ASSIGNMENT 2 – SESSION 2 2019
Assessment description: Case Study requiring preparation of workpapers, calculation of taxable income and income tax payable, preparation of an individual tax return, and a letter of advice.
Weighting: 35% of the total marks for semester
Topic Content: Focus on Topics 5 to 10, with knowledge of previous topics expected
Due: Friday of Week 11
Submission: ONE (1) EXCEL FILE using TEMPLATE provided, only to be submitted via the link on MySCU, PLUS ONE (1) PDF FILE containing Handitax ITR and all attendant schedules and estimates.
EXCEL File Name:
SURNAME[YOUR ID]Tax Assignment 1.xls/xlsx
PDF File Name:
SURNAME[YOUR ID]Tax Assignment 1.pdf
ONLY EXCEL FILES USING THE TEMPLATE PROVIDED WILL BE MARKED.
OBJECTS AND FILES INSERTED INTO WORKSHEETS WILL NOT BE MARKED.
ONLY SUBMIT THE ITR AS A PDF FILE – Other work in PDF files will not be marked.
Remember: The purpose of an assignment is for you to demonstrate your knowledge and understanding of the topics. Make sure your answers are comprehensive enough to achieve this.
NOTE: THIS IS AN INDIVIDUAL ASSIGNMENT
YOU SHOULD WRITE ALL WORK SUBMITTED YOURSELF AND IT SHOULD BE BASED ON YOUR OWN RESEARCH. EVIDENCE OF COPYING FROM OTHER STUDENTS WILL BE TAKEN SERIOUSLY AND REPORTED.
Your client (use your own name as the client name) is the sole director of Electric Blue Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. Electric Blue analyses financial information and provides investment advice to registered clients.
The payment summary from Electric Blue Pty Ltd shows the following:
? ABN 84 111 122 223
? Gross Payments $160,000
? Tax Withheld $49,897
Electric Blue also paid $99 a month for your client’s mobile phone account and additional superannuation contributions of $6,000 under a salary sacrifice arrangement. This amount is in addition to superannuation guarantee requirements. The phone payments related to a fixed monthly contract in the employee’s name and payments were made directly to the phone company by the employer.
Your client owns an Audi Q5. They purchased the car on 1 June 2016 for $65,000. The car travelled 36,500 kms during the year and your client has indicated that about 80% is work related but they have not kept a log book. Your client pays for all the running costs for the vehicle. During the year these costs included:
Fuel & oil $6,950
Registration $ 760
Excess on insurance claim.
The insurance company paid for the balance of the cost of repairs. $750
Car washing $1,200
DIVIDENDS & INVESTMENTS:
Electric Blue Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 60% of the issued shares in the company. The shareholders were paid a lump sum of $140,000 in April. They explained that the company had been very successful over the last couple of years and had accumulated significant cash reserves. They described this payment as a fully franked dividend. The proceeds were used to reduce the line of credit that was taken out to purchase the home in which they live. Interest paid on the home loan for the year was $24,000.
The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2018. On finalisation of the estate the following shares were transferred to your client and the client received notification that all the shares had been transferred on 1 December 2018.
Share Date Purchased by Father Number of Shares Purchased Price Paid per Share at time of purchase Market Value at Date of Death
BHP 4 Jan 1985 2,200 $5.00 $20.30
CBA 12 Sept 1991 2,000 $5.40 $75.94
COH 4 Dec 1995 1,000 $2.90 $124.77
FLT 1 Dec 1995 1,000 $0.95 $32.29
MYR 7 Nov 2009 9,000 $4.10 $1.21
TLS 3 Nov 1997 2,000 $3.30 $5.75
The following fully franked dividends were received by your client during the year:
? CBA $ 880.00
? COH $1,100.00
? FLT $ 300.00
? TLS $ 185.00
The taxpayer sold the BHP and MYR Shares on 5 January 2019 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $25.63 each and the MYR Shares for $1.35 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $115 for the BHP Shares and $50 for the MYR Shares. These amounts include GST.
RENTAL PROPERTY: 4/285 Pacific Parade, Bilinga, 4225
The taxpayer owns a unit on the Gold Coast which is rented to their daughter. A contract was entered into to purchase the property on 22 January 2019 for $600,000 and settlement took place on 1 March 2019. The taxpayer’s daughter moved in immediately. She pays rent in advance of $460 on Wednesday each week. The first payment was made on the day she moved in. (HINT: You need to research the issues around renting properties to relatives and include your findings in your workpapers and letter of advice.)
The building was originally constructed in 2005. A quantity surveyor’s report commissioned at the time of purchase shows the construction cost of the unit was $180,000.
The taxpayer purchased a refrigerator for $1,080 and a washing machine for $1,500. These were installed in the unit for use by the tenant on settlement date. The taxpayer elects NOT to use a low value pool for depreciating assets and chooses the diminishing value method of depreciation where applicable.
Other costs paid in relation to the property before 30 June 2019 include:
Stamp duty on property purchase $20,025
Legal fees on property purchase $ 1,340
Body corporate fees $ 1,400
Council rates $ 950
Water Rates $ 360
Insurance $ 685
Loan repayments (interest only) $ 7,200
Quantity surveyor’s report fee $ 899
? Dry cleaning of work suits $950
? Donations were made to:
o Cancer Council Australia $1,300
o The “Sea Shepherd” $1,300
? Association of Financial Advisors Membership Fees $1040
? Subscription to “The Economist” $150
? “Vegan Living” magazine subscription $200
? Fees paid to the bank in January 2019 to establish the loan to purchase the unit were $970. The loan is for 25 years.
