PART B — Practical Activities
You are currently employed as a Tax Agent for a local Accounting Firm (Tax Agent number 12345678). Your clients include individuals (salary & wage earners and sole traders) as well as companies, trusts and partnerships.
The policies and procedures of your firm require you to use the Microsoft Excel templates provided to complete your calculations. The ATO website should be used to verify current tax legislation and to seek advice and guidance.
All client communications should be via email. Client details required to complete the Individual Tax Return are recorded on a new client details form.
QUESTION 1
Hot Pink Batts Pty Ltd manufactures pink batts. The company wishes to use all available small business concessions to minimise taxable income. Hot Pink Batts Pty Ltd has prepared the following Profit & Loss Statement for the 2019 financial year:
Less Cost of Goods Sold
Opening Stock
Purchases and Manufacturing Costs 33,000
Closing Stock Gross Profit
Add Other Income - 300,000 983,000
Diesel Fuel Rebate (Government Subsidy) 3,500
Dividend from American Company — Note 1 8,000
Interest Income 2,000 13,500
Gross Sales
Expenses
Gross Wages 680,000
Superannuation 62,000
Provisions for Customer Warranty Claims — Note 2 30,000
Truck Expenses 31,000
Accounting Depreciation — Note 3 60,000
Share of Loss from Partnership with Al Insulation Pty Ltd 13,000
Tax Related Expenditure — Note 4 24,000
Other Deductible Expenses
NET PROFIT BEFORE INCOME TAX 130,500
NOTE 1
Hot Pink Batts Pty Ltd owns shares in an American company. The $8,000 dividend received from this investment is net of $4,000 tax withheld by USA government.
NOTE 2
The amount of warranty expenses paid to customers during the 2019 income year was $11,000.
NOTE 3
Decline in Value for tax purposes needs to be determined using the following information:
General SBE Pool Balance at 30 June 2018 $ 90,000 Purchase of New Machine on 1 December 2018 $ 98,000 Purchase of New Computer on 1 February 2019 $ 900
NOTE 4
Tax related expenditure is comprised of the following:
Payroll Tax $ 7,000
Tax Agent Fees ATO Penalties $ 6,000
ATO General Interest Charge $ 7,000
NOTE 5
$50,000 of PAYG tax instalments were paid for the 2018/19 income year.
REQUIRED:
Using the templates provided:
(a) Prepare a statement reconciling net profit with taxable income
(b) Calculate the net tax payable by the company for the year, clearly showing all your workings
(c) Who would you consult if you required advice and guidance to determine any income tax related issues?
2
Zany Funds Management Pty Ltd is an investment company. There is a carried forward tax loss of $80,000 from the 2018 financial year. The company has prepared the following Profit & Loss Statement for the 2019 financial year:
Income
Distribution from Unit Trusts — Note 1 $ 1,000
Bank Interest 3,500
Unfranked Dividends 6,000
Fully Franked Dividends — Note 1 Expenses 7 000 17,500
Accounting fees 7,000
Capital Loss on sale of shares 10,000
Ongoing financial advice 19,000
Other deductible expenses 40 000 76 000
NET LOSS (58,500)
NOTE 1
The income distribution from the unit trust included $300 of franking credits. Fully Franked Dividends represents the amount received from non SBE entities.
NOTE 2
One PAYG tax instalment was paid on 28 October 2018 of $11,000 (this related to the 2018/19 tax year)
REQUIRED:
Using the template provided:
(a) Prepare a statement reconciling net profit with taxable income
(b) Calculate net tax payable/refundable
(c) Calculate ALL losses carried forward by the company
3
The Rosy Discretionary Trust has a property investment portfolio. During the 2019 income year the Trustee recorded a net trust income of $168,000. All of the income is derived from Australian property investments. The trustee resolved to distribute the net income of the
trust as follows:
Rosy (aged 28)
Indiana (Rosy's sister aged 16)
Sarah (Rosy's sister aged 16, working full time at Coles since January) RPM Pty Ltd (Australian resident company - 100% owned by Rosy) 10%
The Robe Soccer Club (non-profit, tax exempt community organisation) Ben (aged 29) - Rosy's Friend who is a bankrupt 5%
There was one discretionary distribution made:
$10,000 was paid towards Indiana's school fees.
The balance was undistributed.
REQUIRED:
Using the templates provided
a) Complete a Distribution schedule
b) Calculate the tax payable by the trustee
4
Wharf and Alexander are father and son. Together they operate a business partnership providing security services. Wharf is aged 45. His son, Alexander aged 20, works full-time in the partnership.
During the 2018 financial year the partnership began business and made a loss of $10,000. This loss was distributed equally between both partners.
The partnership agreement states that all profits and losses will be shared equally after allowing for wages to partners and interest on capital.
During the 2018/19 income year the partnership had the following transactions:
RECEIPTS
Gross Fees $ 610,000
Business Loan from Wharf 50,000 Gross Bank Interest 1,000
PAYMENTS
Interest on Overdraft 7,000
Interest on Loan from Wharf 5,000
Lease of all Security Systems Equipment owned by Wharf — Note 1 50,000
Interest on Capital - Wharf 3,000 Wages to Employees 250,000 Wages to Wharf 40,000 Wages to Alexander 45,000
Superannuation paid for Employees 10,000
Other overheads (deductible) 168,000
NOTE 1
Wharf owns all the security equipment and leases all the equipment to the partnership. Wharf is entitled to a deduction of $34,000 for decline in value of the equipment.
REQUIRED:
Using the templates provided
a) Calculate Net Partnership Income
b) Prepare a Partnership Distribution Statement
c) Calculate Wharfs Taxable Income
d) Calculate Alexander's Taxable Income
5
Your supervisor has provided you with the following information she has prepared for a client. The partnership consists of three partners; Matthew, Helen and Lynn James, who operate a boat hire business (Industry code 66390).
Partnership Net Income
Assessable Income
Boat Hire Fees 491,000
Less: Deductions
Boat Operating Expenses 54,000 Salaries - employees 36,000
Superannuation - employees 3,000
Rent 41,000
Interest on Loan 1,000
Other Expenses 55,000
Lease of Boats 92,000282,000
Partnership Net Income
Assets 209,000
Plant and Equipment
Liabilities 20,000
Bank Loan 15,000
DISTRIBUTION - PNI Matthew Lynn Helen TOTAL
Partners Salaries 60,000 18,000 78,000
Interest on Capital 14,000 11,000 6,100 31,100
Interest on Drawings (2,400) (1,800) (1,200) (5,400)
Share of Adj. Net Inc. 52 650 35 100 17 550 105 300
124,250 62,300 22,450 209,000
REQUIRED:
a) Complete the Partnership tax return for 2019
b) Attach a copy of the Partnership tax return to an email to Helen (the nominated contact for the partnership) requesting she sign and return the form for lodgment with the ATO
6
Browns Pty Ltd, an investment company, paid the following dividends to shareholders:
$35,000 fully franked on 15 July 2018
$35,000 fully franked on 15 January 2019
$21,000 unfranked paid on 15 July 2019 (declared on 20 June 2019)
Franking account balance at 30 June 2018 was $8,500 credit
REQUIRED:
Using the template provided:
(a) Prepare a franking account
How much (if any) franking deficit tax will be payable by Browns?
(c) How much of the franking deficit tax can be used to offset future tax liabilities (show calculation)?
DOCUMENTS TO BE UPLOADED
o Part A — Final Assessment document
o Part B Excel spreadsheet - Qu 1, 2, 3, 4, 6
o Part B Qu 5 — Partnership Return (PDF document)
o Part B Qu 5 — Email to Lyn (screen shot or PDF)