Subject Code: ACC 304
Subject Name: Taxation Law
Assessment Title: Tax Practice Assignment
Monday 30 January 2017 by 15:55 PM (AEDT) via an electronic submission. Note: Adelaide and Brisbane students must allow for the time difference.
ACC 304 - Learning Outcome 5: ‘Tax Practice’ through the preparation and lodgement of an -I- Return using the GovReports government reporting software package .
The Tax Practice Assignment is a team activity with students working collaboratively in teams of a minimum of 3 and a maximum of 5 persons each of whom will receive the same team mark. However, students should be aware that if a lecturer receives a complaint about the lack of involvement of a team member in his/her team's assignment activities, the matter will be investigated. If it is found that the complaint is warranted then the student about whom the complaint was made will receive a mark of zero unless the student submits his/her own assignment for marking. However, students should be aware that Kaplan’s late policies and penalties and academic integrity policies will apply.
Details of the assignment
The assignment consists of four parts. The main Part (‘Part A’) requires the preparation and lodgement of an individual (“I”) income tax return for Wiley Coyote (‘Wiley’) using GovReports. The completion of Part A will require the input of data either contained in the following attachments to this document, or which you determine as a consequence of completing the other three parts of the assignment. :
1. background information and Wiley’s personal financial transactions for tax purposes;
2. the financial records of his business Rocket Science Pain Management Clinics; 3. Wiley’s share of the net income of the partnership Rocketfone; and
4. the amount distributed to Wiley from The Coyote Trust.
The other three parts of the assignment are:
• Part B - the determination of the taxable income and the balance of the Low Value Pool of Rocket Science Pain Management Clinics;
• Part C - the determination and the distribution of the net income of Rocketfone; and
• Part D - the determination of the trust income and its distribution showing the applicable sections of ITAA 1936 of The Coyote Trust.
Each of these parts is to be completed as separate exercises which will require students to show their workings, where necessary, and describe the reasoning behind their treatment of the items of data for taxation purposes. It is recommended that these three parts should be completed prior to the commencement of Part A.
Students should be aware that for Wiley’s “I” return the GovReports sytem includes the Supplementary Section and the Business and Professional Items Schedule for Individuals that are
normally required to be lodged separately together with the core return.
The Supplementary Section covers supplementary questions on income 13 to 24 inclusive, on deductions D11 to D15 inclusive, and on tax offsets T7 to T14 inclusive. The Business and Professional Items Schedule covers various matters from P1 to P15 inclusive, such as P8 which covers the determination of a business’s annual net income.
In GovReports these matters are included in the I return as a whole and not through the use of separate schedules. To assist taxpayers in the preparation of their tax returns, the ATO each year on its website (www.ato.gov.au) makes available to taxpayers instructions for the completion of various returns and schedules and these include both the schedules referred to above as well as the I return in general. It is recommended that students should avail themselves of this facility in order to answer correctly the various questions raised by GovReports when completing Wiley’s I return.
You should make sure you follow the guidelines/policies relating to presentation of written work, late policy and academic integrity. You should also familiarise yourself with the assessment marking matrix which shows how marks will be allocated.
Teams are to submit the following electronically to the portal:
1. A copy of Wiley’s electronic tax return as prepared and lodged with the ATO using GovReports;
2. A receipt of lodgement of the return as provided by the ATO via GovReports;
3. Answers to Parts B, C, and D, including all working papers; and
4. A separate cover sheet showing the name and student number of each team member who, if agreed to by their team colleagues, has signed against their name.
Tax Practice Assignment Marking Matrix
Task Marks Available
Part A 20
Part B 20
Part C 20
Part D 20
Total marks 80
ACC 304 – 3T2016: Tax Pratice Assignment
Background information and Wiley Coyote’s personal financial transactions for tax purposes
Wiley Coyote is an astute businessman whose ventures have included Coyote Rocket Shoes Pty Ltd. which was very successful as were the various ancillary services that he provided such as rocket fuel, rocket repairs, shoe repairs, and osteopathy and chiropractic services through 10 clinics known collectively as the Rocket Science Pain Management Clinics.
Because he could foresee government restrictions being introduced in the future he sold the company in 2014 with the exception of the clinics which were far too lucrative for him to sell off. He owns 100% of the business and is a partner in a mobile telephone dealership called Rocketfone
Wiley continues to tinker with rocket shoes and in May 2016 he made a net capital gain of $18,000 from the sale of used rocket shoes that he had purchased 2 years ago and refurbished in his spare time.
He is a shareholder in a company and from it received a partly franked dividend of $7,000 which had $1,000 of franking credits allocated to it. He is also a beneficiary of The Coyote Trust.
Personally Wiley is entitled to the following deductions:
• $1,000 (for the cost of a seminar he attended on How to Mix Rocket Fuel Safely),
• $700 (for the decline in value of a computer he uses for work-related matters),
• $560 (for repairs to equipment he uses in the refurbishment of the second hand rocket shoes he buys),
• $540 (for fees charged by his accountant for the preparation of his tax return for the previous income year), and
• $300 (donation to a charity that is a registered as a deductible gift recipient in payment of which Wiley receives 6 tickets in a car raffle).
