# ACC311 : Taxation Law and Practice - Case Study Report Assessment Answer

November 03, 2018
##### Author : Sara Lanning

Solution Code: 1DFC

## Question: Taxation Law and Practice

This assignment is related to ” Taxation Law and Practice” and experts at My Assignment Services AU successfully delivered HD quality work within the given deadline.

### Taxation Law and Practice

Question 1 (25 marks):

Dan Brown, aged 35, is a single father with a 2 year old son – Ryan – of whom he has shared care. Ryan had \$100 assessable income for the current tax year.

Dan is an eligible beneficiary of the Fibonacci Family Discretionary Trust.  The trustees decided to distribute a cash amount of \$15,000 to Dan for the current tax year.

Dan also receives \$5,000 fully franked dividends.  Dan has a \$36,000 HELP debt.

Dan received \$98,000 (gross income) from employment at ABC Ptv Ltd for the period 1 July 2015 to 30 June 2016.  The correct amount of PAYG has been withheld.

Dan reports interest income of \$675.

Dan advises of investment expenses of \$300.

Dan receives rental income of \$20,800 from an investment property.  The associated expenses are:

• Mortgage repayments: \$15,000
• Repairs: \$2,000
• Rates: \$2,000
• Insurance: \$200

Dansold a parcel of 100 Telstra shares on 1 January 2015 for \$1,500. He had purchased these shares on 1 January 2005 for \$500. His brokerage costs of buying and selling were \$100 in total.

Dan made donations (for which he presents tax invoices and receipts) to the value of \$500.

Dan does wear a uniform to work.

Dan salary sacrificed \$2,000 to Superannuation.

Dan pays premiums on an income protection insurance policy equivalent to \$900 per year.

Dan does not have Private Health Insurance.

Required:

 Task # Task Description Marks 1 Calculate the net tax payable/ refund situation for Dan for the current tax year (include references, calculations & assumptions) 10 2 Complete the current year Income Tax Return for Dan 10 3 Prepare a letter of advice to Dan explaining his current year Income Tax Result. 5

Question 2 (15 marks):

Scarlet Robin Pty Ltd is a resident commercial cleaning company registered with the following information:

TFN:       564 879 231

ABN:      76 124 965 308

ACN:      89 556 234 557

The following is the financial information for the year ended 30 June 2016.

GST (where it is applicable) has not been removed from the following amounts.

Depreciation (for tax purposes) was reported to be \$5,500 for the current year.

Income:

 Sales 445,000 Exempt income 10,000 Dividends (fully franked) 21,260 Interest received 1,800 Compensation from a client who failed in a legal suit to obtain damages from Scarlet Robin Pty td for alleged floor covering damage. 6,000 Net capital gain 7,000

Expenses:

 Advertising (print, net, signage, flyers) 2,900 Bad debts 1,500 Bank Charges 150 Capital expenditure (qualifies for immediate deduction) 2,500 Cost of sales 5,000 Sub-contractor expenses 20,000 Depreciation expenses 4,000 Electricity 500 Entertainment 1,500 Environmental protection (disposal of cleaning chemicals) 600 Fines (speeding and parking tickets) 600 Insurance – commercial building & contents & stock 1,500 Interest expenses within Australia 2,000 Lease expenses within Australia 5,000 Motor Vehicle 3rd Party insurance 550 Motor Vehicle expenses (petrol & maintenance) 6,000 Motor Vehicle Registration 1,000 Rent expenses 20,800 Stationery & Office supplies 400 Tea, coffee, sugar & milk for staff use 200 Telstra (Phones & Internet) 2,350 Wages 60,000

Required:

 Task # Task Description Marks 1 Calculate the net tax payable/ refund situation for Scarlet Robin Pty Ltd (include references, calculations & assumptions) 10 2 Complete the current year Income Tax Return for Scarlet Robin Pty Ltd 5

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## Solution: Taxation law and practice

QUESTION 1

TASK 1: The net tax payable/ refund situation for Dan for the current year

To determine the net tax payable by Dan we must first find his net assessable income for the current year.

The following table presents assessable incomes for Dan for the current year.

 Income Amount Cash received from the Fibonacci Family Discretionary Trust AUD 15,000 Franked dividends received AUD 5,000 Gross income AUD 98,000 Interest income AUD 675 Rental income AUD 20,800 Sale of shares AUD 1,500-500-100 Ryan's assessable income AUD 100 Contribution to super AUD 2000 Total assessable income AUD 142,475

The following table presents deductible expenses for Dan for the current year.

 Expense Amount HELP debt AUD 36,000 Investment expenses AUD 300 Total expenses arising from rental property investment AUD 19,200 Donations AUD 500 Income protection insurance AUD 900 Total deductible expenses AUD 56,900

To determine Dan's net tax payable we will use the formula:

Net tax payable = flat rate tax + additional tax for every extra AUD 1

Where the current personal flat rate tax for incomes between AUD 80,0001-180,000                       is AUD 17,547 plus 37c for every AUD 1 above AUD 80,000 ("Current Australian Income Tax rates | Exfin - The Australian Expatriate's Gateway", 2016).

