Reference no: EM132068222
Timber Floors Pty. Ltd. is an Australian resident private company for tax purposes and carries on the business of manufacturing timber floors. It is registered for GST.
Amanda, the accountant has prepared the income statement for the year ended 30 June 2018 in accordance with the accounting standards:
Fees $3,089,725
Less:
Operating expenses:
Advertising 100,000
Accounting depreciation (note 4) 150,000
Fringe benefits tax 15,000
Provision for unreported claims (note 5) 150,000
Provision for long service leave 60,000
Repairs (note 6) 30,000
Wages (note 7) 1,400,000
Purchase of trading stock (note 8) 120,000
Annual payment to major competitor (note 9) 100,000 2,125,000
Net profit (Accounting) $964,725
Additional Information
(1) Unless otherwise stated the figures are GST exclusive.
(2) On 30 November 2017, the company received a cash dividend of $100,000 (franked to 80%). This dividend is not recorded in the above Income Statement.
(3) On 31 August 2017, the company also received a cash dividend of $120,000 from a US company. Withholding tax of $20,000 had been withheld in the US. Australia has a double tax agreement with the US.This dividend is not recorded in the above Profit and Loss Statement.
(4) The accounting depreciation of $150,000 is based on the directors estimating the effective life of all assets being 5 years. Amanda advises you that for taxation purposes the following information is applicable:
Timber Floors Pty Ltd.'s final records show that on 1 July 2017 the opening balance of the company's pooled depreciating assets was $18,000.
During the year the company also purchased the following assets:
- New spray equipment at a cost of $170,750 (GST inclusive) on 1 July 2017. The estimated life is 8 years.
- A new i Pad at a cost of $990 (GST inclusive) on 1 July 2017. The estimated life is 3 years.
- A new truck was purchased on 1 July 2018 for $173,232. The amount paid was GST inclusive. The estimated life given the kilometers they will travel in the truck is 7 years.
- The company purchased three further assets for $170,080 on 1 July 2017 with an effective life of 4 years.
(5) The provision for unreported claims was based on the company's estimate of anticipated costs (based on statistical experience) of unreported remedial work that it would be required to perform under warranties.
(6) The repairs of $30,000 consisted of painting the company premises for $10,000 and replacing the old rotting wooden office window frames with new steel window frames for $20,000. The painting was to the west wall which got the afternoon sun and had not been painted for seven years. The existing paint was peeling and needed to be done before the timber also started to rot. The cost of replacing the old wooden office window frames with new wooden window frames would have been $21,000. The new steel window frames had the advantage of not being subject to rotting but had the disadvantage, unlike the old wooden frames, of being subject to rust.
(7) Wages of $1,400,000 include $50,000 paid for marketing services provided by a director's daughter. The Commissioner considers that $20,000 is a reasonable amount for the services provided.
(8) Timber Floors Pty Ltd has carried out a stock take and values its closing trading stock at the following amounts:
Cost $133,567
Market value $135,278
Replacement value $167,889
Stock at the beginning of the income year was: $180,000
Amanda has not included the opening and closing stock figures in calculating the financial accounting net profit of $964,725.
(9) Timber Floors Pty Ltd entered into a restraint of trade agreement whereby its major competitor agreed not to compete with Timber Floors Pty Ltd in Australia for five years in exchange for five annual payments of $100,000.
(10) The actual amount paid as long service leave during the year was $0.
(11) The company paid a total of $255,000 in PAYG Installments during the financial year.
(12) The company has advised that it wishes to pay the minimum amount of tax and wants to claim the maximum deductions allowable.
REQUIRED
Calculate Timber Floors Pty Ltd.'s taxable income and tax liability for the year ended 30 June 2018.