income and allowable deductions for the 2016/2017 year of income and determine her taxable income for that year. In doing this you also need to discuss and justify the inclusion/non-inclusion of all items of income and expenditure.
  2. Determine the net amount of income tax payable by Julia for 2016/2017.

In completing this assignment assume that there are no further items of income or expenses that are relevant other than those mentioned here. You can also assume that Julia has no dependants and that she has private health cover for the year that cost her $2,300.

Note: There is no prescribed format for the layout of the assignment. You may wish to have the statement of income first, followed by supporting discussion and conclusions; or you may present your discussion first, and then show the statement of income following from this.

The statement to show calculation of taxable income and tax payable should correspond to the taxing formula.

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