Reference no: EM132889568
The major assessment task for this subject is designed to be submitted in two parts to enable you to benefit from feedback provided on Part A (Assessment task 2). Assessment tasks 2 and 3 relate to the tax affairs of Bill. The information presented in this first task will be relevant, to both Part A and Part B, along with the feedback provided when your submission is returned.
Bill owns and has operated a bicycle shop in a major regional town since 1 July 2011. He lives 15 minutes from town on 5 hectares with his spouse. The property is on two titles. The 4 hectare block has their home and was purchased in joint names. The adjacent 1 hectare has a large shed and workshop/studio apartment that existed when the blocks were purchased and in which they lived while building the house and was purchased only in Bill's name. Both properties were purchased at the same time, on 1 November 2009, and the home was completed and they moved in on 1 December 2010.
The annual gross turnover from the bicycle shop last year was $1,200,000 and he expects this to increase by around 10% in the current year.
Each year he arranges for the storage of bicycles purchased, if required by customers, in the shed for pick up in the week before Christmas. Generally these start to be stored from July. In addition he has stored some second hand trade-in bikes acquired mostly in February to October which he drops off at the Mens' Shed every month. These are reconditioned by the Mens' Shed members and donated to charity. He has undertaken these activities since July 2015.
During the current year he has undertaken an extension to the shop premises which was finished in April costing $200,000. This additional space will discontinue the need for storage away from the shop.
This assignment has two parts, both must be submitted and your submission should adopt the ILAC decision model. Ensure you note relevant legislation, case law or other supporting information as well as any additional information you may require. The report should follow the style guide below.
• Answers must have a complete reference list with appropriate intext referencing, listing all books, articles, websites and other materials quoted, used as a source and paraphrased. Beware of using the unacknowledged work of others. Plagiarism will result in zero marks and possible failure of the subject. (Refer to handbook rules).
• Students must, in the course of answering questions, refer to and discuss relevant case authorities and appropriate statutory provisions in order to support the propositions and submissions made.
Also note the following style guide:
1. You should use the ILAC style introduced in previous law subjects as your model to prepare your report for this assignment
2. Do not re-state the question as part of your answer. This often gets repeated in the 'issue' section, however that is incorrect.
3. Names of cases or statutes should be Italicised, and followed by the jurisdiction not in Italics, for example: Acts Interpretation Act 1901 (Cth). Note the abbreviation for 'Commonwealth' is 'Cth' not 'Cwith'.
4. Do not start a new line simply because you are starting a new sentence.
5. Start each paragraph on a new line, and leave a clear line gap after the preceding paragraph. Don't make your paragraphs too long.
The wage to Bill and payment to his spouse are deposited into a joint account. From this joint account the following transactions occurred:
Interest earned $27.00
Bed and Breakfast activities (30 days of bookings from February)
Income $3,000
Provisions expense $900
Occupancy expenses $1000
Expense relating to advertising online $300
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Rental property in spouses name only (expenses paid from joint account) Income (net of agents fees)
Repairs to bathroom expenditure
Lawn upkeep expense
Loan Payments (includes interest on loan for year $11,550)
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$ 19,874
$ 570
$ 2,600
$ 14400
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Opening stock (1 July) $ 210,000
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Closing stock (30 June)
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$ 240,000
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Occupancy expenses (rates, electricity etc) Wages
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$ 58,000
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$ 85,176
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Travel (actual cost of work van)
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$ 23,500
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Installation of fittings for new storage area.
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$ 38,000
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Painting of internal and external walls, excluding new storage space.
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$ 25,000
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Phone & Internet store
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$ 6,000
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Loan payment on 1 hectare property (includes interest on loan for year
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$ 8,000
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$ 4,752)
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Wages expense includes:
• superannuation for two employees;
• payment to a part time retail assistant who works 20 hours per week at $25.50;
• payment to his spouse who does cleaning, and occasionally works in the store for approximately 4 hours per week at $32.00 per hour; and
• wage to Bill of $52,000.
TASK
This is the second component of the problem solving assessment task. Your response to Part B should also consider relevant data provided in Part A and feedback provided in respect of Part A.
Part B Question
Bill decided not to sell the property opting instead use the apartment as a bed and breakfast following an increased interest in regional holidays. It was available for bookings from the beginning of February. He did however sell two paintings that had been hanging in the studio apartment. He had purchased them in 2009 for $700 each, he sold one for $450 and the other for $900.
At the end of the current financial year the following activities had occurred.
Bicycle business
Sales $ 1,382,500
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Purchases $ 1,078,000
Depreciation expense $ 1,000
Rates, Insurance and water fees $ 3,450
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Bills spouse also worked as a part time nurse earning $47,000 with tax withheld of $6,604 and incurred $2,300 in employment related expenses such as uniform, professional subs and training costs.
Bill has paid $35,700 PAYG installments.
Required
1. Prepare a report explain what amounts would or would not be included in the calculation of the tax payable for Bill to be retained in a work file.
2. Prepare a draft letter to Bill advising the tax position.