ACC00132-2017-2 Taxation Major Assignment
Due Date: Friday 8 September 2017 11.00pm
Your client Stefan comes to see you in August 2017, asking to prepare his income tax return for the year ended 30 June 2017. His shoebox of receipts, invoices and other paperwork reveals the following information;
• Stefan had a PAYG Payment Summary showing he received gross wages of $49,000, with PAYG withholdings of $8,450. There was also a tool allowance of $450 shown on this summary. Stefan is a chef, so uses the tool allowance to purchase knives and other kitchen equipment.
• Stefan sold on 14 February 2017 his 2,440 shares in Telstra for $12,740. Of these shares, 2,000 were originally acquired in September 1995 at a cost of $3.60 per share. There was a 1 for 10 bonus share offer in March 2008, which were issued from the company’s share capital account (not a dividend). The remaining 240 of his Telstra shares were acquired in January 2009 for $8.00 per share.
• A dividend statement from Telstra shows a fully franked dividend of $378.20 was received on 24 August 2016. As Stefan sold his Telstra shares in February 2017 there was no dividend received in March 2017.
• Stefan has an 8 year old son and receives Family Tax Benefit for him, as he is a single parent. The amount received during 2017 was $5,500.
• He is studying at TAFE to be a fully qualified chef, so has spent $2,775 on selfeducation expenses (stationery $150, internet $240, course fees $2,385).
• He uses his 1.6litre Corolla for travelling between work, TAFE and home each week and travelled 4,800 km for this purpose during the year, of which he estimates 1,000km was for travel between home and work. His total running costs for the year were $13,050 (including decline in value) and he has maintained a log book which shows 20% work-related use.
• He has receipts totalling $280 for work clothes and shoes.
• He also has receipts for the purchase of knives and other chef utensils which add up to a total of $650. • As he is a responsible parent, he has Income protection insurance and paid a premium of $320 during the year.
• He has recently purchased a home to live in and includes his loan statements showing interest paid for the year of $7,400.
• He paid tax agent fees of $180 for the preparation of his 2016 income tax return.
• He also made a superannuation contribution of $1,500 to his own superannuation fund.
• Stefan does not have any private health insurance as he and his son are very healthy.
1. Explain the tax implications of the sale of the Telstra shares. Calculate the assessable gain, if any, preparing all appropriate work papers. (4 marks)
2. Explain the assessability and deductibility of all the other items listed in the information and then calculate Stefan’s taxable income for the year ended 30 June 2017, preparing all relevant work papers. (17 marks)
3. Calculate the tax payable/ (refundable) for Stefan for the year ended 30 June 2017, including all additional levies and tax offsets that could potentially apply to him. Prepare relevant work papers. (6 marks)
4. Using the HandiTax software (which you will download from the link on Blackboard), prepare the income tax return for Stefan for the year ended 30 June 2017. (11 marks)
You will include a covering letter to Stefan to accompany his tax return and work papers.
Stefan is an astute taxpayer and questions every piece of tax advice given to him. To ensure Stefan is satisfied, you will need to provide adequate (but concise) explanations about the income tax treatment of all these items above in your work papers.
As such, you will need to support all your discussion and interpretation with reference to legislation, cases or rulings. Referencing the Master Tax Guide will not be appropriate as this is not the authority, but rather assists your understanding of the legislation, cases and rulings. Also, copying entire sections of legislation, cases or rulings will not be acceptable as that will not demonstrate your understanding of how the law applies for each item.
You are preparing Stefan’s income tax return and supporting work papers, so you are not writing an essay. Remember, quantity does not always equate to quality, so be concise in your response. A total of 2 marks (i.e. 5% of the marks available for the assignment) will be allocated to these areas of referencing, formatting and presentation, so make sure you earn these marks as well.