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LAW 6001 Taxation Law - Laureate International Universities

Assessment - Case Study (Individual taxpayer's tax return)

Learning Outcome 1) Identify and analyse the tax treatment of various types of income and deductions.

Learning Outcome 2) Effectively apply taxation law in determining tax outcomes in various scenarios and sole trader structure

Learning Outcome 3) Apply the legislation to determine the assessable income and availability and amount of the tax deduction associated with employment and business structure on an accrual basis including GST application.

Learning Outcome 4) Calculate the specific deduction associated with trading stock balances

Learning Outcome 5) Calculate depreciation using the prime cost and diminishing value method and calculate an associated balancing adjustment following the disposal of a depreciating asset

Learning Outcome 6) Preparation and calculation of individual income tax return on various income and deductions using current tax return form.

Instruction:
• Your case study needs to identify and discuss the tax implications of the various issues raised.
• In the case study, the taxpayer's assessable income, allowable deductions must be identified and recorded in the excel sheets (2019 individual tax return form) where applicable (only blue coloured cells in the excel sheet are required to fill) as per the information provided in the case study.
• In addition, a report (word document, approx. 2,000 words) must be submitted for the calculations of the assessable income; allowable deductions and taxable income of the taxpayer including identifying and discussing them. E.g., how the amounts of income & deductions have been derived. If any receipts and payments are not assessable or deductible, the reasoning for non-inclusion of these in assessable income or deductions as per relevant legislation or cases.
• Critically analyse the following case study. With respect to each task:
• Review relevant case law and legislation (ITAA1936, ITAA1997)
• Apply the law to the facts of the case study
• Reach a conclusion/ give practical advice to your client.
• You will be assessed in accordance with the Assessment Rubric.
• This case study must be presented as an individual effort. The case study requires individual research. It is expected the student will survey the relevant literature, including decided cases, and select appropriate additional resources.
• Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.
• The format of the report should be a business report and using APA referencing style

Case Study: Comprehensive Individual Tax Return

Michael Zack, a resident taxpayer aged 49, runs a sole trading business selling coffee machines. His business is registered for GST. He also works on a casual basis as a sales person on weekends at Myer. He has a rental property in Gold Coast, Brisbane. Michael is taking care of his wife Susan Zack, who has lost one of her legs 2 years ago as a result of a car accident. Michael is solely taking care of Susan. They have no children.

Personal Information Name: Michael Zack TFN: 300 001 000
Date of Birth: 15 July 1974
Address: 3 Dimple Street, Melbourne VIC 3358 Contact: 0456 587 987 (Work: 03 9578 3648)
Bank account: BSB 225887 Account 378458 Michael is not covered by a private hospital cover.

Spouse: Susan Zack
Date of Birth: 30 July 1989
Currently receives disability pension from Centrelink $5,200 for the 2019 tax year. She has no deductions to claim for the 2019 tax year.

Income/Expense Information
Michael and Susan have a joint term deposit account at CBA. Total interest received from the joint account was $1,500 for the 2019 financial year.

Michael has paid $700 to a registered tax agent for preparing his tax return for 2018 tax year.

In addition to the above, the following information relates to his employment (Part A), business income/expenses (Part B) and rental receipts/payments (Part C). All expenses have been substantiated unless it states otherwise.

Part A: Regarding his employment
Employer: Myer Pty Ltd (ABN: 11 235 365 874)
Gross wages for the 1st of July 2018 to the 30th of June 2019: $9,800 (PAYG withheld: $400)
He also received $800 uniform allowance and $200 reimbursement from Myer for work related items he purchased.
Michael received a car from employer as a fringe benefit (showing as reportable in his PAYG summary, valued $60,000 not exempt from FBT)
Work related allowable deductions to claim (telephone & stationery) $600

Part B: Regarding his Business
During the year, Michael has had the following transactions in relation to sales, purchases, and inventory (trading stock. Michael did not choose Small Business Entity option). All GST exclusive unless states otherwise.
Cash received from accounts receivable for credit sales $85,000
Cash paid to accounts payable for purchases of trading stock $43,000
Inventory (trading stock) on 1 July 2018 $7,100
Inventory (trading stock) on 30 June 2019

- at cost $8,400
- at market selling $8,600
- at replacement $8,500
The closing stock values include $5,000 worth stock in transit from overseas paid for and owned but not received until the 15th of July 2019.
Michael has taken home a coffee machine from the stock purchased for private use at total value of
$1,200
Ledger balances were as follows (GST inclusive)
1 July 2018 30 June 2019
Accounts receivable $17,600 $19,800
Accounts payable $5,280 $5,830

