Comprehensive Individual Tax Return: Case Study

Comprehensive Individual Tax Return: Case Study of Michael Zack

Personal Information

Case Study: Comprehensive Individual Tax Return

Michael Zack, a resident taxpayer aged 49, runs a sole trading business selling coffee machines. His business is registered for GST. He also works on a casual basis as a sales person on weekends at Myer. He has a rental property in Gold Coast, Brisbane. Michael is taking care of his wife Susan Zack, who has lost one of her legs 2 years ago as a result of a car accident. Michael is solely taking care of Susan. They have no children.

Personal Information

Name: Michael Zack

TFN: 300 001 000

Date of Birth: 15 July 1974

Address: 3 Dimple Street, Melbourne VIC 3358

Contact: 0456 587 987 (Work: 03 9578 3648)

Bank account: BSB 225887 Account 378458

Michael is not covered by a private hospital cover.

Spouse: Susan Zack

Date of Birth: 30 July 1989

Currently receives disability pension from Centrelink $5,200 for the 2019 tax year. She has no deductions to claim for the 2019 tax year.

Income/Expense Information

Michael and Susan have a joint term deposit account at CBA. Total interest received from the joint account was $1,500 for the 2019 financial year.

Michael has paid $700 to a registered tax agent for preparing his tax return for 2018 tax year.

In addition to the above, the following information relates to his employment (Part A), business income/expenses (Part B) and rental receipts/payments (Part C). All expenses have been substantiated unless it states otherwise.

Employer: Myer Pty Ltd (ABN: 11 235 365 874)

Gross wages for the 1^st of July 2018 to the 30^th of June 2019: $9,800 (PAYG withheld: $400)

He also received $800 uniform allowance and $200 reimbursement from Myer for work related items he purchased.

Michael received a car from employer as a fringe benefit (showing as reportable in his PAYG summary, valued $60,000 not exempt from FBT)

Work related allowable deductions to claim (telephone & stationery) $600

During the year, Michael has had the following transactions in relation to sales, purchases, and inventory (trading stock. Michael did not choose Small Business Entity option). All GST exclusive unless states otherwise.

Cash received from accounts receivable for credit sales	$85,000
Cash paid to accounts payable for purchases of trading stock	$43,000
Inventory (trading stock) on 1 July 2018	$7,100
Inventory (trading stock) on 30 June 2019

at cost	$8,400
at market selling	$8,600
at replacement	$8,500

The closing stock values include $5,000 worth stock in transit from overseas paid for and owned but not received until the 15^th of July 2019.

Michael has taken home a coffee machine from the stock purchased for private use at total value of $1,200

Ledger balances were as follows (GST inclusive)

	1 July 2018	30 June 2019
Accounts receivable	$17,600	$19,800
Accounts payable	$5,280	$5,830
Additional cash receipts included: (All GST exclusive unless states otherwise)
Volume rebates from overseas suppliers		$3,500

Insurance recovery from the insurance company due to extensive damage

caused by a hailstorm and included
- Compensation for loss of income	$7,900
- Repairs carried out on shop caused by storm damage	$2,700
- Medical costs incurred by Michael form injuries	$900
Capital contributed by Michael to expand the business	$10,000
Cash payments included:
Cash Drawings by Michael	$3,000
Fines for breach of Australian Customers regulations	$900
Net wages to employees	$12,000
PAYG withheld from employees and paid to the ATO	$2,900
Superannuation for employees	$1,230
Superannuation guarantee charge	$190
Fringe benefit tax	$850
Lease payments on shop fittings and plant equipment	$940
PAYG instalments for Michael’s personal tax commitments	$2,500

Fee for maintenance of computer systems –

Covering the period 1/4/2019 to 30/9/2019	$1,680
Other tax deductible operating expenses	$9,200
Decline in value (see note 1)	$ ?

Other information regarding Michael’s Business

Note 1) Michael uses plant and equipment in his business as follows. Michael wishes a maximum deduction for 2018/19 tax year. Ignore SBE concession. You must show clearly decline value to claim this year and closing adjustable value balance of the each asset in the word report.

Office	15,000	1/6/2017	10 years	13,375	100%	Prime Cost
Furniture	15,000	1/6/2017	10 years	13,375	100%	Prime Cost
Furniture
Laptop	4,000	1/8/2018	3 years		100%
Printer	150	1/3/2019	2 years		100%

Michael purchased a house as a residential investment property on the 1^st of July 2018. Purchase price of the property was $300,000 comprised of the following payments. All amounts include GST where applicable.

Land and buildings

$276,800

Depreciable assets adjustable value on the 1^st of July 2018 (See Note 1)

Carpets	$5,000
- Hot water system electric	$1,200
Ceiling fans	$1,600
Barbecue (fixed)	$1,400
Window blinds internal	$8,000
Window curtains	$6,000
	$300,000

The previous owner provided a statement to Michael certifying that the property was constructed and completed on the 1^st of January 1990 at a construction cost of $100,000. The house was in good condition except that the outside walls required complete repair.

Michael recorded the following receipts and payments for the 2018/19 tax year in respect of the rental property:

Receipts
Rent received (net of agent commission withheld $1,250) by 28 June 2019	$23,750
Compensation from Rental bond board for tenants who left and
did not pay the rent they owed (see note 2)	$1,300
Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2019	$3,000
Insurance recovery for storm damage to roof	$2,100
Payments
Mortgage repayments to Westpac Bank – principal	$4,500
– interest	$23,800
Loan application fees to Westpac Bank for a 10-year mortgage loan
to buy the house – paid on approval of the loan 1 July 2018	$825
Council & Water rates	$3,400
Building Insurance premium	$850
Payment to solicitors – for lease preparation fees	$150
– to eject tenants for non-payment of rent	$375
Repairs – to paint the outside walls of the house, carried out on 10 July 2018	$1,100
Construction costs of brick room to store garbage bins
and gardening equipment, carried out on 1 May 2019	$6,000
Garden hose and attachments	$165
Travel costs to the rental property for inspections (see Note 3)	$830
Pest control costs to eliminate cockroach infestation	$280
Payments to the Australian Taxation Office
- Additional tax on an amended assessment	$400
- Interest paid on late lodgment	$150

- Fine for the late lodgement of 2017/18 tax return

$760

Other information

Note 1) Michael will use the Commissioners estimate of effective life for calculation decline in value which can be found under “Residential Property Operators”.

Note 2) The rental bond board were only able to pay part of the money owed by the tenants. A further amount of $1050 is outstanding. Michael is attempting to recover this amount by legal means.

Note 3) Michael lives in Sydney, he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants.

Michael wishes to minimise his income tax for 2018/19. Calculate Michael’s taxable income for 2018/19. You are required to enter income and deduction details where applicable in the tax return form provided in the excel sheet.
Submit all workings of EACH income & deductions of calculations and any tax offsets available for Michael in a word format (written report) including relevant section numbers as per ITAA36/ITAA97.