Alex McLeod carries on business as a sole trader in Wollongong as a rural mechanic and farm machinery spare parts retailer. He is married and has one dependent child, a daughter aged 12 years, who attends a local school.
Details provided by the taxpayer for the 2015/16 year of income are as follows:
RECEIPTS
$
Sales of spare parts 100,000
Charges for mechanical repair work 45,000
Interest on joint savings account 2,800
Interest on deposit with a United Kingdom
Bank (net of 10% United Kingdom withholding tax) 270
The joint savings account is in the names of the taxpayer and his wife. Interest amounting to $2 800 has been earned on this account.
PAYMENTS
- Business
$
Gross wages (casual employees) 8 000
Light and power 900
Telephone and postage 1 500
Advertising 2 300
Purchase of farm machinery spare parts 44 000
Purchase of new custom-made toolbox roller cabinet 18 000
Accountancy fees 7 200
Local Government rates on business property 2 700
Insurance on business premises and contents 2 100
Trade journals 300
Sundry business expenses (all tax deductible) 11 500
- Personal
$
School expenses for daughter 1 200
Donation to Australian Red Cross Society 100
Membership subscription - Wollongong Apex Club 100
Medical Expenses (net of Health Fund refunds)
Taxpayer $500
Wife 800
Daughter 650 1 950
(McLeod has family cover in a private health fund, with hospital and ancillary cover. Premiums amounted to $2 400 for the year)
STOCK ON HAND (farm machinery spare parts)
- at 30/6/2015 $16,000
- at 30/6/2016 $14,000
PLANT ON HAND AT 30/6/2015
|
|
Original Cost
|
Opening adjustable value
|
|
|
|
1/7/15
|
|
|
$
|
$
|
|
Holden utility
|
24,000
|
12,400
|
|
Toyota land cruiser
|
26,000
|
18,000
|
|
Ford 2 tonne truck
|
34,000
|
16,000
|
|
Motor vehicle hoist (heavy vehicles)
Diesel engine emission tester
|
70,000
30,000
|
21,000
25,000
|
|
|
|
|
On 1st October 2015, the Holden Utility motor vehicle was traded in for $10,000 on a new Holden Commodore sedan motor vehicle costing $32,000. The new Commodore sedan has been used 40% for private purposes.
The taxpayer uses the diminishing value method of depreciation and uses the effective life determinations as specified by the Commissioner. All assets were purchased after 10 May 2006. The business has not elected to utilise the small business entity provisions.
Required:
(a) Determine the taxpayer's taxable income for 2015/16; and
(b) Calculate the income tax payable by the taxpayer for 2015/16 year of income.
In providing an answer to these questions you MUST also provide a discussion justifying the inclusion or exclusion of all items. Therefore, your answer will consist of both calculations and a discussion. The final answer must be submitted online in one (1) Word document via Moodle. You may find it useful to set out your calculations using tables or columns within this document for easy readability.