Therefore, Dan's net tax payable = AUD (17,547 + 0.37 x (142,475 – 80,000))

= AUD (17,547 + 0.3 x 62,475)

= AUD (17,547 + 18,742.5)

= AUD 36,289.5

TASK 2: Lodging income tax return for Dan for the current year

TASK 3: Letter of advice to Dan explaining his current year income tax result

Dear Mr. Dan,

I am honoured to have this opportunity to give you my advice regarding your tax results.

First, I would like to clarify that these tax estimates are based purely on the information you provided. The ruling on declaring tax liability proposes several penalties if you happen to knowingly omit relevant information that will result to understating your tax liability. I would also like to clarify that this is just my opinion and that the ultimate decisions are upon the ATO (James, Sawyer & Wallschutzky, 2015).

You presented the following relevant facts regarding your income and expenditure: You are a single father and a beneficiary of the Fibonacci Family Discretionary Trust from which you received AUD 15,000 for the current financial year. Apart from your gross salary income of AUD 98,000, you also received rental income of AUD 20,800 with associated expenses totaling to AUD 19,200. You have also sold some shares from which you received an income of AUD 900. You made a contribution of AUD 2,000 to super which will be taxed at 15%.

From the information you provided, your tax liability is 36,289.5. This is the amount of tax you are required to remit to ATO for the current year. However, you can make a tax refund claim for some expenses you incurred to offset your tax liability for the next financial year. According to the information you provided, the expenses for which you can claim refunds include the AUD 500 donation, AUD 19,200 worth of expenses incurred in rental property investment and other investment expenses of AUD 300. Currently, you can reduce your tax liability by reducing your contribution to superannuation. These estimations and opinions have been made based on the current tax rulings. You need to lodge these returns before July 31st to avoid penalties.

If you have further questions regarding this advice do not hesitate to contact me.

QUESTION 2

TASK 1: Net tax payable/ refund situation for Scarlet Robin Pty Ltd

To find the net tax payable for Scarlet Robin Pty we must first find the total assessable income for the current year. The net assessable income will normally include monies received from the sale of goods and services; plus other amounts received outside the course of regular business but related to the business such as compensations, lease payments, dividends and similar transactions. It is important to note that when determining the net assessable income, we use the gross earnings, that is, all amounts received and not just the profit made ("Home page | Australian Taxation Office", 2016).

The following is the assessable income for Scarlet Robin Pty Ltd

 Income Amount Dividends (fully franked) AUD 10,000 Interest received AUD 21,260 Compensation from a client who failed in a legal suit to obtain damages from Scarlet Robin Pty td for alleged floor covering damage. AUD 6,000 Net capital gain AUD 7,000 Total assessable income AUD 44,260

The assessable income is the total income from salary, business and any other profit-oriented transaction that attracts a tax liability as per the GST regulation. The debt owed by Mr. Dan is not included until it is forgiven; then it can be considered as an income which will be liable to tax.

To determine the tax payable by Scarlet Robin Pty Ltd, we will use the following formula:

Tax payable = Assessable income tax x tax rate; where the current tax rate for the income year 2015-16 for companies is 28.5% ("Home page | Australian Taxation Office", 2016).

Therefore the payable tax for Scarlet Robin for the current year = AUD 44,260 x 0.285

= AUD 12,614.1

The following are the tax-deductible expenses for Scarlet Robin Pty Ltd

Assumptions

• Scarlet Robin has all the receipts, where applicable, that can be presented as proof of expenses incurred
• Scarlet Robin has kept proper diary entries for small expenses not exceeding AUD 200; and all other expenses for which evidence cannot be obtained (Productivity Commission & Productivity Commission, 2015)

 Expense Amount Advertising (print, net, signage, flyers) AUD 2,900 Bad debts AUD 1,500 Bank Charges AUD 150 Capital expenditure (qualifies for immediate deduction) AUD 2,500 Cost of sales AUD 5,000 Subcontractor expenses AUD 20,000 Depreciation expenses AUD 4,000 Electricity AUD 500 Entertainment AUD 1,500 Environmental protection (disposal of cleaning chemicals) AUD 600 Fines (speeding and parking tickets) AUD 600 Insurance – commercial building & contents & stock AUD 1,500 Interest expenses within Australia AUD 2,000 Lease expenses within Australia AUD 5,000 Motor Vehicle 3rd Party insurance AUD 550 Motor Vehicle expenses (petrol & maintenance) AUD 6,000 Motor Vehicle Registration AUD 1,000 Rent expenses AUD 20,800 Stationery & Office supplies AUD 400 Tea, coffee, sugar & milk for staff use AUD 200 Telstra (Phones & Internet) AUD 2,350 Wages AUD 60,000 Total deductible expenses AUD 139,050

These are the expenses upon which tax refunds can be claimed. However, it is important to note that the refund will come into effect in the following tax year and can be used to offset the tax liability for that year.

TASK 2: Completed current year income tax return for Scarlet Robin Pty Ltd

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