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(Solved) 3106AFE Revenue Law Trimester 1, 2017 Seminar 9 Troy and Jenny (both Australian residents) have a takeaway coffee outlet in Brisbane city. They are...


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3106AFE Revenue Law
Trimester 1, 2017 Seminar 9
Troy and Jenny (both Australian residents) have a takeaway coffee outlet in Brisbane city.
They are carrying on the GST-registered business together in a partnership using the
accruals basis to account for income tax and the non-cash basis for GST. Under the
partnership agreement, Troy receives an annual salary of $70,000 as he is actively running
the business and Jenny receives interest on capital contribution of $10,000, as she
contributed $200,000 of capital when the partnership commenced. The balance of the net
income is to be equally shared between the two partners. Troy had made a loan to the
partnership and in 2016/17 he received interest income of $1,000 in relation to this loan.
During the 2017 income year, the partnership had received $491,500 in cash, and had one
outstanding invoice for coffee beans from CBC Bank Ltd for $500 as at 30 June 2017.
On 3 March 2017 income year the two partners disposed of office premises that they had
acquired under a contract dated 1 July 2016 (with a 60% interest for Troy and 40% interest
for Jenny) – the sale of the premises gave rise to a capital gain of $80,000. The partners
were going to convert the premises into a café, but the location was found to be unsuitable.
Receipts and expenses for the partnership during the 2016/17 income year are as follows:
Receipts:
Sales - coffee $ 462,000 (including GST) Sales – coffee beans $ 30,000 Expenditure (inclusive of GST where applicable):
Coffee supplies (coffee beans, milk, & sugar) $ 124,500
Supplies (disposable coffee cups, etc.) $ 30,800 (including GST) Bank charges $ 1,100 Bribe to health official $ 5,000 Electricity $ 16,500 (including GST) Rental expenses $ 44,000 (including GST) Telephone expenses $ Salaries - staff $ 85,900 Salary Troy $70,000 Drawings – Troy $ 20,800 Drawings – Jenny $ 20,800 6,050 (including GST) The partners advise you that they hold valid tax invoices for all their acquisitions (that is, for
all of the above expenditure). 1 3106AFE Revenue Law
Trimester 1, 2017 Required:
1) In relation to the above facts, DISCUSS and CALCULATE the ‘NET INCOME’ of the
partnership for the income year ending 30 June 2017. Please ensure you include in
your answer whether the assessable income and the allowable deductions should
include or exclude GST (where applicable), and why.
2) Calculate the partnership’s NET AMOUNT OF GST PAYABLE OR (REFUNDABLE) to
/ (from) the ATO for the income year ending 30 June 2017.
3) Calculate each partner’s SHARE OF THE NET INCOME of the partnership as well
as their TAXABLE INCOME.
4) Calculate TROY’S INCOME TAX PAYABLE for the income year ending 30 June 2017, assuming that he has no private health insurance, no dependants and no
other income. You are also advised that Troy has net capital losses carried forward
of $8,000, plus net capital losses carried forward from collectables of $900. Notes:
(i) For all the above questions, make sure you support your answer with appropriate legislative
references. (ii) Assume that the partnership is not a small business entity (ignore the small business CGT
concessions in Div 152). SOLUTIONS:
(1) In relation to the above facts, DISCUSS and CALCULATE the ‘NET INCOME’ of
the partnership for the 2016/17 income year. As per s 90 of the ITAA36, the ‘net income’ is The partnership is registered for GST and would be making: taxable supplies in relation to the ______________ and 2 3106AFE Revenue Law
Trimester 1, 2017 GST free supplies in relation to the ______________. Any GST charged/collected on the sale of coffee is ______________ assessable income:
s ______________ITAA97, so this income would be assessed on the GST
