a graduate accountant

You are a graduate accountant and have been instructed to prepare Michael’s tax return. Michael

operates a motor mechanic business and employs two staff. He has provided you with the following

detail:

Receipts

– Motor Vehicle Service Income – $650,000

– Motor Vehicle Parts – $180,000

– Vehicle tow on-charged to customer – $55,000

– Gain on sale of repaired Motor Vehicles – $25,000 – Note 1

– Labour Services Provided – $85,000 – Note 2

– Wins on the horses – $85,000 Note 3

– Gifts from customers – $2,500 Note 4

– Interest on bank deposits – $3,500

Deductions

– Wages paid to Staff – $160,000

– Vehicle tow costs – $35,000

– Parts – $160,000 Note 5

– Paint lounge room at Michael’s principle place of residence – $4,500

– Repaint workshop floor – $8,500 – Note 6

– Lease on Workshop – $35,000

– Paint vehicle damaged by employee – $10,000 Note 7

– Three new vehicle hoists – $30,000 Note 8

Note 1 Michael’s customers sometime abandon vehicles and Michael repairs them himself and then

on sells them. During the year Michael took ownership of three cars and repaired them at a cost of

$30,000. He them sold them for $55,000 giving a gain of $25,000.

Note 2 Michael’s staff sometimes work for the mechanic next door and Michael charges that

mechanic for their services.

Note 3 Michael bets on the horse each week and over the year his gains exceed his losses by

$85,000

Note 4 Michael’s customers often provide gifts to Michael as a thank you. The customers always

pay the full fee and provide the gifts on a personal basis to Michael

Note 5 In addition to the acquisitions during the year Michael’s opening stock was $75,000 and his

closing stock was $85,000.

Note 6 – The workshop floor was damaged after an employee spilt petrol.

Note 7 – An employee crashed a customer’s car on the test drive.

Note 8 – Each hoist was acquired for $10,000 and the Supplier advise Michael he could be entitled to

the instant asset write off.

  1. Calculate Assessable income and tax payable for Michael for the June 2019 year

2. Using the same facts as above, however if Michael was now the Michael Discretionary Trust

calculate the assessable income of the Trust and comment how you would distribute that

income based on the following:

a) Michael’s wife is not working

b) Michael has no other income

c) Michael’s son is currently at Uni and earns $15,000 during the year

d) Michael’s daughter has finished Uni and is a doctor earning $350,000 a year

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