LAW511 – Australian Taxation Law

 
LAW511 – Australian Taxation Law

Assignment 2

 

QUESTION

Barry Lee and Brett Wong are adult Australian residents.   On 1 July 2003 they formed a partnership called ‘The Two B’s’ to run a sports supply business. The partnership supplies football clothing and equipment to football clubs in Australia. The business is registered for GST.

The partnership accounts for the business for the year ending 30 June 2017 disclose the following financial details:

The following receipts and expenses are exclusive of GST unless otherwise stated.

 

RECEIPTS

Gross trading receipts                                                                                               3,900,000

Capital gain from sale of shares held in an Australian internet company      20,000

  • see note (ii) below

Cash dividend from BHP                                                                                            10,500

   See note (iii) below

Interest income from Bank of China                                                                        11,250

   See note (iv) below

Insurance proceeds received for writing off the car                                              80,000

 

EXPENSES

 

Salary to Barry                                                                                                    40,000

Interest on loan of funds by Brett                                                                   10,000

Salaries paid to employees                                                                               950,000

Rent and power                                                                                                  60,000

Purchase of trading stock (see note (v) below)                                            620,000

Superannuation to staff                                                                                    85,500

Superannuation paid on behalf of Barry                                                       25,000

Superannuation paid on behalf of Brett                                                        25,000

Purchase of BMW motor vehicle for Brett (see note (vi) below)              120,000

Purchase of treadmill and exercise bikes (see note (vii) below)               180,000

Interest on bank overdraft                                                                                18,623

Provision for long service leave (see note (viii) below)                               25,984

Provision for bad debts (see note (ix) below)                                                122,000

Notes - additional information in respect of the partnership.

 

  • The partnership agreement stipulates that Barry and Brett share profits and losses in respect of both income and capital gains and losses on the basis of 50% to Barry  and 50% to Brett.
  • The partners purchased the Australian internet company shares in January 2004 and sold them on 31 May 2017.
  • The dividend was fully franked.
  • The Bank of China withheld AUD $1,250 from the gross interest
  • Trading stock at the beginning of the financial year was $370,000. The trading stock at the end of the year was valued as:

                        Market value                           $860,000

                        Cost                                           $790,000

                        Replacement value                 $846,000

  • The car was purchased for use by Brett as he was responsible for sales. The car was purchased on1 January 2015. It was only used 100% for work purposes. On 31 May 2017 the car was involved in an accident and written off. The partnership received $80,000 from the insurance company on 15 June 2017. The purchase price only is exclusive of GST.
  • Various items of equipment were purchased on 1 July 2016 for $65,000 and 1 January 2017 for $115,000. The effective life for the equipment is 4 years. The figures are exclusive of GST. The items are used 100% for business purposes.
  • During the year the partnership paid out long service leave to staff of $13,507.
  • During the year the partnership wrote off as bad debts $36,849.

Required:

  1. Calculate the net partnership income for the partnership for the year ended 30 June 2017.
  2. Calculate the tax payable for Barry for the year ended 30 June 2017.

Additional information for Barry:

Income

 

7,000               Dividends received from an Australian resident company fully franked

30,000             Gross salary received from part-time lecturing at the University

($9,000 in PAYG W)

 2,000               Refunds from Government Medicare System for medical expenses 

 5,000               Interest on Bank Deposits

 10,000             Rental income from an investment property  

 

 Payments

 1,200               Train fares for travel to and from work

 2,200               Rates on family home

    900                 Electricity for family home

 3,000               Tax agent’s fees for preparing tax return for Barry

 5,000               Gross medical expenses for Barry and his wife.             

 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 2017  

15,000             Cost of extending the bathroom in the investment property  

 5,000              Maintaining Barry’s father Myron, who is a permanent resident of Australia and who earned $1,282 adjusted taxable income during the 2016-2017 income year. 

Barry and his wife have Private Hospital Insurance with HCF

 (30 marks)

 

 

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