Income Tax Law for Accountants Assignment Questions

Jade Stone (aged 28 years) is a jewellery designer employed by Crown Jewels Pty Ltd at their creation workshop in Fortitude Valley. For the income year ended 30 June 2012, Jade received the following PAYG payment summary from Crown Jewels Pty Ltd:

Jade is an Australian resident for tax purposes, and does not have private health insurance. Jade is not liable to pay the flood levy.

In addition to her wages above Jade has the following transactions:

(i) Sunnybank Apartment: Jade purchased an apartment in Sunnybank for $230,000 under a contract dated 29 April 2005, with the settlement date being 31 May 2005. At the time of purchase she had to pay legal fees of $1,500 (including GST) and stamp duty of $2,000.

To purchase the apartment, Jade borrowed $150,000 from the Bank of Queensland under a 25 year loan agreement at a variable interest rate. The Bank of Queensland charged $800 as a loan establishment fee to set up the loan agreement, plus Jade had to pay stamp duty of $300 on the loan. Jade has rented out the apartment to tenants ever since she purchased it.

When she purchased the apartment, Jade was provided with a schedule from Chang & Wu Quantity Surveyors, confirming that the apartment building was constructed in July 1998. The schedule also confirmed that the construction cost specifically attributable to the apartment was $120,000.

For the income year ended 30 June 2012, Jade received $17,817 of rent in relation to the apartment, but had to pay interest of $10,300 on the Bank of Queensland loan.

In August 2011 Jade purchased $1,000 (including GST) worth of paint from Amazing Paints Hardware to paint the apartment as the paint was badly flaking. Jade decided to paint the apartment herself, which saved her $5,500 (including GST) had she engaged a professor painter to do it instead.

On 1 September 2011 Jade bought a new microwave at a cost of $242 (including GST) for the rental property. It was installed ready for use on that date. The effective life of the microwave is 10 years.

On 24 February 2012 Jade bought a new air conditioning unit for $3,300 (including GST) and paid $550 (including GST) to have it installed in the rental property as the original air conditioning unit broke and was not able to be repaired. The air conditioning unit was installed ready for use on 1 March 2012. It also cost Jade $150 (including GST) to have the air conditioning unit delivered to her rental property. The effective life of the new air conditioning unit is 10 years.

Jade signed a contract on 23 May 2012 to sell the apartment for $235,500. In relation to the sale Jade had to pay legal fees of $1,000 (including GST) and real estate agent's commission of $4,000 (including GST). The sale of the apartment settled on 2 July 2012.

Jade is registered for GST in relation to the rental property. Jade uses the diminishing value method for calculating any decline in value, and the rate for any capital works expenditure is 2.5%.

(ii) Car: Jade purchased a Honda car (engine size 1.8 litre) on 10 May 2007 for $38,500 (including GST). She used the car to travel from her home in Greenslopes to work and back (approximately 3,800 kilometres for the 2011/12 year), and to visit family and friends. Jade sold the car on 16 June 2012 for $23,500 and purchased a new Holden car for $33,000 (including GST).

(iii) Painting: Jade loves artwork so she bought a highly collectable painting by Australian artist Norman Lindsay on 10 October 2011 for $36,000. To help pay for the new car, Jade sold the painting for $45,000 on 15 June 2012. Jade has paid a total of $500 in insurance premiums since she acquired the painting.

(iv) Shares: On 28 May 2003, Jade purchased 10,000 shares in Opal Ltd for $20,000. At the same time, Jade paid brokerage fees of $500 on the purchase of the shares. Jade received a fully franked dividend of $700 on these shares on 30 April 2012. She sold the shares for $24,500 under a contract dated 12 June 2012.

Other Information: As at 1 July 2011, Jade had a carried forward capital losses of ($2,000) from a previous sale of some Blue Sky Mining Ltd shares; and a carried forward capital loss of ($2,500) from the sale of an antique.

REQUIRED:

(a) In relation to the above facts, discuss, calculate and determine Jade Stone's NET CAPITAL GAIN for the income year ended 30 June 2012. (Please ensure that you provide full workings and explanations for each and every applicable step, and that you specify section references to the Income Tax Assessment Act 1997 or Income Tax Assessment Act 1936 to support your conclusions.)

(b) Calculate Jade Stone's NET RENTAL INCOME OR LOSS for the income year ending 30 June 2012. Only use the data given to you in the facts about the apartment. Please ensure that you provide full workings and explanations, and that you specify section references to the Income Tax Assessment Act 1997 or Income Tax Assessment Act 1936 to support your conclusions.)

(c) Calculate Jade Stone's INCOME TAX PAYABLE for the income year ending 30 June 2012 (including Medicare levy and Medicare levy surcharge, and any offsets if relevant). Note that you will need to complete Parts (a) and (b) before starting this calculation. (Please ensure that you provide full workings and explanations, and that you specify section references to the Income Tax Assessment Act 1997 or Income Tax Assessment Act 1936 to support your conclusions.)