Australian Taxation Law Assignment
QUESTION - Barry Lee and Brett Wong are adult Australian residents. On 1 July 2003 they formed a partnership called 'The Two B's' to run a sports supply business. The partnership supplies football clothing and equipment to football clubs in Australia. The business is registered for GST.
The partnership accounts for the business for the year ending 30 June 2017 disclose the following financial details:
The following receipts and expenses are exclusive of GST unless otherwise stated.
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RECEIPTS
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Gross trading receipts
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3,900,000
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Capital gain from sale of shares held in an Australian internet company - see note (ii) below
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20,000
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Cash dividend from BHP See note (iii) below
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10,500
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Interest income from Bank of China See note (iv) below
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11,250
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Insurance proceeds received for writing off the car
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80,000
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EXPENSES
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Salary to Barry
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40,000
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Interest on loan of funds by Brett
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10,000
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Salaries paid to employees
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950,000
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Rent and power
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60,000
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Purchase of trading stock (see note (v) below)
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620,000
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Superannuation to staff
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85,500
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Superannuation paid on behalf of Barry
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25,000
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Superannuation paid on behalf of Brett
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25,000
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Purchase of BMW motor vehicle for Brett (see note (vi) below)
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120,000
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Purchase of treadmill and exercise bikes (see note (vii) below)
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180,000
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Interest on bank overdraft
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18,623
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Provision for long service leave (see note (viii) below)
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25,984
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Provision for bad debts (see note (ix) below)
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122,000
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Notes - additional information in respect of the partnership.
(i) The partnership agreement stipulates that Barry and Brett share profits and losses in respect of both income and capital gains and losses on the basis of 50% to Barry and 50% to Brett.
(ii) The partners purchased the Australian internet company shares in January 2004 and sold them on 31 May 2017.
(iii) The dividend was fully franked.
(iv) The Bank of China withheld AUD $1,250 from the gross interest
(v) Trading stock at the beginning of the financial year was $370,000. The trading stock at the end of the year was valued as:
Market value $860,000
Cost $790,000
Replacement value $846,000
(vi) The car was purchased for use by Brett as he was responsible for sales. The car was purchased on1 January 2015. It was only used 100% for work purposes. On 31 May 2017the car was involved in an accident and written off. The partnership received $80,000 from the insurance company on 15 June 2017. The purchase price only is exclusive of GST.
(vii) Various items of equipment were purchased on 1July 2016 for $65,000 and 1January 2017 for $115,000. The effective life for the equipment is 4 years. The figures are exclusive of GST. The items are used 100% for business purposes.
(viii) During the year the partnership paid out long service leave to staff of $13,507.
(ix) During the year the partnership wrote off as bad debts $36,849.
Required:
1. Calculate the net partnership income for the partnership for the year ended 30 June 2017.
2. Calculate the tax payable for Barry for the year ended 30 June 2017.
Additional information for Barry:
Income
7,000 - Dividends received from an Australian resident company fully franked
30,000 - Gross salary received from part-time lecturing at the University ($9,000 in PAYG W)
2,000 - Refunds from Government Medicare System for medical expenses
5,000 - Interest on Bank Deposits
10,000 - Rental income from an investment property
Payments
1,200 - Train fares for travel to and from work
2,200 - Rates on family home
900 - Electricity for family home
3,000 - Tax agent's fees for preparing tax return for Barry
5,000 - Gross medical expenses for Barry and his wife.
2,000 - Rates paid on abovementioned investment property
15,000 - Interest paid on loan to acquire the investment property
5,000 - Cost of painting the investment property immediately after purchasing the property
1,000 - Cost of replacing roof tiles on the investment property after the roof was damaged in a severe storm in February 2017
15,000 - Cost of extending the bathroom in the investment property
5,000 - Maintaining Barry's father Myron, who is a permanent resident of Australia and who earned $1,282 adjusted taxable income during the 2016-2017 income year.
Barry and his wife have Private Hospital Insurance with HCF.