Reference no: EM132956018

FNSACC601 Prepare and Administer Tax Documentation for Legal Entities

Assessment Activity 1

Q1. (Comprehensive calculation for a prescribed person)

Ron Veldhuis is aged 16 and is currently studying full-time at high school whilst living with his parents.

During the 2017/18 tax year, Ron received the following amounts:	$
Gross Wages from part-time job (PAYG tax withheld $800)	4,700
Gross Interest received on fund given by his parents (TFN withheld $4,900)	10,000
Income Distribution from Estate of Late Aunt	7,500
Income Distribution from Family Trust (tax paid by Trustee $1,500)	6,000
Unfranked Dividend from shares in QQQ Ltd (these were bought with funds from previous Family Trust distributions)	1,200

Required:
(a) For the purposes of Div 6AA, how much excepted assessable income has Ron derived?
(b) For the purposes of Div 6AA, how much eligible assessable income has Ron derived?
(c) Calculate net tax payable by Ron for the 2017/18 tax year.

Q2. (Comprehensive, inter vivos trust)

The Alberts Family Trust, an inter vivos trust, had the following beneficiaries:

Candy	(aged 45; entitled to 40% of trust income)
Dandy	(aged 30; bankrupt; entitled to 35% of trust income)
Landy	(aged 17; entitled to 20% of trust income)

The remainder of each year's income was to be retained or distributed at the Trustee's discretion.
During the 2017/18 tax year trust income was $195,000.
A discretionary amount of $7,000 was paid to Landy (this amount was in addition to Landy's entitlement under the Trust Deed).
The trust also had losses of $15,000 in the 2016/17 tax year. These were to be met out of the trust income. Landy also received interest of $38,000 during the 2017/18 tax year from investments given to him by his parents.
Landy is single and is not covered by private health insurance.

Required:

a) Complete the following table (covering all beneficiaries) nominating:
• Name of the BENEFICIARY
• Whether or not the beneficiary is PRESENTLY ENTITLED
• Whether or not the beneficiary is under a LEGAL DISABILITY
• WHO IS ASSESSED on each amount
• Which sections of the Act apply to make the income assessable
• The amount retained or distributed.

a. Calculate tax payable by the trustee on behalf of Dandy, Landy and the balance of trust net income.
b. Calculate tax payable by Landy (only).

Q3. (Allocation of Partnership Net Income)

Sue, Prue, Lou and Emmet operate a transport company in the ratio 4:3:2:1.
Their assessable income for the 2017/18 tax year amounted to $780,000 while they had $300,000 of deductions.
Their partnership agreement states that all profits and losses are to be shared in the ratio 4:3:2:1 after adjusting for partner's salaries, travel allowances and interest on capital.

The following data was extracted from their financial records:

Interest on Capital

            Sue                                                                                                                       $ 12,000

            Prue                                                                                                                         15,000

            Lou                                                                                                                             5,000

            Emmet                                                                                                                      3,000

 

Partner's Salaries

            Sue                                                                                                                           65,000

            Prue                                                                                                                         50,000

            Emmet                                                                                                                    20,000

 

Travel Allowances

            Sue                                                                                                                             4,000

            Emmet                                                                                                                      6,000

Required:
Based on the above information, complete the table calculating each partner's share of partnership net income under the terms of the partnership agreement.

Q4. (Reconciliation of taxable income)

Trash Converters Limited, a small business entity, has prepared an income statement for 2017/18:

	$	$
GROSS PROFIT		1,624,000
Add: OTHER INCOME
Unfranked Dividend	2,300
Fully Franked Dividends (company tax rate 30%)	7,700
Net Dividends from Spain - note 1	32,000
Gain on Sale of Shares - note 2	2,000	44,000
TOTAL OPERATING INCOME		1,668,000
EXPENSES
Depreciation - note 3	34,000
Fringe Benefits Tax	48,000
Payroll Tax	46,900
Superannuation - note 4	75,000
PAYG Instalments Paid - note 5	92,000
Other Deductible Expenditure	965,000	1,260,900
NET PROFIT		407,100

Note 1 The dividends from Spain have had $8,000 of tax withheld.
Note 2 Shares sold during the year were acquired in 1984 as an investment.
Note 3 Decline in value deduction is calculated as $28,000.
Note 4 Superannuation includes an amount of $30,000 paid to a director's spouse. This $30,000 amount is deemed to be excessive.
Note 5 All of the PAYG tax instalments relate to the current year.

