Accounting Question

Business Finance

LAWS19033 Taxation Law and Practice A

La Trobe University Australia

Question Description

I'm working on a accounting spreadsheet and need an explanation to help me study.

EMPLOYMENT: Your client Helga Hemp is the sole director of Sunshine Futures Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. Sunshine Futures analyses financial information and provides investment advice to registered clients. The payment summary from Sunshine Futures Pty Ltd shows the following: ▪ ABN 84 111 122 223 ▪ Gross Payments $130,000 ▪ Tax Withheld $38,200 Sunshine Futures also paid $95 a month for your client’s mobile phone account and additional superannuation contributions of $7,800 under a salary sacrifice arrangement. This amount is in addition to superannuation guarantee requirements. The phone payments related to a fixed monthly contract in the employee’s name and payments were made directly to the phone company by the employer. Your client owns an BMW X5. They purchased the car on 1 July 2019 for $99,000. The car travelled 36,500 kms during the year and your client has indicated that about 80% is work related but they have not kept a log book. Your client pays for all the running costs for the vehicle. During the year these costs included: Fuel & oil $4,950 Servicing $1,800 Registration $ 960 Insurance $1,900 Tyres $2,400 Excess on insurance claim. The insurance company paid for the balance of the cost of repairs. $1,750 Car washing $600 4 DIVIDENDS & INVESTMENTS: Sunshine Futures Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 40% of the issued shares in the company. The shareholders were paid a lump sum of $150,000 in April. They described this payment as a fully franked dividend. The proceeds were used to reduce the line of credit that was taken out to purchase the home in which they live. Interest paid on the home loan for the year was $24,000. The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2019. On finalisation of the estate the following shares were transferred to your client and the client received notification that all the shares had been transferred on 1 December 2019. Share Date Purchased by Father Number of Shares Purchased Price Paid per Share at time of purchase Market Value at Date of Death BHP 4 Jan 1985 2,300 $5.00 $21.30 CBA 12 Sept 1991 2,000 $5.40 $75.94 COH 4 Dec 1995 1,000 $2.90 $124.77 FLT 1 Dec 1995 1,000 $0.95 $32.29 MYR 7 Nov 2009 9,500 $4.10 $1.21 TLS 3 Nov 1997 2,000 $3.30 $5.75 The following fully franked dividends were received by your client during the year: ▪ CBA $ 680.00 ▪ COH $ 740.00 The taxpayer sold the BHP and MYR shares on 5 January 2020 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $26.54 each. The MYR shares sold for $1.81 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $140 and $120 for the BHP and MYR shares respectively. These amounts include GST where appropriate. 5 RENTAL PROPERTY: 4/285 Pacific Parade, Bilinga, 4225 The taxpayer owns a unit on the Gold Coast which is rented to their daughter. A contract was entered into to purchase the property on 22 January 2020 for $620,000 and settlement took place on 1 March 2020. The taxpayer’s daughter moved in immediately. She pays rent in advance of $410 each week. The first payment was made on the day she moved in. (HINT: You need to research the issues around renting properties to relatives and include your findings in your workpapers and letter of advice.) The building was originally constructed in 2005. A quantity surveyor’s report commissioned at the time of purchase shows the construction cost of the unit was $210,000. The taxpayer purchased a refrigerator for $2,180 and a washing machine for $1,800. These were installed in the unit for use by the tenant on settlement date. The taxpayer elects NOT to use a low value pool for depreciating assets and chooses the diminishing value method of depreciation where applicable. Other costs paid in relation to the property before 30 June 2020 include: Stamp duty on property purchase $16,150 Legal fees, searches, and reports on property purchase $ 1,650 Body corporate fees $ 1,550 Council rates $ 930 Water Rates $ 380 Insurance $ 785 Loan repayments (interest only) $ 4,300 6 OTHER INFORMATION: ▪ Dry cleaning of work suits $900 ▪ Donations were made to: o Sea Shepherd $1,500 o Go Fund Me page donations $620 ▪ Association of Financial Advisors Membership Fees $1,500 ▪ “Country Crocheting” magazine subscription $240 ▪ Fees paid to the bank in January 2020 to establish the loan to purchase the unit were $960. The loan is for 25 years. ▪ The taxpayer also has an insurance policy that covers their income in the event of an accident or death. The premium is paid directly from their bank account each month. The total for 2019/20 was $9,000 of which 70% relates to the replacement of income in the event of an accident. ▪ In 2015 the taxpayer was involved in a car accident and sustained injuries that required medical attention and rehabilitation therapy. In December 2015 the court awarded the taxpayer $60,000 as compensation for medical expenses incurred because of the injuries from the accident. Payment was received in December 2019. ▪ In April 2020 the taxpayer received $3,800 Income Replacement payments from their insurance policy. ▪ The family is covered by private health insurance with BUPA. The policy was taken out on 1 May 2020. The premium paid to the end of the year was $1030 after they claimed a rebate of $103. The policy number is RDA1465 and the health fund has notified them that the Benefit Code is 30. ▪ Preparation and lodgement of 2019 tax return by Diagno Accountants was $4200. ▪ The taxpayer’s date of birth is 14 February, 1964, and they are married. You can make up the name & date of birth of the spouse. The spouse earned a salary of $64,000 for the 2019/20 year and was entitled to deductions of $200

