Income Tax Assessment Act
Instruction:
In answering the question it is required to refer to relevant case law, sections of the Income Tax Assessment Act 1936 and 1997 and Tax Rulings issued by the Tax Office. An analysis of the key issues is required.
It is required to include a bibliography of reference materials and harvard style referencing.
Question 1
ASSIGNMENT QUESTIONS:
Peter and Jill are in a partnership as retailers of electrical goods. The partnership records, exclusive of GST, for this income year disclose:
Receipts ($):
300,000
Gross receipts from trading
Payments ($):
100,000
Purchases of trading stocks
30,000
Partners’ salaries (each)
2,000
Interest on cash advance made to the partnership by Peter
60,000
Salaries for employees and rent paid
2,000
Legal expenses in recovering bad debts
Other details:
• PeterandJillsharepartnershipprofitsequally • Tradingstockonhand1July:$10,000• Tradingstockonhand30June:$20,000• Peter’spersonalrecordsdisclose:
• Gamblingwinnings:$2,000• Netsalaryasapart-timeinstructor(excludingPAYGtaxinstalments
of $2,000): $5,000• Subscriptiontoprofessionaljournals:$500
• Peterisamemberofaprivatehealthfund
Calculate Peter’s taxable income for the income year explaining your treatment of each item in this question.
Question 2
Viktor is a director of Excel Mining Ltd a coal mining company in Victoria.
The company had the following transactions during the year ended 30 June 2018. He wishes to know how they are treated for income tax purposes by the company.
You can assume in this question that the numbers exclude GST unless otherwise stated.
- PurchasedaMercedesBenzmotorvehicleforacostof$128,000on10 October 2017. The car is used by the managing director 72% of the time for work purposes. The effective life of the car is 6 years. On 16 May 2018 the car was crushed by a forklift. The insurance company wrote off the car and paid the company $87,000.
- $78,562wasspentonhiringadditionalfireequipmenttofightafireat the mine site.
- $583,412wasspentonlegalfeesandadvertisingtorepresentthe company and its directors at a Government enquiry into coal mining activities.
- Thecompanyalsomadeaprovisioninthecompanyaccountsfor $568,438 for future liabilities from claims by the townspeople against illnesses that may arise from the effects of the coal mine fire.
- Italsodonated$55,000tothelocalcommunitySESFireservices.
Viktor also advises you that he wants the company to maximise its tax deductions and minimise its taxable income.
REQUIRED:
Explain to the company how each of the above items is treated. In your answer please carry out calculations where necessary.
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