Required:

a. Complete the table reconciling net profit with taxable income for the 2017/18 tax year.

b. Calculate net tax payable by the company for the 2017/18 tax year. (For the purpose of this exercise, assume a 27.5% small business entity company income tax rate, as per chapter 4.3 of your textbook).

Q5. (Franking Account)

Rudimentary Pty Ltd, a corporate tax entity, has the following transactions for the 2017/18 tax year:

Date	Transaction	$
30/06/17	Balance	Nil
15/10/17	PAYG Instalment Paid	14,000
15/12/17	2016/17 Tax Refund Received	9,500
12/03/18	Fully Franked Dividend Received	3,500
08/05/18	Fully Franked Dividend Paid	7,000

Note - the benchmark franking percentage is 100%.

Required: Prepare the franking account for the 2017/18 tax year.

Q6. (Average Income)
Ernie Wombat is a primary producer who commenced business in 2012/13. The following data relates to Ernie's first 6 years of trading:

Year	Assessable Income	Deductions
2012/13	$ 32,000	$ 15,000
2013/14	35,000	20,000
2014/15	31,000	39,000
2015/16	42,000	21,000
2016/17	45,000	22,000
2017/18	51,000	25,000

• All assessable income and deductions are from primary production.
• The deductions do not include any amounts that may be deductible for losses of previous years.

Required:
a. Calculate Ernie's taxable income for each tax year.
b. Calculate Ernie's average income for each tax year.
Tip: A $0 taxable income year is counted as a year for average income calculation purposes.

Q7.
(Tax calculation under averaging)
Rikki Teabridge had the following income during the 2017/18 tax year:
Net Business Income from Primary Production $35,000
Gross Wages from part-time job at local supermarket $20,000
• Rikki's average income was $20,000.
• Rikki had no other assessable income or deductions.
• PAYG tax of $2,000 was withheld from Rikki's wages.
• Rikki is covered by adequate private health insurance.
Required:
Complete the following statement showing Rikki's tax payable for the 2017/18 tax year including any averaging adjustment.

Q8. (Trading account, average cost)

Clyde Wishbone breeds and sells sheep. During the 2017/18 year records disclosed the following:

	Quantity	Value ($)
Sheep on Hand - 30 June 2017	8,200	47,900
Purchases	500	9,200
Natural Increase	2,900
Sales	4,300	92,400
Rations	100
Deaths	300

Clyde chooses to use the prescribed value for natural increase and average cost for rations and closing stock.

Required:
Prepare the average cost calculations and the trading account for the 2017/18 tax year.

Q9. (Assessable contributions)

The Spotless Superannuation Fund is a complying superannuation fund. The fund received the following contributions:

July 2017	Contributions from contributing employer relating to 2016/17	$ 27,800
Sep 2017	Superannuation Guarantee Shortfall received from ATO	11,400
Oct 2017	Contributions from employer relating to Sept 2017 quarter	34,500
Jan 2018	Contributions from employer relating to Dec 2017 quarter	36,100
Apr 2018	Contributions from employer relating to March 2018 quarter	27,450
July 2018	Contributions from employer relating to June 2018 quarter	19,320

There was a further $8,340 of superannuation accrued and payable by the contributing employer in relation to 2017/18 but not yet received by the fund.

Required: Calculate the fund's assessable income from contributions for the 2017/18 tax year.

Q10. (Assessable income, ordinary income)

The Blowhard Superannuation Fund, a complying fund, received the following amounts during the 2017/18 tax year:

Unfranked Dividends from listed companies	$ 12,450
Franked Dividends from listed companies (Fully franked. Company Tax rate 30%)	20,300
Interest from cash management account	8,250
Proceeds from redemption of term deposits (includes principal of $50,000)	59,400
Interest from at-call deposit (net of $4,900 TFN tax withheld)	5,100
Interest from investments segregated to meet the payment of current income stream benefits	35,000

Required:

Calculate the fund's assessable income from investments for the 2017/18 tax year.

Q11. (Calculation of income attributable to members)

Dockside Rowers Club disclosed the following data for the 2017/18 financial year:

Days Open	361
Financial members	900
Average % of members in attendance daily	15%
Total visitors for the year	4,200
Visitors accompanied by members	1,950
Net Trading Surplus for the year	$ 200,000

Required:

Calculate the proportion of the receipts that would be deemed to be from non-members.

