Income Tax Return

Assignment Details

PART A (20 marks)

Note: All amounts are in Australian dollars. Ignore any double tax agreements.

You are an Australian-resident individual. During the income year ended 30 June 2015 you earned the

following amounts:

• $90,000 (gross) salary from working in Australia. Australian tax withheld was $40,000.

• $10,000 (gross) salary from working in France for two months, on which $4,000 French income

tax was paid.

• $30,000 capital gain net of any applicable discount from the sale of shares in a United States

company. United States tax of $12,000 was paid on this.

• $35,000 as a fully franked dividend from an Australian resident company. This amount received

is net of $15,000 franking credit.

• For foreign income tax paid, you wanted to know how much you can claim as foreign income tax

paid in accordance with the Foreign Income Tax Offset (FITO) limit. You would do a further

research on this matter.

• You have a private health insurance cover for the whole year under Medibank Private.

In addition to the above:

You and Maxine are equal partners in a partnership. The partnership operates a car dealership selling

brand new and second-hand cars. The partnership is registered for GST purposes.

Note: All amounts are GST-exclusive unless otherwise stated.

During the year ended 30 June 2015, the partnership had the following transactions:

1. Cash received from sales of $2,500,000. Accounts receivable balances as at year end were as

follows:

• 30 June 2014: $260,000.

• 30 June 2015: $180,000.

2. Trading stock purchases of $1,200,000. All purchases satisfy the requirement of being on hand.

Opening stock value for tax purposes is $1,300,000. Closing stock value for tax purposes are as

follows:

• Market selling price: $1,600,000.

• Replacement price: $1,400,000.

• Cost: $1,100,000.

3. Interest expense of $400,000 in relation to a $2 million bank loan. The money was used as

follows:

• Working capital: $1,200,000.

• Return of capital to partners: $800,000.

• The partners used the money returned to them to carry out extensive renovations to their

private home.

School of Business Semester 2, 2015 Page 4 of 5

Faculty of Law, Education, Business and Arts Higher Education, Internal & External

4. Parking fines incurred by employees of $2,100.

5. Salary costs of $500,000. Of this amount, $80,000 was paid to Maxine as salary.

6. Restaurant meal expenses of $5,000. Records indicate that these expenses were incurred taking

highly valued corporate clients to dinner in order to maintain good business relationships. You

and Maxine were the only persons from the business to attend. The partnership has not made a

meal entertainment election for FBT purposes. You wanted to know how much you can include

in your allowable deductions and might do additional research on this matter.

7. Clothing allowance of $3,000 was paid to sales employees on 30 June 2015 to purchase more

professional attire as required.

8. Professional fees of $6,000 paid to Raul David Chartered Accountants on 28 February 2015. The

fees relate to investment advice to assist the partnership to set up a small share portfolio of

$1,400 and the preparation of the BAS and compliance with GST obligations of $4,600.

REQUIRED:

(a) Calculate the minimum net income of the partnership for the income year ended 30 June 2015.

For all items (excluding items 1 and 3) provide a relevant section reference or case law to support

your answer. For items 1 and 3 provide relevant case law to support your answer. Explain all

exclusions.

You may want to use the following format:

Item Description/calculation

References (Legislative

references are to ITAA

1997 unless otherwise

stated) and/or Case law

Amount

($)

1

Sales: <insert computation, if

any>

<insert case law or relevant

section reference, see

requirement letter (a)>

<insert amount>

(+) for

assessable

income, (-) for

allowable

deductions

2.. etc.

NET INCOME $XXX,XXX

(b) Calculate your minimum tax payable by, or maximum refundable, for the income year ended 30

June 2015. Show all workings, references are not required.

(c) After completing your calculations in (b), download the electronic copy of the Individual tax

return 2015 (NAT 1371-6.2015) from the ATO website and fill out the required information to

complete your income tax return accordingly.