problem: Wesley is a self-employed web site designer. He designs websites and manuals. He is not registered for GST. He is also employed part-time as a book keeper for a manufacturing company. His receipts and payments for the year ended 30 June 2013 are as follows:
30,000 Net Salary (after employer had withheld tax instalments of $15,000).
18,230 Rental income from investment property.
6,000 Dividend franked to 60% received from an Australian resident public company.
1,000 Medical Expense refunds from Medicare.
$3,000 Rates and Insurance on income producing property.
16,000 Interest on money borrowed to purchase the income producing property.
4,569 Cost of hospital, dental expenses for Wesley and his wife May Ling.
1,000 Dentist fees paid for Wesley’s son who is 23 years of age and a full-time University student. The son has income of $7,000.
30,000 Repairs to the rental property, which consisted of $10,000 to paint the outside of the house and $20,000 to upgrade the kitchen with better fittings. The painting was due to normal wear and tear 5,000 Borrowing expenses relating to a new loan on the rental property, which is used exclusively for income producing purposes? The loan is for 6 years and began on 1 November 2012.
1,500 Travel to and from work by train.
2,000 Rates on family home (used 10% for work purposes)
1,000 Legal fees paid to a solicitor to collect outstanding trade debts from his business.
2,000 Donations ($1,000 to the Red Cross and $1,000 to the Collingwood Football Club).
1,000 Paid to his wife for 2 hours work. The normal pay for such a job would be $275
36,547 Purchase of materials, inks etc to produce manuals
a) His trading stock of manuals on hand at the end of the year was valued at $27,000 (at cost price), $28,000 (at replacement price), and $29,000 (at market selling value). Opening stock of manuals was valued at $30,000.
b) The Tax Depreciation Schedule for existing assets as at 30 June 2013 shows depreciation of $22,000.
c) The following assets were purchased during the year:
Printer $2,569 on 12 February 2013. Its effective life is 5 years.
Apple Mac $3,590 on 23 September 2012. Its effective life is 3 years.
On the basis of the information provided you and assuming that there are no other circumstances affecting his tax liability, discuss the assessibility/deductibility of the above receipts/expenses, and determine Wesley’ taxable income for the 2012/13 income tax year.
In your answer you must provide references to the relevant sections of the ITAA 1936 and ITAA 1997, case law, Tax Rulings or Tax Determinations. You should ignore the possible incidence of GST while answering the above requirements.
You should also provide a summary of your discussion in the following format (you may need to discuss business income and rental income separately).