- Textbook: K Sadiq et al, 2018 Principles of Taxation Law, Thomson/Reuters, Sydney
On 30 June 2018, Kylie sold her investment apartment for $580,000. The apartment had been purchased on 1 March 2005 for $360,000. At the time of acquiring the holiday apartment Kylie incurred $5,000 in stamp duty, $4,000 in valuation costs. On 1 July 2007 Kylie incurred costs of $15,000 in renovating the kitchen in the apartment. On 1 February 2009, Kylie spent $40,000 adding a second bathroom to the apartment. At settlement she incurred legal expenses of $2,000 and real estate agent’s commission of $8,000 in relation to the sale.
- On 1 January 2018 Kylie granted a $10,500 three-month option to purchase the property for $540,000 to a local property developer. The option lapsed on 31 March 2018. Kylie retained the $10,500. Her solicitor charged her $500 legal fees to prepare the option contract.
- On 25 May 2018 Kylie sold a stamp collection for $25,000. She had purchased the stamp collection for $22,000 in 2001.
- On 16 September 2016 Kylie purchased shares in BHP for a total price of $45,000. She sold those shares on 28 May 2018 for $65,000.
- Kylie has a carryforward capital loss of $20,000 from the sale of shares in the 2007-2008 income year. She also has a carryforward capital loss of $5,000 from the sale of a coin collection from the 2010-2011 income year.
During the 2017-2018 income year Kylie earned $40,000 as a part-time school teacher but she made a loss of $20,000 from the operation of a gymnasium that she owns. The gymnasium has made a taxable profit in every one of the ten years Kylie has owned the gymnasium except the 2017-2018 income year.
Calculate Kylie’s taxable income and tax payable for the income year ending 30 June 2018.
Salvador Ryan is an accountant and the Director of his accounting practice, Darwin Taxation Services Pty Ltd. The following figures do not include GST. The company receipts and payments for the year ended 30 June 2018 are as follows:
600,000 Professional accounting fees
25,000 Sales of Do-It-Yourself Superannuation guides
17,000 Dividend received from an Australian company franked to 50%
5,000 Interest on Bank Deposits
10,000 Rental income from an investment property
2,000 Profit on sale of office equipment (note 1)
850 Dividend from shares in IBM (USA) (3)
14,000 Office rent
10,000 Cost of Do-It-Yourself Superannuation guides (note 2)
38,000 Salary paid to employee secretary
1,000 Train fare for travel to and from work
1,000 Legal fees for preparing a new lease of the office
2,000 Rates paid on abovementioned investment property
15,000 Interest paid on loan to acquire the investment property
5,000 Cost of painting the investment property immediately after purchasing the property
1,000 Cost of replacing roof tiles on the investment property after the roof was damaged in a severe storm in February 2018
15,000 Cost of extending the bathroom in the investment property
136,000 Cost of a new BMW for Salvador to use 100% for business purposes
(1) Profit on sale of office equipment.
The office equipment was purchased on 1 July 2016 for $10,000. Salvador estimated its effective life for taxation purposes at the time of purchase at 10 years. He uses the prime cost method.
Sale proceeds – sale date 30 June 2018 $5,000
Net book value based on accounting depreciation 3,000
(2) The Opening stock value for tax purposes was $19,000.
The FIFO Method however produces the following results for the Do-It-Yourself Superannuation guides at the end of the year:
Cost Price 12,000
Replacement Price 9,000
Market Selling Value 14,000
(3) Withholding tax of $150 was paid in the US.
(4) The company has a carry forward past year tax loss of $42,000.
(5) The company has made PAYG Instalments of $150,000 during the year.
Calculate Company’s tax payable for the year ended 30 June 2018.
Fred operate a retailing business as partners. The partnership is
registered for GST and the figures are exclusive of GST. The
partnership records for the financial year ending 30 June 2017
Gross receipts from trading $860,000
Purchases of trading stock $305,000
Salaries paid to the partners $30,000 each
Interest paid to Elizabeth on her capital contribution $3,000
Interest paid to Fred on his capital contribution $2,000
Interest on a cash advance made to the partnership by Elizabeth $2,000
Salaries and holiday leave paid to employees $60,000
Fringe benefits tax paid by the partnership $2,300
Other general and specific deductions $123,400
Other information relating to the partnership is as follows:
(1) Elizabeth and Fred share partnership profits in the ratio of 50% each.
(2) The partnership chooses to use the capital allowances and trading stock provisions for SBE’s.
(3) Trading stock on hand 1 July 2016 – $130,000. Trading stock on hand 30 June 2017 – $140,000
(4) A capital gain of $5,000 was made on a partnership asset that had been held for 2 years.
(5) The opening general small business entity pool was $120,000. During the year $24,500 of assets were added to that pool.
(6) A $12,520 fully franked dividend from an Australian company was paid to the partnership.
(7) The fringe benefits tax was paid in respect of a benefit paid to one of the partnership’s employees.
In addition to the partnership details provided, Elizabeth’s personal records disclose:
* Gambling winnings $2,400
* Fully franked dividends received $7000
* Gross salary paid as a part-time instructor of $15,000. The employer deducted $5,000 as PAYG withholding.
* Elizabeth purchased a calculator for $250 for her classes that she ran as an instructor. She also paid $500 for the annual membership of a professional association.
