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TAXATION LAW TUTORIAL QUESTIONS WEEK COMMENCING 19 SEPTEMBER 2016 WEEK 9: PARTNERSHIPS AND INDIVIDUALS FROM SEMESTER 1 2013 EXAM Jenny and Frank are...


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TAXATION LAW

 

TUTORIAL QUESTIONS WEEK COMMENCING 19 SEPTEMBER 2016

 

WEEK 9: PARTNERSHIPS AND INDIVIDUALS FROM SEMESTER 1 2013 EXAM

 

Jenny and Frank are Australian residents in partnership as retailers of computer parts. The

 

partnership records for the financial year ending 30 June 2016 disclose: Receipts:

 

$400,000 Gross receipts from trading 20,000 Bad debts recovered 20,000 Net Exempt Income 10,000 Not Assessable Not Exempt Income 40,000 Net capital gain from the sale of shares

 

acquired in 2004 10,000 Dividend 50% franked Payments:

 

$200,000 Purchases of trading stock 50,000 Partners’ salary – Jenny 20,000 Partner’s salary - Frank 2,000 Interest on cash advance made to the

 

partnership by Peter who is not a partner 10,000 Travelling expenses in respect of Frank

 

travelling from home to work 50,000 Salaries and rent paid 2,000 Legal expenses in recovering bad debts 5,000 Borrowing expenses on a loan used for

 

income producing purposes. The loan is for

 

6 years and began on 1 July 2015 3,000 Painting business premises in June 2016 7,000 Replacing roof tiles of business premises

 

immediately after purchase of business

 

premises Other details: a) Jenny and Frank share the residual profits and losses on a 60% and 40% basis.

 

b) Trading stock on hand 1 July 2015 $60,000

 

c) Trading stock on hand 30 June 2016 using the LIFO method: $50,000(at market

 

selling value), $45,000(at replacement cost), $40,000 (at cost price). Trading stock

 

on hand 30 June 2016 using the FIFO method: $100,000(at market selling value),

 

$80,000(at replacement cost), $70,000 (at cost price). The partners wish to minimise

 

their tax liability for the year ended 30 June 2016

 

d) The partners made a partnership net loss of $15,000 in the income year ending 30

 

June 2015

 

e) On 10 January 2016 Frank was robbed at gunpoint of the partners’ trading receipts of

 

$20,000 while on the way to the bank.

 

f) During the 2016 income year Frank received a net salary of $20,000 as a part-time

 

lecturer at Monash University after PAYG of $5,000 tax was deducted from his salary

 

by his employer. Frank has a $6,000 capital loss from the sale of shares from the 2011/2012 income year.

 

g) Frank has a carry forward Division 36 loss from a previous income year of $10,000

 

j) During the tax year Frank made a gift of $1,000 to the Collingwood Football Club and

 

a gift of $1,000 to the Red Cross

 

k) Neither Frank, nor his children, are members of a Private Health Fund and do not

 

have private hospital insurance.

 

l) All figures are exclusive of GST. REQUIRED

 

Calculate the partnership net income and Frank’s taxable income and tax payable for the

 

income year ending 30 June 2016.

 

Figures can be rounded to the nearest dollar. FROM SEMESTER 1 2015 EXAM PAPER Salvador Ryan is a self-employed accountant. His receipts and payments for the year ended 30

 

June 2016 are as follows: Receipts

 

$

 

200,000

 

25,000 Professional accounting fees (see note (i))

 

Sales of Do-It-Yourself Superannuation guides 8,000 Exempt income 6,000 Not assessable non-exempt income 7,000 Dividends received from an Australian resident company franked to 50% 9,000 Net interest received from Singapore after tax of $1,000 was withheld in

 

Singapore 24,000 Net salary received from part-time lecturing at CPA Australia (CPA Australia

 

withheld $6,000 in PAYG instalments) (see note (ii)) 10,000 Rental income from an investment property 15,000 Net capital gain from the sale of an antique during the year (see note (iii)) Payments

 

$

 

14,000 Office rent 10,000 Purchase cost of Do-It-Yourself Superannuation guides (see note (iv)) 30,000 Salary paid to employee secretary 1000 Cost or registering copyright of accounting text book written by Mr Ryan 1,000 Train fare for travel to and from work (see note (v)) 1,000 Rates on family home (see note (v)) 900 Electricity for family home (see note (v)) 1,000 Tax agent’s fees for preparing tax returns for Salvador 3,000 Borrowing expenses relating to a new loan on the abovementioned investment

 

property acquired on 1 January 2016 which is used exclusively for income

 

producing purposes. The loan is for 3 years and began on 1 January 2016. 2,000 Rates paid on 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 June 2016 15,000 Cost of extending the bathroom in the investment property Notes

 

(i) Salvador provided accounting services at a cost of $20,000 to a client during the 20132014 income year which were paid to Salvador on 15 June 2016. He also provided

 

accounting services at a cost of $30,000 during the 2016 income year which remain

 

unpaid on 30 June 2016. (ii) Salvador received the free use of a motor vehicle from CPA Australia which had a FBT

 

taxable value of $5,000 for the period ending 30 March 2016. The FBT was paid by

 

CPA Australia (iii) Salvador acquired the antique in 2011. Salvador also has a prior year capital loss of

 

$12,000 from shares sold on 30 May 2013 and a prior year capital loss of $10,000 from

 

shares sold on 31 November 2012. (iv) On 1 July 2015 the Opening stock value for tax purposes for the Do-It-Yourself

 

Superannuation guides was $20,000.

 

The LIFO method produces the following results for the Do-It-Yourself Superannuation

 

guides at the end of the income tax year:

 

$

 

Cost Price 7,000 Replacement Price 9,000 Market Selling Value 11,000 The FIFO Method produces the following results for the Do-It-Yourself Superannuation

 

guides at the end of the income tax year:

 

$

 

Cost Price 13,000 Replacement Price 12,000 Market Selling Value 14,000 Salvador’s average annual turnover for the last 3 income years was $300,000

 

(v) Salvador maintains a home office. The office occupies 10% of the home. He uses his

 

home office to do his research for difficult tax issues in respect of matters relating to his

 

accounting practice. He estimates that he uses his home office for about 10% of his

 

accounting work during the income year. (vi) Salvador has a carry forward past year tax loss of $12,000.

 

(vii) All figures are exclusive of GST. REQUIRED:

 

Calculate Salvador’s tax liability for the year ended 30 June 2016. He wishes to minimise his

 

tax liability in that year.

 


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