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EMPLOYMENT: Your client Helga Hemp is the sole director of Sunshine Futures Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. Sunshine Futures analyses financial information and provides investment advice to registered clients. The payment summary from Sunshine Futures Pty Ltd shows the following: ▪ ABN 84 111 122 223 ▪ Gross Payments $130,000 ▪ Tax Withheld $38,200 Sunshine Futures also paid $95 a month for your client’s mobile phone account and additional superannuation contributions of $7,800 under a salary sacrifice arrangement. This amount is in addition to superannuation guarantee requirements. The phone payments related to a fixed monthly contract in the employee’s name and payments were made directly to the phone company by the employer. Your client owns an BMW X5. They purchased the car on 1 July 2019 for $99,000. The car travelled 36,500 kms during the year and your client has indicated that about 80% is work related but they have not kept a log book. Your client pays for all the running costs for the vehicle. During the year these costs included: Fuel & oil $4,950 Servicing $1,800 Registration $ 960 Insurance $1,900 Tyres $2,400 Excess on insurance claim. The insurance company paid for the balance of the cost of repairs. $1,750 Car washing $600 4 DIVIDENDS & INVESTMENTS: Sunshine Futures Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 40% of the issued shares in the company. The shareholders were paid a lump sum of $150,000 in April. They described this payment as a fully franked dividend. The proceeds were used to reduce the line of credit that was taken out to purchase the home in which they live. Interest paid on the home loan for the year was $24,000. The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2019. On finalisation of the estate the following shares were transferred to your client and the client received notification that all the shares had been transferred on 1 December 2019. Share Date Purchased by Father Number of Shares Purchased Price Paid per Share at time of purchase Market Value at Date of Death BHP 4 Jan 1985 2,300 $5.00 $21.30 CBA 12 Sept 1991 2,000 $5.40 $75.94 COH 4 Dec 1995 1,000 $2.90 $124.77 FLT 1 Dec 1995 1,000 $0.95 $32.29 MYR 7 Nov 2009 9,500 $4.10 $1.21 TLS 3 Nov 1997 2,000 $3.30 $5.75 The following fully franked dividends were received by your client during the year: ▪ CBA $ 680.00 ▪ COH $ 740.00 The taxpayer sold the BHP and MYR shares on 5 January 2020 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $26.54 each. The MYR shares sold for $1.81 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $140 and $120 for the BHP and MYR shares respectively. These amounts include GST where appropriate. 5 RENTAL PROPERTY: 4/285 Pacific Parade, Bilinga, 4225 The taxpayer owns a unit on the Gold Coast which is rented to their daughter. A contract was entered into to purchase the property on 22 January 2020 for $620,000 and settlement took place on 1 March 2020. The taxpayer’s daughter moved in immediately. She pays rent in advance of $410 each week. The first payment was made on the day she moved in. (HINT: You need to research the issues around renting properties to relatives and include your findings in your workpapers and letter of advice.) The building was originally constructed in 2005. A quantity surveyor’s report commissioned at the time of purchase shows the construction cost of the unit was $210,000. The taxpayer purchased a refrigerator for $2,180 and a washing machine for $1,800. These were installed in the unit for use by the tenant on settlement date. The taxpayer elects NOT to use a low value pool for depreciating assets and chooses the diminishing value method of depreciation where applicable. Other costs paid in relation to the property before 30 June 2020 include: Stamp duty on property purchase $16,150 Legal fees, searches, and reports on property purchase $ 1,650 Body corporate fees $ 1,550 Council rates $ 930 Water Rates $ 380 Insurance $ 785 Loan repayments (interest only) $ 4,300 6 OTHER INFORMATION: ▪ Dry cleaning of work suits $900 ▪ Donations were made to: o Sea Shepherd $1,500 o Go Fund Me page donations $620 ▪ Association of Financial Advisors Membership Fees $1,500 ▪ “Country Crocheting” magazine subscription $240 ▪ Fees paid to the bank in January 2020 to establish the loan to purchase the unit were $960. The loan is for 25 years. ▪ The taxpayer also has an insurance policy that covers their income in the event of an accident or death. The premium is paid directly from their bank account each month. The total for 2019/20 was $9,000 of which 70% relates to the replacement of income in the event of an accident. ▪ In 2015 the taxpayer was involved in a car accident and sustained injuries that required medical attention and rehabilitation therapy. In December 2015 the court awarded the taxpayer $60,000 as compensation for medical expenses incurred because of the injuries from the accident. Payment was received in December 2019. ▪ In April 2020 the taxpayer received $3,800 Income Replacement payments from their insurance policy. ▪ The family is covered by private health insurance with BUPA. The policy was taken out on 1 May 2020. The premium paid to the end of the year was $1030 after they claimed a rebate of $103. The policy number is RDA1465 and the health fund has notified them that the Benefit Code is 30. ▪ Preparation and lodgement of 2019 tax return by Diagno Accountants was $4200. ▪ The taxpayer’s date of birth is 14 February, 1964, and they are married. You can make up the name & date of birth of the spouse. The spouse earned a salary of $64,000 for the 2019/20 year and was entitled to deductions of $200 ...
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