Taxation Law: Tax Practice Assignment-
Attachment 1 -
Background information and Tom Katzen's personal financial transactions for tax purposes.
Tom Katzen is a resident and is employed as the senior sports shoe fitter in a store that sells sports shoes in the very high end of the market. He also owns a business, Sneak-a-Boo, which sells both new and second hand sneakers, and is a partner with Claude Ralph in a lucrative business, Running for Life which trains budding athletes.
During the 2015/16 income year Tom was paid as a shoe fitter a salary of $85,000. He made a net capital gain of $18,000 from the sale of second hand bikes that he had purchased for himself 2 years ago.
He is a shareholder in a company and received a partly franked dividend of $7,000 which had $1,000 of franking credits allocated to it. He is also a beneficiary of The Katzen Family Trust. Personally Tom is entitled to the following deductions: $1,000 (for the cost of a seminar he attended on How to Succeed in Selling Second Hand Sneakers), $700 (for the decline in value of a computer he uses for work-related matters), $560 (for repairs to equipment he uses in the refurbishment of the second hand sneakers he buys), $540 (for fees charged by his accountant for the preparation of his tax return for the previous income year), and $300 (donation to a charity that is a registered as a deductible gift recipient in payment of which Tom receives 6 tickets in a car raffle).
Tom paid $4,000 for private health insurance for he and his wife for the whole income year. PAYG withheld on Tom's behalf amounted to $15,500.
Attachment 2 - Part B
Sneak-a-Boo - In his business Tom uses the accruals basis of accounting. He provides you with the following information for the year ended 30/6/2016. Sneak-a-Boo is not a small business. All amounts exclude GST.
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Receipts
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$
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Cash sales
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315,000
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Debtors (for credit sales, including the $10,000 owing at 30/6/2015)
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38,000
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Insurance proceeds: damaged stock
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7,000
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Insurance proceeds: storm damage to broken windows and carpets
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13,000
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Bank loan to make alterations to the store (Funds were borrowed on 1/10/2015. The loan is due for repayment on 30/9/2020.)
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33,000
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Bad debt recovered (debt written off in 2014/15)
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1,000
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Payments
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Cash purchases
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80,000
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Creditors (for credit purchases, including the $23,000 owing at 30/6/2015)
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138,000
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PAYG installments
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41,500
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Council rates - business
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6,000
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Legal expenses in relation to the bank loan
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2000
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Entertainment of suppliers and large customers
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1,660
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Repairs after storm damage to windows and carpets
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12,000
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Staff wages
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80,000
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Superannuation for staff
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7,600
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Alterations to the store (Note 1)
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45,000
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Cash drawings
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90,000
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Advertising (Note 3)
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27,000
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Other deductible expenditure
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10,000
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Stock on hand at 1/7/2015: $16,000; 30/6/2016: $19,000
Debtors at 1/7/2015: $10,000; 30/6/2016: $6,000
Creditors at 1/7/2015: $23,000; 30/6/2016: $25,000
Note 1: The alterations commenced on 1/9/2015 and were completed on 30/11/2015.
Note 2: Motor vehicle expenses, including decline in value, were $12,800. A log book kept for 12 weeks in 2015 showed business usage of 45%. Tom uses the log book method.
Note 3: Tom's records showed that he had taken cues from stock which had cost $4,170.
Note 4: Tom advertises his store at the local movie-theatre. He entered into an eighteen-month contract on 1/5/2016 that cost $7,000. The amount pre-paid at 30/6/2015 on a previous contract was $4,000. This contract expired on 31/10/15.
Showing all workings, calculate the net income of the business.
Attachment 3 - Part C
Running for Life - Running for Life opened for business on 1 July 2015. The accounting profits and losses are to be shared equally after adjusting for special partnership items. The following transactions were recorded in the partnership's cashbook in the year ended 30 June 2016.
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Receipts
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$
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Fees received
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450,000
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Bank loan
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55,000
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Loan from Claude
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45,000
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Interest on drawings - Tom
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500
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Interest on drawings - Claude
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750
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Payments
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Rent of the training venue and sundry expenses (all deductible)
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35,000
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Salary of part-time trainers
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125,000
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Salary of Tom
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35,000
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Salary of Claude
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60,000
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Superannuation contributions for assistant
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250
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Bank loan repayments - principal
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2,800
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Bank loan repayments - interest
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1,500
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Interest on capital - Tom
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1,000
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Interest on capital - Claude
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1,000
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Interest on loan from Claude
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2,500
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Drawings - Tom
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6,000
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Drawings - Claude
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12,000
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Purchase of heart monitors
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6,000
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Showing all workings:
1. Calculate the net income of the partnership for the year ended 30 June 2016; and
2. Distribute the net income of the partnership for the year ended 30 June 2016.
Attachment 4 - Part D
The Katzen Family Trust - The Katzen Family Trust (a family trust election having been made by the trustee) was created by Tom some years ago for investment purposes. The Trust Deed provides that all the trust's income may be either retained by the trustee or distributed to the beneficiaries.
In the year 2015/16 the trust derived trust net income of $35,000.
The trustee used his discretion to distribute the following cash amounts to the stated beneficiaries:
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Tom Katzen
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$10,000
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James Katzen
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Tom's brother
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10,000
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Scott Katzen
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James' 17 year old son
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2,000
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Jennifer Katzen
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James' 12 year old daughter
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2,000
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Oliver Katzen
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James' 1 year old son
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1,000
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The trustee also applied some of the remaining net income as follows:
- $3,000 was set aside to pay for any future veterinary care of the two horses "Hammer" and "Tongs" which had belonged to Tom's father, now deceased.
- $2,000 was paid for Scott's university fees, books and a new lap-top computer.
- $1,500 was set aside to help pay for Oliver's day care when he reaches 3 years of age.
- $500 was used to pay James' speeding fines.
Showing all workings:
1. List any amounts for which there is no present entitlement as at 30 June 2016;
2. Determine the balance retained by the trustee as at 30 June 2016; and
3. Calculate the tax payable by the trustee for the year ended 30 June 2016.