Q12. (Professional and other income of an artist)

Sam Journeyman derives income as a professional beach dodge ball player.

During the 2017/18 tax year, Sam received the following amounts:

Tournament Prizemoney from dodge ball	$ 85,000
Appearance fees from dodge ball tournaments	12,000
Cash sponsorship from Aussieboom	60,000
Jetski provided by Aussieboom as a sponsorship benefit	8,000
Interest from bank account comprising savings from Prizemoney	3,700
Director fees from Dodgeball Australia. Sam is a director of Dodgeball Australia.	14,500
Car provided by Dodgeball Australia as a benefit	7,200

Required:

a. Calculate Sam's taxable professional income for the 2017/18 tax year.
b. Calculate Sam's other taxable income for the 2017/18 tax year.

Q13. (False and misleading statements)

Randy Michaels has a client, Shonky Pty Ltd. The directors of Shonky have asked Randy to lodge their company's 2017/18 income tax return with the correct taxable income, but with a false address and contact details. They have also requested that Randy does not disclose the fact that the company has made payments to associated persons during the year.

Required:
What are the possible consequences for Randy if he agrees to do either of these things?

Q14. (Returns required for lodgement)
The following information relates to transactions during the 2017/18 tax year:

• Al Basic, an Australian resident aged 30, received a gross salary of $50,000 and had no other income or deductions. Al does not use the services of a Registered Tax Agent.
• Brianna Minor, an Australian resident aged 15, received interest on an investment given to her by her parents amounting to $750. She had no other income or deductions and does not use the services of a Registered Tax Agent.
• Drew Toomuch, an Australian resident aged 39, derived net business losses of $15,000. He has no other income or deductions and uses the services of a Registered Tax Agent.
• Fritz Watson, an Australian resident aged 19, received gross wages of $11,100 ($500 PAYG tax withheld). Fritz did not have any other income or deductions and does not use the services of a Registered Tax agent.

Required:
For each taxpayer state whether or not they are required to lodge an income tax return for the 2017/18 tax year and if so, when the return must be lodged.

Q15. (Rulings and determinations)

The following tax rulings were issued in relation to the application of tax legislation:
a. A ruling is issued by the tax office relating to investment in a publicly available trust which aims to breed and sell Three-Legged Northern Mongolian Parrots.
The prospectus claims that investors will be able to claim the cost of any units subscribed as an immediate tax deduction. In the ruling, the Commissioner has indicated that not only will there be no immediate deduction, but investors will be ineligible to claim any interest expenses in acquiring the units until the trust has commenced deriving sales.
b. Joanne Royal has applied for and received a ruling relating to her ability to claim a net medical expenses tax offset for massage oils. The ruling stated that Joanne cannot include the oils in determining her tax offset.
c. The Commissioner released a ruling that ‘frequent flyer' bonuses received by employees as a result of employer expenditure are not subject to FBT.
d. Frank phoned the ATO regarding a meal allowance received from his employer. In the course of the phone conversation, he provided full identification and was advised by a tax officer that the allowance is assessable income.

Required:
For each of these examples, indicate the type of ruling or decision that has been made by the Commissioner and the extent to which it is binding on the taxpayers involved.

Q16. (Due dates for payment)

The following taxpayers are required to lodge income tax returns and each has a tax liability in respect of the 2017/18 tax year:

a. Sophie Wilson, an individual resident, has lodged her 2017/18 income tax return on 15 September 2018. Based on the return, she will have tax payable of $2,000 She is not on the lodgement list of a registered tax agent.
b. Payable Pty Ltd, a resident corporate entity, has lodged their 2017/18 income tax return on 10 August 2018. They were not on the lodgement list of a registered tax agent. Based on the return, Payable Pty Ltd will have $1,200 of tax payable.
c. On 20 August 2017, Dianne Porterhouse received her 2017/18 assessment indicating that she had $4,000 payable on 22 November 2018. Dianne lodged an objection and on 15 November 2018 received an amended assessment showing that $2,900 was now payable.

Required:
For each of these taxpayers, specify the date due for payment of amounts owed to the tax office.

Q17. (Previous offences)

Cheryl, a single resident taxpayer, is employed as an elite full-time soccer referee and claims that she plays video games for ‘practice in making decisions'. In her 2017/18 income tax return, Cheryl disclosed taxable income of $153,000 after claiming video game expenses of $1,500.

