Taxation Law: Tax Practice Assignment
Background information and Wiley Coyote's personal financial transactions for tax purposes
Wiley Coyote is an astute businessman whose ventures have included Coyote Rocket Shoes Pty Ltd. which was very successful as were the various ancillary services that he provided such as rocket fuel, rocket repairs, shoe repairs, and osteopathy and chiropractic services through 10 clinics known collectively as the Rocket Science Pain Management Clinics.
Because he could foresee government restrictions being introduced in the future he sold the company in 2014 with the exception of the clinics which were far too lucrative for him to sell off. He owns 100% of the business and is a partner in a mobile telephone dealership called Rocketfone
Wiley continues to tinker with rocket shoes and in May 2016 he made a net capital gain of $18,000 from the sale of used rocket shoes that he had purchased 2 years ago and refurbished in his spare time.
He is a shareholder in a company and from it 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 Coyote Trust.
Personally Wiley is entitled to the following deductions:
- $1,000 (for the cost of a seminar he attended on How to Mix Rocket Fuel Safely),
- $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 rocket shoes 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 Wiley receives 6 tickets in a car raffle).
Wiley paid $4,000 for private health insurance for he and his wife for the whole income year. PAYG withheld on Wiley's behalf amounted to $15,500.
Part B:
The business known as Rocket Science Pain Management Clinics had the following transactions in the 2015/16 financial year.
|
Receipts
|
$
|
|
Fees from cash patients
|
820,000
|
|
Fees from health funds
|
1,075,000
|
|
Sale of burn lotions* - cash received
|
46,800
|
|
Workers compensation receipts**
|
67,000
|
|
|
|
Expenses
|
|
|
Staff salaries (net of PAYG withholding)
|
640,000
|
|
PAYG withholding forwarded to the ATO
|
295,000
|
|
PAYG installments
|
165,000
|
|
Superannuation Guarantee Levy
|
84,000
|
|
Entertaining special customers at sport venues
|
2,000
|
|
Linen (towels, bed-sheets, pillow slips)(Effective life <12 months)
|
11,000
|
|
Laundry expenses (external services)
|
6,000
|
|
Aromatherapy oils and candles***
|
58,000
|
|
Artworks (each piece under $1,000, purchased 1/9/15)
|
8,000
|
|
Rent (includes $32,000, paid up to 31 July 2016)
|
286,000
|
|
Other expenses (all deductible)
|
63,000
|
* Debtors as at 30/6/15 $11,000
Debtors as at 30/6/16 $15,000
** Amounts owing by workers compensation insurance companies $13,000.
*** Stock as at 30/6/15 $ $3,000
Creditors as at 30/6/15 $1,000
Stock as at 30/6/16 $8,000
Creditors as at 30/6/16 $500
Used for family household $700
- In the year ended 30/6/15 Wiley had a tax loss of $3,800.
- Wiley accepted a bike for payment from a client. The bike had a market value of $250.
|
Asset
|
Date of
purchase
|
Method
|
Original
cost
$
|
Adjustable
value 30/6/15
$
|
Effective
life
|
|
10 clinic beds
|
1/7/14
|
Prime
|
45,000
|
36,000
|
5
|
|
10 desktop PCs
|
1/7/14
|
Diminish.
|
18,000
|
9,000
|
?
|
|
1 desktop PC 80% business use
|
1/7/14
|
Prime
|
1,500
|
1,000
|
?
|
|
Office furniture (each piece
>$1,000)
|
1/8/14
|
Prime
|
21,000
|
19,075
|
10
|
|
Clinic furniture (each piece
>$1,000)
|
1/3/15
|
Diminish.
|
15,000
|
14,000
|
10
|
|
Low Value Pool
|
|
|
|
6,000
|
|
Required:
(i) Showing your workings, determine the taxable income for 2015/16 of Rocket Science Pain Management Clinics; and
(ii) Determine the closing balance of the Clinics' Low Value Pool.