Wiley paid $4,000 for private health insurance for he and his wife for the whole income year. PAYG withheld on Wiley’s behalf amounted to $15,500.
The business known as Rocket Science Pain Management Clinics had the following transactions in the 2015/16 financial year.
Fees from cash patients 820,000
Fees from health funds 1,075,000
Sale of burn lotions* - cash received 46,800
Workers compensation receipts** 67,000
Staff salaries (net of PAYG withholding) 640,000
PAYG withholding forwarded to the ATO 295,000
PAYG instalments 165,000
Superannuation Guarantee Levy 84,000
Entertaining special customers at sport venues 2,000
Linen (towels, bed-sheets, pillow slips)(Effective life 12 months) 11,000
Laundry expenses (external services) 6,000
Aromatherapy oils and candles*** 58,000
Artworks (each piece under $1,000, purchased 1/9/15) 8,000
Rent (includes $32,000, paid up to 31 July 2016) 286,000
Other expenses (all deductible) 63,000
* Debtors as at 30/6/15 $11,000 Debtors as at 30/6/16 $15,000
** Amounts owing by workers compensation insurance companies $13,000.
*** Stock as at 30/6/15 $ $3,000
Creditors as at 30/6/15 $1,000
Stock as at 30/6/16 $8,000
Creditors as at 30/6/16 $500
Used for family household $700
• In the year ended 30/6/15 Wiley had a tax loss of $3,800.
• Wiley accepted a bike for payment from a client. The bike had a market value of $250.
Asset Date of purchase Method Original cost
$ Adjustable value
$ Effective life
10 clinic beds 1/7/14 Prime 45,000 36,000 5
10 desktop PCs 1/7/14 Diminish. 18,000 9,000 ?
1 desktop PC 80% business use 1/7/14 Prime 1,500 1,000 ?
$1,000) 1/8/14 Prime 21,000 19,075 10
$1,000) 1/3/15 Diminish. 15,000 14,000 10
Low Value Pool 6,000
(i) Showing your workings, determine the taxable income for 2015/16 of Rocket Science Pain Management Clinics; and
(ii) Determine the closing balance of the Clinics’ Low Value Pool.
Attachment 3 Part C
Wiley Coyote also operates a mobile telephone dealership, Rocketfone, in partnership with Ralph Sheepdog from premises owned by Wiley. A partnership agreement specifies that all income and losses are to be shared in the ratio of 2:1. Transactions recorded by the partnership during 2015/16 were as follows.
Income from trading 396,000
Fully franked dividends from Investopedia Ltd 28,000
Proceeds from sale of shares in Lamb Supreme Ltd* 7,000
Trading stock and overheads 84,000
Salary paid to Wiley 75,000
Salary to Anita Coyote** 45,000
Rent paid to Wiley
(includes $30,000 paid on 30 June 2016 for 12 months in advance) 55,000
Interest paid to Ralph on loan 17,000
Interest on capital paid to Wiley 15,000
Interest on capital paid to Ralph 12,000
Superannuation contributed on behalf of Wiley 24,000
* the shares had been purchased in 2012 for $1,000
** The commissioner has issued a private ruling indicating that a salary of $45,000 was reasonable.
With full explanation:
(i) determine the net income of the Rocketfone;
(ii) determine the distribution of the net income to the partners; and
(iii) list any other items that you believe should be considered in the preparation of Wiley’s tax return..
Attachment 4 Part D
On 8 May 2011 Wiley Coyote established a family trust, The Coyote Trust, which operates a call centre, Beep Beep, that he had set up separately from his mobile telephone dealership. The trust deed has a discretionary clause and it provides that the net income of the trust is to be distributed as follows:
35 % to the nominated bank account of Wiley;
15% to the nominated bank account of Wiley’s daughter Abby who is aged 21 and a fulltime student at university;
15% to the nominated bank account of Wiley’s son Sandy who is aged 17 and employed fulltime in the call centre;
15% to the nominated bank account of Wiley’s second son Jack who is aged 14 and a fulltime school student;
5% to the nominated bank account of the registered charity The Society for the Prevention of Cruelty to Roadrunners;
5% to be placed into a bank account nominated by Wiley to meet the future medical and upkeep costs incurred on behalf of Wiley’s cat Lambchops;
5% to be retained by the trustee and held on behalf of any future grandchildren; and the remaining 5% to be distributed to any of the beneficiaries at the trustee’s discretion.
In the year 2015/16 the following transactions were recorded in the trust’s books of account.
Gross fees 545,000
Wages paid to Sandy 30,000
Salaries paid to casual staff 50,000
Deductible overheads 145,000
Gift to Desert Views (a DGR) 5,000
Providing full explanation, determine the trust income and its distribution showing the sections of ITAA 1936 that would apply to each amount distributed. Note that the remaining 5% was not
distributed by the trustee in accordance with the discretion available.