Prepare Income Tax Documentation for Individuals Handitax Assignment

Prepare Legally Compliant Tax Returns for Individuals Assignment Question -

You are employed as a trainee tax accountant at Southbank Taxation Consultants Pty Ltd.  Mr David Marley, the office manager of the firm has requested that you prepare the 2016 income tax return for the following client:

Mr Tom Pearce is employed as a qualified electrician.

Tom's personal particulars are as follows:

Address: 11 Orchard Crescent South Brisbane QLD 4101

Telephone: 3244 6578

Tax File Number: 537 505 657

Date of Birth: 11/04/1978

Spouse: Maria Pearce - Date of birth is 15/03/1979

Manager/Office: Hamish / Brisbane                                       

If you have any further questions for Tom, you may direct them to your Teacher.

Mariaearned salary income for the 2016 tax year of $1,250 (this was from a part-time job as she is mainly occupied in being a wife and mother). You are not required to prepare the income tax return for Maria as, in order to save tax-agent's fees, she will be lodging her own tax return.

Tom requests that his tax refund (if any) is to be sent directly to the following bank account by electronic transfer from the Tax Office. He advises the BSB # is 333222, the account # is 71234 and the account is in both his and his wife's name.

Tom and Maria have two children who are both in primary school.

Tom has provided the following information relating to his taxation affairs for the year ended 30 June 2016.

Tom received a 2016 PAYG payment summary from Ace Electrical Contractor's Pty Ltd. A copy is attached.

Tom also received a 2016 employment termination payment summary from a former employer. A copy is attached.

In addition Tom received a dividend cheque from the Commonwealth Bank. The dividend advice documentation stated the following:

1. Franked amount of $2,225

2. Franking credits (Imputation credit) of $953.57

3. Unfranked amount $114

(1) Tom wants you to explain what these three dividend related terms mean as he does not understand the terminology.

Tom & Maria received Bank net interest of $2,805.00 from the Commonwealth Bank: Account No. 71234. This is the amount received after the bank deducted $2,295 TFN tax.

(2) Tom wants to know why the bank deducted TFN tax from their account.

During the year Tom gave donations to the Salvation Army Red Shield appeal for $75, the Karl McManus Foundation for Lyme disease for $500 and the South Brisbane Blues Football Club for $150. Receipts were received for each of these donations. He also purchased Art Union tickets (which offered a luxury house as first prize) valued at $50 from the Mater Hospital.

(3) Tom wants to know whether he can claim the amount paid for Art-Union tickets with the Mater Hospital.  If a claim is not allowed explain the reason.

As a qualified electrician, Tom has to wear a compulsory uniform while at work - he purchased an additional uniform on 8 July 2015 for $199 (he has a receipt of purchase). During the year he advised that he also purchased a pair of work boots for $89. Tom shows you the steel cap boots (as he is wearing them!) but he advises that he has lost the receipt. In addition he advises that Maria washes his work uniform five times a week -they are so dirty no other clothes can be washed in the same washing load.  A diary record has not been kept.

(4) Tom asks whether he can still claim for his work boots and what is the maximum amount he can claim without holding receipts for laundering his work uniforms?

Tom has advised that work tools purchased during the year amounted to $475. He has receipts to support these purchases.

He has paid the following subscriptions (receipts obtained) during the year:

• Electrical Contracting trade journal $150
• Amazing Photography magazine $200

The tax agent's fee from preparing the prior year tax was $530.00. In addition he drove the family's second car (A 2.1 litre Mazda 3 normally driven by Maria) to and from the tax agent's premises to arrange for the tax return preparation - a total distance of 60 kilometres.

Tom has been told that he can get a tax offset for paying money into his wife's superannuation fund.  He contributed $2,500 to AMP on her behalf.

Tom had health insurance with BUPA Private Health Fund (code BUP). The policy number is 2356578 and the policy type is: Hospital. The BUPA Private Health Insurance Taxation Statements states that both he and Maria had hospital coverage for the whole year, $1,800 in total was paid in premiums (eligible for the Australian government rebate) during the financial year and that the 30% private health fund tax offset was received in the form of reduced premiums ($500 rebate received).  Tom will claim this all in his return.  Benefit code is 30.  Tax claim code is D.

(5) Tom is confused about the Australian government rebate mentioned as he didn't receive any payments to his bank account.  He has requested that you explain what it means.

Tom's son Jimmy required special disability aids; the total cost was $8,120. Tom paid the manufacturer in full and received a refund from BUPA of $1,200. In addition, expenses for medicines paid during the tax year totalled $3,925 which included $250 for vitamin pills not prescribed by his doctor.  No rebate was received for these medical expenses.

(6) Tom wants you to explain what can be claimed regarding medical expenses.

As Tom is required to travel to work-sites he is paid a motor vehicle allowance from his employer which is shown on his PAYG Payment Summary. In addition he is required to carry his tools between work-sites. Tom has provided the following facts in relation to his motor vehicle:

• He owns a 6 cylinder Holden Ute, 3.0 litre engine. Registration plate number AEG225. Carrying capacity 900 kg.
• Total distance travelled for the year was 28,500 km.
• Motor vehicle expenses were fully substantiated using a logbook. The work kilometres in the log were 3,655 km and the total km's travelled were 7445 for the 12 week log-book period.
• Petrol costs were $5,255
• Motor vehicle registration was $725
• Comprehensive insurance was $735
• Repairs to motor vehicle (all receipts available) were $3,200.
• Tom originally took out a loan to buy the car - the total repayments were $500 per month of which $190 per month was interest.
• Depreciation to be claimed for the year is $4,399.
• Tolls paid for the year on work-related travel amounted to $2,100. He has documentation from E-Toll to support these payments.

