Taxation Law Tutorial Questions

Reference no: EM132555800

Taxation Law Tutorial Questions -

Question 1 - Eric the Mechanic

Eric is a mechanic who is employed by Mechano Pty Ltd. He earns an annual salary of $45,000 plus overtime. During the 2019 tax year in addition to his salary he also worked 50 hours overtime at $70 per hour. 10 of these hours were performed in the last week of June 2019 and were not paid to him until 14 July 2019. In addition to his salary he also received a Tool Purchase and Maintenance Allowance of $1,500. On 15 December 2018 Eric bought himself a new set of tools worth $950.

During the 2019 tax year he also bought miscellaneous spanners, screwdriver etc. for a total of $800. None of the miscellaneous spanners etc. cost more than $300 and were generally to replace items he had lost or that were no longer working properly. Eric also bought overalls for work which cost $340 to purchase (these were only expected to last a year) and a further $100 in laundry expenses during the year.

Eric received franked dividends of $2,200 which had franking credits of $300 attached. In addition, Eric received a lump sum legacy of $80,000 from his grandmother who died during the year.

Eric owned a rental property from which he received rent of $11,000 ($1,000 per month) for rent from 1 July 2018 to 31 May 2019 inclusive. On 1 June 2019 the tenant prepaid rent for 12 months. Expenses in relation to the rental property were rates and taxes of $560 and interest of $15,000. A commission of 10% of all rent collected was paid to the real estate company which managed the rental property. On 1 June 2019 Eric took out a small loan to assist with some repairs he intended to carry out on the property. There was stamp duty of $200 paid on the loan and loan application fee of $50. These were all paid on 1 June 2019. The loan was to be repaid in 3 years. No interest was paid in the current year.

Two years ago, Eric had sold a number of assets which resulted in a net capital loss of $33,000. No other assets had been sold since that time.

Eric was required during the year to travel to the homes of some clients and carry out services on their cars. He had to take with him his full toolkit to enable him to properly carry out the work. This travel fell into the following categories:

Travel from Eric's home to clients' homes $200

Travel from clients' homes to work $180

Travel from work to clients' homes $300

Return to work from client's homes $300

Assume all depreciating assets, if any, have an effective life of 5 years and Eric wants to minimise his taxable income.

Required - Calculate Eric's taxable income for the income tax year ended 30 June 2019.

Question 2 - Companies and Shareholders

Meldrum Pty Limited (a private company) had the following transactions in relation to its franking account:

Date	Details	Amount
1 July 2018	Opening balance	$13,000
6 September 2018	Received a fully franked dividend from BHP Limited	$49,000
2 October 2018	Paid income tax instalment	$14,000
11 November 2018	Received a refund of income tax	$49,000
7 February 2019	Paid income tax instalment	$21,000
14 March 2019	Paid a dividend fully franked	$56,000
8 April 2019	Paid income tax instalment	$16,000
3 May 2019	Paid fringe benefits tax	$50,000
15 June 2019	Paid a dividend 60% franked	$42,000

Required -

(a) What is the closing balance of the franking account on 30 June 2019?

(b) What are the consequences of the closing balance of the franking account?

Question 3 - Partnerships

Timmy and Tammy are in partnership in equal shares and carry on a business of selling comic books. They agree that Timmy will receive a wage of $50,000 because he works in the shop. Tammy received interest of $20,000 on her partnership capital account. Timmy has wages from his lecturing job of $70,000 and Tammy has unfranked dividends of $60,000. Both have individual gift deductions in the amount of $4,500 for Timmy and $3,500 for Tammy. They do not employ any staff.

The accounts for the 2019 tax year showed the following:

Sales of comic books $440,000

Purchase of comic books $225,000

Value of comic books on hand 30 June 2018 $85,000

Value of comic books on hand 30 June 2019 $46,000

Wages to Timmy $50,000

Interest to Tammy on her capital account $20,000

Shop Rent $30,000

Electricity and Telephone for the shop $7,000

Required -

(a) What is the net income or net loss of the partnership for the 2019 tax year?

(b) What is the distribution of the net income or net loss of the partnership between the partners for the 2019 tax year?

Reference no: EM132555800

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