? The taxpayer also has an insurance policy that covers their income in the event of an accident or death. The premium is paid directly from their bank account each month. The total for 2018/9 was $6,000 of which 50% relates to the replacement of income in the event of an accident.
? In 2015 the taxpayer was involved in a car accident and sustained injuries that required medical attention and rehabilitation therapy. In December 2015 the court awarded the taxpayer $10,000 as compensation for medical expenses incurred because of the injuries from the accident. Payment was received in December 2018.
? The family is covered by private health insurance with BUPA. The policy was taken out on 1 May 2019. The premium paid to the end of the year was $930 after they claimed a rebate of $83. The policy number is RDA1465 and the health fund has notified them that the Benefit Code is 30.
? The taxpayer’s date of birth is 5 August, 1979, and they are married. You can make up the name & date of birth of the spouse. The spouse earned a salary of $91,000 for the 2018/19 year and was entitled to deductions of $2,300.
1. Using the EXCEL template provided, prepare a set of work papers – separate sheets within you EXCEL document as indicated. Include detailed explanations about whether each item is assessable income or gives rise to an allowable deduction. Show all workings, explain why you have treated items as you have, and provide appropriate authority for your decisions by referencing sections of the legislation, case law and/or income tax rulings. Your work papers need to be complete so that they can be reviewed by your supervisor and relied upon in the event of any future audit. They should also be reconciled and cross-referenced to reporting labels on the income tax return.
2. The TEMPLATE includes separate sheets for:
a. Salary & Wages Income
b. Other Income (e.g., interest and dividends)
c. Capital Gains
d. Rental Property
f. Tax calculation
g. Letter of advice
3. Tax Payable, Offsets, & Levies: Include all levies and offsets considered (Medicare, Medicare surcharge, franking credits, tax paid, low income rebate, private health rebate) and explain why they are or are not applicable and reconcile to the tax return calculation).
4. Organise your work papers so that amounts are directly transferrable to items on the Income Tax Return and provide cross references to the tax return label where the amount is reported. Make sure that all calculation steps are visible in your workpapers to ensure your full work is markable and marked.
5. Depreciation calculations can be done using Handitax with the total transferred back to the rental property section of your workpapers for reconciliation purposes.
6. Use Handitax to prepare the income tax return, including any relevant schedules, for the year ended 30 June 2019. Use your own name, and the Dummy TFN from the client set up sheet. All other details are to come from the assignment instructions.
7. Write a professional letter of advice to your client summarising their tax situation and explaining the important aspects of the items that are included in their tax return and those that have been disregarded. You should include advice to the client about potential improvements to their record keeping and other information that is relevant for future tax planning. It is recommended that you seek help from Student Learning Support to ensure that you have used professional language and your letter is error free. Your letter should be about 2 pages long – comprehensive but concise. If it is too long your client won’t bother reading it (and it will NOT be marked). It should be written in language and pitched at a level your client will understand. It should not be too technical; your client is unlikely to be interested in which sections of the legislation form the basis of your decisions. Do you need to provide your client with any instructions?
SUGGESTED SCHEDULE FOR COMPLETION:
1. Weeks 1-5: You will have downloaded the HandiTax software and familiarised yourself with navigation and client set up.
2. Week 6:
a. Set up your client as per Assignment instructions.
b. Set up your EXCEL worksheet file from the TEMPLATE.
c. Read through the whole assignment. Begin to create heading and formulas and fill in your worksheet(s) with ALL INCOME information, notes, and calculations.
3. Week 7: Do the CAPITAL GAINS worksheet and calculations.
4. Weeks 8 & 9: Catch up over Study Break AND complete the DEDUCTIONS worksheet with information, notes, and calculations.
5. Weeks 10 & 11:
a. First complete your worksheet TAX CALCULATION and next your HANDITAX I Form and ALL schedules.
b. Cross reference and correct where necessary.
6. Friday end of Week 11: SUBMIT 2 files in format required.
NB: DO NOT LEAVE HANDITAX UNTIL THE END OF WEEK 11 AS IT WILL TAKE THIS LAST WEEK TO COMPLETE ALL SCHEDULES CORRECTLY.
7. One (1) EXCEL file using the TEMPLATE provided, containing your work papers and associated explanations should be submitted via the link on MySCU. Your letter of advice should be in as a separate sheet in the same EXCEL workbook – NOT as an embedded document.
8. ONE (1) PDF FILE containing Handitax ITR and all attendant schedules and estimates.
BOTH THE ABOVE FILES MUST BE INCLUDED IN A SINGLE SUBMISSION
DO NOT WAIT FOR THESE INSTRUCTIONS TO START YOUR ASSIGNMENT – IT SHOULD BE ALMOST COMPLETE BY THE BEGINNING OF WEEK 10. THIS WILL ALLOW YOU TO FOCUS ON COMPLETING THE TAX RETURN COMPONENT IN WEEKS 10 AND 11.