INTRODUCATION TO AUSTRALIAN TAX LAWS QUESTIONS -
Question 1 - Holly Gordon has retired and derives her income from a series of investments and a part time job at the local cafe. Her income and expenses for the year include:
Income $
Superannuation pension 15,000
Wages from Café (tax withheld $2,367) 22,000
Tips received from the Café from customers (but she did not wish to declare them as income) 1,500
Laundry Allowance from Café 450
Reimbursement for use of her own motor vehicle For work purposes 750
Compensation payment 60,000
Holly had been injured work. She finally received settlement for her claim. The $60,000 represented $12,000 in lost wages from the 2017/2018 year. $5,000 represented medical expenses and the remainder was for pain and suffering and damage to her left wrist
Bank interest 2,000
Dividend fully franked 10,000
This dividend carried franking credits of $4,286
Partial 75% franked dividend 5,000
This dividend carried franking credits of $1,607
Rent 10,000
Bequest from friends estate 7,500
Expenses -
Mortgage repayments 7,000
Thirty per cent of the interest expense relates to her share investments and 70% to the rental property. Interest of $500 was payable on the 1st of each month and Holly always paid on time until 1 June 201sdsd8. On the 1 June 2018 Holly pre-paid the interest on her loan for a period of 15 months. She felt this was the most effective way of investing the $7,500 legacy she had just received as a result of a bequest from the will of her friend Brett Taylor. The amount of interest pre-paid equalled the amount of the legacy. 7,500
Replaced the entire fence surrounding the rental property. It had been in poor condition when the property was acquired last year. 3,000
Repainted the front wall of the house that had been spray painted by vandals the previous month. 500
Drycleaning and laundry of uniform for Café 250
Motor Vehicle deductions 350
Donation to World Vision Charity 1000
Purchase of calendar from Red Cross Charity 25
Tax Agents Fee to prepare 2018 tax return 450
Additional Information -
The 10-year loan was taken out on 20th May 2017 when Holly incurred the following costs relating to the loan:
These were higher than normal as the bank had to use Holly's own residence as well as the rental property for security;
- application fees 600
- stamp duty to register the mortgage 700
Holly also received $1,500 rent that had been outstanding since the previous year (this is in addition to the $10000 she received above)
Required - Calculate Holly's taxable income and net tax payable including Medicare Levy.
Question 2 - Polly's existing plant and equipment as well as new purchases and disposals are as follows:
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Plant on hand
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Item
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Cost $
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OAV at 1.7.2017
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Rate
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Furniture office
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14,600
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6,000
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10% diminishing value
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Film equipment 1
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25,000
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18,000
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40% diminishing value
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Editing equipment
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30,000
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22,000
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20% diminishing value
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Computer System
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12,000
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6,000
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20% prime cost
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Purchases
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Item
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Purchase date
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Price $
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Effective Life
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Film Equipment
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1.10.2017
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35,000
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4 year
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Camera 1
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16.1.2018
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5,800
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5 years
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Camera 2
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1.6.2018
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1,500
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2.5 years
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Sales
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Item
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Sale Date
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Sale price $
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Film Equipment 1
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1.10.2017
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32,000
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Furniture Office
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5.5.2018
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4,000
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Camera 1
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30.6.2018
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5,000
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Required: You are also required to complete the relevant Uniform Capital Allowance Schedule for Polly assuming she does not want to use any pooling.
Question 3 - Molly is a tutor in fine arts at a local college. She also owns her own business selling antiques but in the previous few years the business had been making a loss so she has decided to sell all her assets and move to Europe to study art history.
The assets sold by Molly are as follows:
A) Sale of vacant land on 28 May 2018 190,000
The land had been bought on 28 October 2009 at a cost of $95,000. Stamp duty of $2,358 was paid at purchase. Rates and taxes of $15000 were paid during ownership. She paid $10,000 to the agent for the sale of the land and $1299 in settlement fees, these were both paid on 28 May 2018
B) Sale of shares in public company on 23 September 2017 55,000
The shares had been bought on 3 March 2017 for $48,000
Brokerage on purchase and sale was 1% payable at the time of the transaction.
C) Sale of holiday house on 12 August 2017 300,000
The house had been purchased on 22 November 2012 for $290,000. She had paid interest during her period of ownership which totalled $40,000. Stamp Duty of $6,320 had been paid at purchase. At purchase she arranged to have a new kitchen fitted at a cost of $23,000. This was paid on 15 January 2014. During the period of ownership she had a dispute with her neighbour over the boundary of the property and on 1 March 2013 she paid her lawyer $2,500 for resolving the dispute.
D) Sale of business to her competitor on 31 December 2017, the sale price was $265,000 which consisted of $156,000 for stock and the balance goodwill. Molly had originally purchased the business herself on 10 January 2000 and had paid $10,000 for the goodwill of the business back then. The costs associated with the sale consisted of settlement fees of $900 paid on 30 December 2017 and legal fees on the contract of sale $2500 which were paid on 1 December 2017.
Molly had a capital loss from the previous year of $26,900.
Required: Calculate Molly's net capital gain assuming she wishes to minimise her capital gains tax liability.
Assessment criteria:
1.1 List and calculate items that are included in Taxable Income
1.2 Notate and explain items that are excluded from Taxable Income
1.3 Use the cash or accrual basis of accounting where applicable
1.4 Calculate Net Tax Payable (including Low Income Tax Offset)
2.1 Calculate the decline in value of depreciating assets.
2.2 Calculate the deduction available under Division 43.
3.1 Calculate Capital Gains
3.2 Notate and explain items that are exempt or excluded from Capital Gains
3.3 Calculate Net Capital Gains including capital losses
3.4 Calculate Net Capital Gains for a business including the active asset discount
4. Provide legislative references and reasoning where required.
Attachment:- Assignment File.rar