Additional cash receipts included: (All GST exclusive unless states otherwise)
• Volume rebates from overseas suppliers $3,500
• Insurance recovery from the insurance company due to extensive damage caused by a hailstorm and included
- Compensation for loss of income $7,900
- Repairs carried out on shop caused by storm damage $2,700
- Medical costs incurred by Michael form injuries $900
• Capital contributed by Michael to expand the business $10,000
Cash payments included:
• Cash Drawings by Michael $3,000
• Fines for breach of Australian Customers regulations $900
• Net wages to employees $12,000
• PAYG withheld from employees and paid to the ATO $2,900
• Superannuation for employees $1,230
• Superannuation guarantee charge $190
• Fringe benefit tax $850
• Lease payments on shop fittings and plant equipment $940
• PAYG instalments for Michael's personal tax commitments $2,500
• Fee for maintenance of computer systems -
Covering the period 1/4/2019 to 30/9/2019 $1,680
• Other tax deductible operating expenses $9,200
• Decline in value (see note 1) $ ?
Other information regarding Michael's Business
Note 1) Michael uses plant and equipment in his business as follows. Michael wishes a maximum deduction for 2018/19 tax year. Ignore SBE concession. You must show clearly decline value to claim this year and closing adjustable value balance of the each asset in the word report.
Assets Cost ($) Purchase date Effective life Adjustable
vale (30/6/2018) Business usage DIV
method
Mobile phone 3,000 1/6/2017 4 years 2,188 60% Diminishing
Value

Office
Furniture 15,000 1/6/2017 10 years 13,375 100% Prime Cost
Laptop
Computer 4,000 1/8/2018 3 years 100%
Printer 150 1/3/2019 2 years 100%

Part C: Regarding his Rental property
Michael purchased a house as a residential investment property on the 1st of July 2018. Purchase price of the property was $300,000 comprised of the following payments. All amounts include GST where applicable.
• Land and buildings $276,800
• Depreciable assets adjustable value on the 1st of July 2018 (See Note 1)

- Carpets $5,000
- Hot water system electric $1,200
- Ceiling fans $1,600
- Barbecue (fixed) $1,400
- Window blinds internal $8,000
- Window curtains $6,000
$300,000
The previous owner provided a statement to Michael certifying that the property was constructed and completed on the 1st of January 1990 at a construction cost of $100,000. The house was in good condition except that the outside walls required complete repair.
Michael recorded the following receipts and payments for the 2018/19 tax year in respect of the rental property:

Receipts
Rent received (net of agent commission withheld $1,250) by 28 June 2019 $23,750 Compensation from Rental bond board for tenants who left and
did not pay the rent they owed (see note 2) $1,300 Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2019 $3,000 Insurance recovery for storm damage to roof $2,100

Payments
Mortgage repayments to Westpac Bank - principal $4,500
- interest $23,800
Loan application fees to Westpac Bank for a 10-year mortgage loan
to buy the house - paid on approval of the loan 1 July 2018 $825
Council & Water rates $3,400
Building Insurance premium $850
Payment to solicitors - for lease preparation fees $150
- to eject tenants for non-payment of rent $375 Repairs - to paint the outside walls of the house, carried out on 10 July 2018 $1,100 Construction costs of brick room to store garbage bins
and gardening equipment, carried out on 1 May 2019 $6,000
Garden hose and attachments $165
Travel costs to the rental property for inspections (see Note 3) $830
Pest control costs to eliminate cockroach infestation $280 Payments to the Australian Taxation Office
- Additional tax on an amended assessment $400
- Interest paid on late lodgment $150

- Fine for the late lodgement of 2017/18 tax return $760
Other information
Note 1) Michael will use the Commissioners estimate of effective life for calculation decline in value which can be found under "Residential Property Operators".

Note 2) The rental bond board were only able to pay part of the money owed by the tenants. A further amount of $1050 is outstanding. Michael is attempting to recover this amount by legal means.

Note 3) Michael lives in Sydney, he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants.

Required
1) Michael wishes to minimise his income tax for 2018/19. Calculate Michael's taxable income for 2018/19. You are required to enter income and deduction details where applicable in the tax return form provided in the excel sheet.

Submit all workings of EACH income & deductions of calculations and any tax offsets available for Michael in a word format (written report) including relevant section numbers as per ITAA36/ITAA97.

2) In your report, clearly advise whether Michael is eligiable to claim a dependant tax offset (Invalid and invalid carer tax offset).

Attachment:- Taxation Law.rar