* Elizabeth maintains her elderly mother and her mother’s adjusted taxable income for the year was $548.
* Elizabeth does not have private hospital insurance.
* Elizabeth received a net dividend of $9,000 from a shareholding in a foreign resident company located in the US. The payment summary issued by that company showed that $1,000 had been withheld at source.
(i) Calculate the net partnership income for the 2016-17 financial year.
(ii) Determine the distribution amounts to each of the partners based on your determination in part (i) above.
(iii) Determine Elizabeth’s income tax liability including the Medicare levy for the year ended 30 June 2017 and calculate her refund due or additional tax payable based on your previous calculations.
Ace Couriers Pty. Ltd. is an Australian resident private company for tax purposes and carries on the business of parcel delivery throughout Australia. It is registered for GST.
Amanda, the accountant has prepared the Income Statement for the year ended 30 June 2017 based on the financial accounting standards:
Accounting depreciation (note 4) 35,000
Fringe benefits tax 15,000
Provision for motor vehicle accident claims (note 5) 50,000
Provision for long service leave (note 5) 40,000
Repairs (note 6) 30,000
Wages (note 7) 405,000
Purchase of trading stock (note 8) 45,000
Payment for a new business (note 9) 100,000 1,070,000
Net Profit 3,419,700
(1) Unless otherwise stated the figures are GST exclusive.
(2) On 30 November 2016, the company received a cash dividend of $240,000 (franked to 80%). This dividend is not recorded in the above Income Statement.
(3) On 31 August 2016, the company also received a cash dividend of $160,000 from a Singapore company. Withholding tax of $20,000 had been withheld in Singapore. This dividend is not recorded in the above Profit and Loss Statement.
(4) The accounting depreciation of $35,000 is based on the directors estimating the effective life of all assets being 10 years. Amanda advises you that for taxation purposes the following information is applicable:
Ace Couriers Pty Ltd.’s final records show that on 1 July 2016 the opening balance of the low value and low-cost pool of assets was $80,000. During the year ended 30 June 2017 the company purchased a number of low value assets for $17,080 at various times during the year which Amanda wishes to be pooled.
During the year
the company also purchased the following assets:
o New motor vehicle servicing equipment at a cost of $17,750 (GST inclusive) on 1 July 2016. The estimated life is 6 years.
o A new i-Pad at a cost of $990 (GST inclusive) on 1 July 2016. The estimated life is 3 years.
o The old delivery van was traded in for $8,768 on 1 July 2011. The written down value of the van at that date was $9,710. A new VW delivery van was purchased on the same day for $74,232 (the amount payable after deducting the trade in value). The amount paid was GST inclusive. The estimated life, given the kilometers they will travel in the van, is 5 years.
(5) The provision for motor vehicle accident claims was based on the company’s estimate of anticipated costs (based on statistical experience) of the number of accidents involving its drivers and the amount to be paid to the insurance company as contribution towards the repair costs. The provision for long service leave is an estimate but the actual cost for the year was $25,000.
(6) The repairs of $30,000 consisted of painting the company premises for $10,000 and replacing the old rotting wooden office window frames with new steel window frames for $20,000. The painting was to the west wall which got the afternoon sun and had not been painted for seven years. The existing paint was peeling and needed to be done before the timber also started to rot. The cost of replacing the old wooden office window frames with new wooden window frames would have been $21,000. The new steel window frames had the advantage of not being subject to rotting but had the disadvantage, unlike the old wooden frames, of being subject to rust. The new steel window frames were installed on 1 July 2016 and have an estimated life of 25 years.
(7) Wages of $405,000 include $50,000 paid for marketing services provided by a director’s daughter. The Commissioner considers that $20,000 is a reasonable amount for the services provided.
(8) Ace Couriers Pty Ltd has carried out a stock take and values its closing trading stock at the following amounts:
Market value $35,278
Stock at the beginning of the income year was: $230,000
Amanda has not included the opening and closing stock figures in calculating the net profit of $3,419,700.
(9) Ace Couriers Pty Ltd purchased the goodwill from a competitor for $500,000 and the purchase price is paid over five years in exchange for five annual payments of $100,000. The date of the purchase was 1 July 2016.
(10) The company paid a total of $955,000 in PAYG Instalments during the financial year.
(11) The company owns the building that it operates from and it purchased the building on 1 July 2016. The building and land cost $2,456,657. The building was five years old when purchased and the cost of the actual building was $1,200,000. This cost has been confirmed by the builder. Amanda has not included the building in the financial accounts and is unsure how to treat this expense for taxation purposes.
(12) The company has advised that it wishes to pay the minimum amount of tax and wants to claim the maximum deductions allowable.
Calculate Ace Couriers Pty Ltd’s taxable income and tax liability for the year ended 30
|Taxable income – $||Tax on this income – $|
|0 – 18,200||Nil|
|18,201 – 37,000||19c for each $1 over 18,200|
|37,001 – 87,000||3,572 plus 32.5c for each $1 over 37,000|
|87,001 – 180,000||19,822 plus 37c for each $1 over 87,000|
|180,001 and over||54,232 plus 45c for each $1 over 180,000|
* MEDICARE LEVY
of 2% (this levy is payable at a rate of 2% for taxable incomes over
* COMPANIES (tax %): * Small business entities – 28.5% * Other companies and entities – 30%