(7) Tom says that he has heard you can claim motor vehicle expenses in a number of different ways. He wants you to explain the methods available for claiming motor vehicle expenses. In addition he wants you to claim motor vehicle expenses using the method which will result in claiming the maximum deduction allowable (show manual D1 workings for all available methods here).

Tom is undertaking a trade course at Yeronga TAFE in solar panel installation. He incurred the following fees:

                                            $

Course Fees                          1500

Textbooks                             320

Stationery                             60

In addition he advised that he drove the Mazda 3 from home to TAFE and return to attend the above course one day per week for a total of 36 weeks. The total return distance travelled for each trip was 40kms.

Tom is also undertaking another course at the University of Queensland in photography on one evening per week. He hopes to eventually become a professional photographer but at the present time photography is a hobby that he enjoys doing. He incurred the following fees.

                                            $                                                                                         

Course Fees                          1000

Reference book                     120

Materials                               610

He drove the Mazda 3 to travel between home and the university and return to attend the above course 18 times during the year. The total return distance travelled for each trip was 25 kilometres.

Travel to both these courses was not included in his log-book for work-related travel. It was decided that the cents per kilometre motor vehicle expense method was to be used for any travel component for self-education expenses.

(8) Tom wants to know if he can claim self-education expenses for both of the above courses. If a claim is not allowed, explain the reason.

You are required to:

1. Prepare a tax return using Handitax 2016 for Tom Pearce for the year ended 30 June 2016. In accordance with the firm's policy and procedures manual you are also required to prepare worksheets that show all your workings for the calculation of the following:

a. Assessable income (use headings I1, I2, I3 etc.)

b. Allowable deductions (use headings D1, D2, D3 etc.) except for D4

c. Tax offsets (use headings T1, T2, T3 etc.)

d. Spouse Taxable Income

It is suggested that you use Microsoft Excel to prepare your workings for the above.

2. Print the following to PDF file (one per group):

a. ATO copy (click 'view ATO copy') - ignore any errors/warnings relating to private health insurance, tax claim codes, or production return tax agent numbers.

b. Summary (click 'summary')

3. With your group, provide appropriate answers to theory part of the assignment, which includes:

a. the eight client queries that have previously been asked by the client and

b. the theory that follows after this page

4. Submit the completed return, worksheets and theory answers to the client tax queries to the Office Manager by the due date. Note: only one copy should be provided per group.  There are separate dropboxes on connect for the practical and theory submissions.

Additional Theory Questions -

1. State whether it would be acceptable to lodge the completed tax return with the Australian Taxation Office without having the return reviewed by the Office Manager? If not why not?

2. If you were the Office Manager how would you ensure that you reviewed all completed taxation returns prior to lodgement with the ATO?

3. Again, if you were the Office Manager, what would be your response if you received a phone call from the Australian Taxation Office requesting/advising:

(a) Certain information relating to a client's previously lodged taxation return

(b) Your client has been selected for an ATO audit requiring evidence to be provided to support the deduction claims made in a previously lodged taxation return.

4. As you obtain immense work satisfaction in preparing tax returns for your employer's clients you have decided that you would like to become a registered tax agent. Therefore your task is to research the eligibility and responsibilities of being a tax agent. Specifically the following issues need to be addressed:

(a) Research the Tax Practitioners Board website to identify the minimum academic and experience requirements for a Diploma of Accounting holder who wishes to obtain tax agent registration.

(b) Name the two main Tax Acts that govern income tax in Australia.  Which level of government (local, state, federal) has the power to levy income tax?

(c) Researching the same website, identify and describe the obligations of holding tax agents registration. Your answer should include the following:

i. Identification of the core principles set out in the "Code of Professional Conduct" for tax agents.

ii. The meaning of being a "fit & proper person" to hold tax agent's registration.

iii. The type and the required number of hours of Continuing Professional Education to be undertaken over a 3 year period

iv. The requirements relating to the supervision and control of employees and sub-contractors

(d) Are tax agents required to lodge individual tax returns by the same date everyone else is (31 October)?  Research the ATO website to answer this question and define the 2015/16 lodgement program for individual tax returns that registered tax agents are required to comply with (your answer should include the correct due dates for lodgement of individual tax returns).

(e) Is there a requirement for a particular type of business (eg. a service business) to prepare their tax returns a cash basis or an accrual basis?  If not, what rule should govern the decision?  For a business tax return, if you are given a sales figure inclusive of credit sales, what adjustments need to be made if you are preparing the tax return on a cash basis?

(f) What advice would you give to a client if:

1. The client admits to receiving "cash" money from customers i.e. the client does not intend to include these amounts in their tax return

2. The client asks whether there is a basic principle as to when an expense can be claimed as a deduction on a tax return

3. The client advises that he intends to travel extensively over the next two years and wants to know whether:

a. an income tax return will still need to be lodged while he is absent from Australia and

b. Will he be regarded as a resident or a non-resident while absent from Australia and on what basis will total tax payable be calculated. 

(g) Which legal document provides the Federal government the sole power to levy income tax in Australia?

(h) Briefly outline the 'separation of powers' of the Australian legal system and theorise as to why such a separation might be necessary.

Attachment:- Assignment File.rar