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.
(i) 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.
(ii) The partners purchased the Australian internet company shares in January 2004 and sold them on 31 May 2017.
(iii) The dividend was fully franked.
(iv) The Bank of China withheld AUD $1,250 from the gross interest
(v) 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
(vi) 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.
(vii) 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.
(viii) During the year the partnership paid out long service leave to staff of $13,507.
(ix) 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)