Cheryl is also subject to the Medicare Levy Surcharge (Tier 3). Cheryl has been penalised previously following an audit of her 2014/15 income tax return.

Required:
Calculate the likely penalties that would be imposed on Cheryl if the resulting shortfall were uncovered during ATO audit activity and it was considered that she had no reasonably arguable position.
Tip: The increased penalty is calculated on the base penalty amount.

Q18. (Successful appeal)
Stefan Hawkins has been successful with an appeal to the AAT against his 2017/18 income tax assessment. The basis for the challenge was $20,000 of deductions that were disallowed by the Commissioner.

The AAT indicated that the entire amount should have been properly allowed as a deduction. The Commissioner has advised that he will not seek to have the AAT decision overturned.

The amount that was challenged by Stefan comprised $8,000 of income tax, $2,000 of additional penalties, and $1,500 of general interest charge. Stefan had paid these amounts in full.

Required:

a. Which of the above amounts is the Commissioner obliged to refund to Stefan?
b. Are there any other amounts that may be paid to Stefan as a result of the AAT decision?

Q19. (Tax planning, Superannuation co-contributions)

Jim's taxable total income is $37,000. In addition to this he received reportable fringe benefits of $3,500.

Required:

Calculate the maximum Superannuation co-contribution he can receive for the 2017/18 year.

Q20. (Personal service income)

Required:
For each of the following, state whether the income described would be classed as Personal Services Income (include a brief explanation/reason for your decision):

(a) Sally, a marketing consultant, provides consulting services to a soft drink company.

(b) Greg owns a block of holiday apartments that he leases for holiday letting.

(c) Rochelle is a music producer. She does not use her own studio but employs a team of five engineers and producers who contract to produce complete projects for various artists.

(d) Howard receives monthly payments from a produce co-operative for the right to use software that he has developed. The software records all classification, inventory, and financial transactions.

(e) Mal receives contract receipts to act as general manager of a lighting company. His contract is for eighteen months only. Mal is provided with an office, furniture, and a computer for the duration of the contract.

Q21. (Definition of tax havens)

Required:

What are two key factors that the OECD identifies in considering whether a jurisdiction is a tax haven?

Q22. (Calculation of FBT liability, gross up values)

Hook, Line and Plunger Coffee Shop provide their employees with the following fringe benefits during the 2017/18 FBT year. The employer is registered for GST and able to claim input tax credits.

Description of Fringe Benefit	Taxable Value
Low interest loan	$2,450
Payment of private telephone account	1,940
Use of a Volkswagen car (purchased January 2000)	3,380
Use of a Holden car (purchased March 2016)	9,415
Payment of private school fees (no GST)	10,825

The employer has not paid any FBT instalments during the year.

Required:
Calculate Fringe Benefits Tax payable by Hook, Line and Plunger Coffee Shop for the 2017/18 FBT year.

Q23.
(Active asset reduction and retirement exemption)
On 1 July 2017, Micah Wong, a resident taxpayer aged 58, sold his mortgage broking business for $2,675,000 and retired. The proceeds are entirely for goodwill and the cost base for this asset consists solely of second element costs on disposal of $35,000.
Micah commenced business in 2008 and does not have any other current or prior year capital gains or losses. His business satisfies the requirements of Subdivision 152-C.
a. Does the 50% CGT discount apply?
b. Does the Small Business Active Asset reduction apply?
c. Does the Small Business Retirement Concession apply?
d. Calculate Micah's net capital gain for the 2017/18 tax year (use grid provided to show your workings):

Q24. (GST attribution transactions)

Jack Ramjet owns a clothing store in Melbourne. The following transactions occurred in the September 2017 quarter:

All applicable transactions include GST.

Cash sales	$ 65,000
Credit sales (accounts receivable customers)	120,000
Collections of accounts receivables	90,000
Cash purchases	50,000
Credit purchases to suppliers (accounts payable customers)	55,000
Payment of accounts payables	68,000
Wages paid to employees	24,000
Interest received	200
Interest paid	1,200

Required:
Calculate the GST payable for the September quarter:
(a) On a cash basis.
(b) On an accrual basis.

Q25. (What is tax crime?)
Required:

Provide five (5) methods of "criminal attack" that are most commonly used by criminals to evade taxation obligations or fraudulently use the system to obtain an improper financial benefit.

Attachment:- Tax Documentation for Legal Entities.rar