ACC3TAX Group Assignment Case Study
Janet Brown, a 55 year-old accounts manager employed by BMA Investments Ltd in Melbourne, is one of your longstanding clients. On 23 August 2018 you receive an email from her (see below) with information for the preparation of her 2017/18 tax return.
From: Janet Brown
Sent: Thursday, August 23, 2018 9:00:43 AM
To: Tax Accountant
Subject: Tax Return 2017/18
Attachments: Janet Brown – Payment Summary 2017/18
Dear Tax Accounting Team,
Please refer to my attached payment summary from BMA for the current income year. The information below may also be relevant for the preparation of my tax return:
- On 1 July 2017 I took a loan with BMA of $400,000 at an interest of 3% per annum to purchase an investment townhouse in Newport/VIC. Of the total amount, I used $300,000 to buy the property, and I spent the balance renovating my own house at Sesame Street.
- Since 1 April 2017 I have been using a company car provided by BMA. It is a Mazda 6, which I drive to and from work (but not to visit clients as BMA pays our taxi trips for that), as well as on the weekends. I’ve used it for the whole income year, and BMA covered the cost of the car of $30,000 but I was required to pay for petrol, in a total of $500 for the entire year.
- I signed the contract to purchase the Newport townhouse on 10 August 2017 and it has been rented at $2,500 per month since 1 September 2017. On 01 October 2017 the tenants advised me that the roof was leaking, so I spent $22,000 replacing the roof. I also installed a new air-conditioning system at the top floor on 10 December 2017 at a cost of $4,000 (I have all the receipts for these expenses).
- On 15 March 2018 I sold 1,000 Telstra shares for $10,000. I had bought those shares in 2014 for $5,000. Still in March this year I sold all my Orica shares that I had purchased in December 2017 for $10,000, but I only made $6,000 on the sale.
- I sold 3 little Russian Babushka dolls for $5,900 each one on eBay. I had purchased those dolls as a set of 5 (they came one inside the other) during a trip to Moscow 2 years ago. At that time I paid $1,000 for the whole set, and I decided to sell them after I discovered a famous artist had made them.
I will forward to you in a separate email my private health insurance statements, however I can confirm that my details have not changed from previous years and I remain adequately covered for the purpose of avoiding the Medicare Levy Surcharge.
There is one more issue I need to discuss with you. In February 2018 the neighbours of my Newport townhouse have taken me to Court arguing that my backyard fence had been placed on part of their block. I have spent $25,000 in attorney and Court fees and unfortunately the Court decided that the fence was really over their property, so I had to pay them $10,000 in damages on 10 May 2018. Could you please provide me with a separate letter of advice regarding whether or not I would be able to claim the legal fees and the damages in the current year?
I look forward to hearing back from you with my statement of taxable income and completed tax return with supporting schedules; as well as the letter of advice in regard to my legal fees and damages for my Newport townhouse.
Thank you very much. Kind regards,
Considering the information provided in the case study above:
- A) Prepare Janet Brown’s statement of taxable income and calculate her total tax liability (including Medicare Levy) for the year ending 30 June 2018. State all calculations and include explanatory notes and supporting schedules, applying legislation and case law.
- B) Prepare a letter of advice on the tax consequences in relation to the legal fees and damages paid by Janet for
the year ending 30 June 2018.
- C) Write a short explanatory note to BMA explaining any tax liabilities that may arise in connection with the provision of benefits to Janet Brown. State relevant calculations and applicable legislation.
(5 marks) (Total 30 marks)