Qusestion1: (600 words)
Amber is a sole trader operating a ladies active wear retail store in which she employs three people, a manager and two retail assistants. She incurred the following expenses in the year ended 30 June 2020:
• Amber likes her employees to look good when selling the type of clothes she sells, so she bought each of her employees a uniform worth $400 each.
• Seminar expenses of $500 paid for herself and the manager to attend a GST seminar on the effect of the tax on the retail industry.
• A new refrigerator was purchased for use by Amber and her staff. It cost $680 and was paid for on 10 June 2020 and has an effective life of 10 years.
• Morning and afternoon teas for staff over the year at a total cost of $1,300.
• Paid her previous accountant:
o $600 to prepare a cash flow budget for the next three years to determine the liquidity of his business over that period of time.
? $300 for advice on the operation of Single Touch Payroll (STP) in the business.
? $2,200 to prepare the financial statements to enable her income tax return to be prepared and lodged by her accountant.
• Repainted the back wall of the storeroom following a storm damaging the roof resulting in water damage $2,000.
• Replaced the carpet throughout the store as the back section was also water damaged in the storm $5,000.
a) Advise Amber on the deductibility of each of the payments with reference to relevant legislation, cases or other supporting evidence.
b) Sales for the year were $510,000, opening stock was $80,000, closing stock was $90,000 and purchases were $200,000 Wages and other operating costs were $250,000. Included in the wages was $5,000 a month wage to Amber. On this additional information calculate the tax payable (ignore Medicare) by Amber.
Qusestion2: (400 words)
Terry Acacia conducts an electrical repair business.
With a view to future retirement he purchases 10ha of land to plant native wildflowers that he plans to harvest and sell. In the current year he enrols in a native plant growing course and arranges to clear the land and plough in compost with a thought to maybe plant sometime over the next twelve months. It is expected that the first commercial crop will be harvested three years after planting. He incurs interest on a loan to finance the land purchase, land preparation costs, fertilizer costs and the future costs of acquiring native seedlings.
Is Terry able to deduct the interest on the loan in the current year? In future years?
Qusestion3: (300 words)
Claire owns and operates a veterinary surgery. During the year ended 30 June 2020 she incurred the following expenditure :
10 August 2019 Re-plumbing of surgery due to faulty pipes $4,700
16 October 2019 Replace linoleum floor in surgery due to water damage from burst pipe $1,500
2 December 2019 Painting warm exterior of surgy $5,600
1 March 2020 Sealing surgery car park which was previously dirty $15,400
Explain the treatment of repairs versus capital improvements using the above facts. Calculate the total deductions available to Clair for the year ended 30 June 2020 are (to the near dollar).
Qusestion4: (300 words)
Scott is a livestock auctioneer employed by Auctions R Us Pty Ltd and is required to do a lot of travelling for work.
He was therefore provided with a car by his employer during the FBT year ended 31 March 2020.
The car was purchased by the company on 1 October 2019 for $46,700 (GST inclusive) and was made available to Scott to keep on his premises when not in use.
As part of the arrangement, Scott was required to contribute to the fuel costs as he sometimes travelled out of town to visit family which amount to approximately 30% of car use. His total contribution amounted to $2,000 for the year.
Using the statutory formula method, what would be the FBT payable by Actions R Us Pty Ltd for the year ended 31 March 2020 (to the nearest dollar)? What would be the advantages to Auctions R Us Pry Ltd in using the statutory formula method over the actual cost method?