______________ amount.
The business expenses that include GST would be ____________________________for
the partnership (as they are acquisitions made in relation to their GST registered enterprise
which is making taxable supplies or GST-free supplies).
Therefore, where GST is included in the price, the partnership is able to claim an
_________________________for the GST paid and accordingly, any allowable deductions
should be ________________________: s ____________ITAA97 3 3106AFE Revenue Law
Trimester 1, 2017 Section 90: Net Income = Assessable Income less deductions (except….)
Assessable income:
Amount GST s 90 amount Sale of coffee $462,000 $ $ Sale of coffee
beans $30,000 $ $ Note 1 assume $0
Capital gain $80,000 Total
Assessable
Income Law and Reasons $ $ Note 1. Net Capital Gain
Capital Gains are / are not included in the “net income” of the partnership. Partners are/ are
not assessed on their proportional share of the capital gain: (section ____________ITAA
1997), as each individual partner will/ will not have their own CGT event in respect to the
sale of the premises. 4 3106AFE Revenue Law
Trimester 1, 2017 Allowable deductions
Amount s 90
amount GST Law and Reasons Purchases
Coffee
supplies $124,500 $ $ $30,800 $ $ Bank
charges $1,100 $ $ Bribe to
health official $5,000 assume $0 $ Supplies
(cups, etc.) Electricity $16,500 $ $ Rental
expenses $44,000 $ $ Telephone
expense $6,050 $ $ Staff salaries $85,900 $ $ Troy’s salary $70,000 $ $ $10,000 $ $ $1,000 $ $ $20,800 $ $ $20,800 $ $ Interest
capital
account
Jenny on
- Interest
on
loan
from
Troy
Drawings –
Troy
Drawings –
Jenny 5 3106AFE Revenue Law
Trimester 1, 2017 Total
Allowable
Deductions $ Net Income = Assessable Income less Deductions
$
(2) =$ less $ . Calculate the partnership’s net amount of GST payable or (refundable) to /
(from) the ATO for the income year ended 30 June 2017 Amount Law – GST Act Taxable supplies
(note items)
$ Less Input tax credits
(note items)
$
$
$
$ GST OWING TO THE ATO $ 6 3106AFE Revenue Law
Trimester 1, 2017 (3) Calculate each partner’s SHARE of net income and their TAXABLE INCOME Share of net income: Troy’s and Jenny’s individual interest in the net income of the
partnership is as follows (as per section ___________): Troy (50%) Jenny (50%) TOTAL Partners’ Salary $ $ $ ½ distribution $ $ $ TOTAL $ $ $ In addition to their share of partnership income in their Taxable Income, Troy and Jenny will
have each potentially a net capital gain in respect of the sale of office premises.
Initial Capital gain for partners (s 106-5):
Troy (60%)
Jenny (40%) $______________
$______________
$80,0000 Are either Troy or Jenny entitled to the 50% discount or indexation method for the sale of
the office premises? Why or why not? Which capital losses is Troy able to use to reduce his capital gain? TROY Office premises Current year capital gains $ less current year capital losses
less carried forward capital losses ($ ) $ 7 3106AFE Revenue Law
Trimester 1, 2017 Apply 50% discount N/A Net capital gain $ Note: Troy has net losses from collectables ($900) which should be __________________________ JENNY Office premises Current year capital gains $ less current year capital losses - less carried forward capital losses - Apply 50% discount ___________ Net capital gain $ Troy Jenny Partnership distribution $ $ s92 Net capital gain $ $ s102-5 $ $ $ $________ Total allowable deductions $ $ ________ TAXABLE INCOME $ $ Assessable income (other?) Total assessable income
Less
Allowable deductions (4) Calculate the tax payable by Troy for the 30 June 2017 income year, assuming
that he has no private health insurance, no dependants and no other income. Taxable Income $ BITL $ Reasons (including sections) Less non-refundable offsets
LITO 8 3106AFE Revenue Law
Trimester 1, 2017 $
Net Tax Payable $ Plus
Temporary budget repair levy
$
Medicare levy (TI x 2%) $
Medicare Levy Surcharge ISP ___ (TI + RFBA) x ___% $
Tier __ Less Refundable Offsets &/or tax
credits
$
Tax Payable $ 9

 


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