LA023797 Assessment 10 - FNSACC512 - FNSACC601

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Task 1 – Ethical considerations, conflict of interest and responsibilities of tax agents – code of professional conduct

Peter Rafter is 45 years old and is a registered tax agent practising in Mittagong for over twenty years.

In 2014, Mr Rafter met Mr William Emery who was 80 years old and retired who soon became not only a major client of Peter Rafter as a registered tax agent, but also a close friend.

Mr Emery had ceased the need to lodge annual tax returns and his ATO account had been marked as such.

However, Mr Emery owned a substantial private residence of six bedrooms and had significant cash reserves in various deposits.

On 20 February 2015, Mr Emery gave Mr Rafter access to a Bank of Queensland account from which Mr Emery conducted his day-to-day banking.

On 25 February 2016, Mr Rafter transferred $440,000 from Mr Emery’s account to an account under his and his wife’s name.

Mr Rafter verbally promised to pay Mr Emery cash interest of 3% per annum payable yearly in arrears, which he did at the end of each year.

On 24 January 2017 Mr Rafter transferred $160,000 from Mr Emery’s bank account to one operated by Mr Rafter only.

On 24 February 2017, Mr Rafter transferred $40,000 to Mr Rafter’s son Caleb’s bank account. Mr Rafter’s evidence was that this was for painting and decorative work on Mr Emery’s home. No quotes or tenders were sought nor to this date has any work been carried out.

All transfers represented loans to Mr Rafter made, apparently, with the approval of Mr Emery.

At no stage was an executed agreement made in writing between Mr Rafter and Mr Emery setting out the terms of the loans, and the loans were not secured against any asset. Nor did Mr Rafter ever advise Mr Emery to seek independent advice on the loans.

Mr Rafter said that he had contacted his solicitor who he advised him that there was no legal ban to the verbal arrangements with Mr Emery.

In October 2015, Mr Rafter entered into an agreement whereby he began using an area of Mr Emery’s home in Mittagong as an office for his business. He rented two rooms and shared use of a

storeroom for this purpose. There was no written agreement reflecting this arrangement. Mr Rafter did pay a cash rental each week to Mr Emery.

In March 2017, Mr Rafter and Mr Emery had a disagreement.

Mr Emery appointed new accountants, and on 31 March 2017, those accountants contacted Mr Rafter by letter seeking the provision of any documents he held on Mr Emery’s behalf. Mr Rafter failed to provide any documents, saying that there were no relevant documents to be sent.

Required:

This task requires you to identify and follow legislative and regulatory requirements by critically evaluating and researching the relevant concepts.

  1. What are the ethical considerations and correct course of conduct Mr Rafter should have adopted?
  2. Did Mr Rafter contravene the provisions of the Code of Professional Conduct under the Tax Agent Services Act 2009 (TASA)?

Task 2 – Basics of the legal system

Required:

This task requires you to identify and follow legislative and regulatory requirements for the relevant concepts.

  1. Describe the three distinct powers of the government in the context of the separation of
  2. Describe the Treasury’s role in the development of Australian tax
  3. Describe the Tax Practitioners Board’s role in the tax system in
  4. List the main Commonwealth Acts concerning the tax

Note: Refer to the online learning resources on the OLS website.

Task 3 – Assessable Income

For each of the following items state what amounts (if any) are to be included as assessable income of William, an employee of Sports Stars Ltd.

Item Description $ Assessable Income
A Sports Starts Ltd. pays tuition fees of $3,000 for William’s children
B $1,070 net interest from bank ($930 tax deducted due to no TFN notified)
C Received an award of $600 cash as employee of the month
D Carer payment of $1,000 received from Centrelink in respect of his 70 year old ill father
E Given a farewell gift worth $120 from work colleagues of his previous employment
F Tax refund of $3,400 received from the ATO
G Reimbursement of hospital expenses from Medicare $700
H Gross Salary of $71,000 ( PAYG $11,400)
I Car allowance of $2,500 received from employer
J Unfranked dividend of $4,000
K Proceeds of term deposit of $5,200 (includes principal of $5,000)
L Lottery win of $45,000
M Army reserve payment of $850 to William who serves on part time basis
N Received lump sum of $50,000 due to loss of leg as a result of work accident
O Prize of $200 won in a magazine competition
P Birthday gift of $200 from uncle
Q Gross interest on saving account held jointly with spouse $1,000
R Christmas bonus of $800 received from Sports Stars Ltd
S Fully franked dividend of $7,000 received from Westpac Bank
T Received $2,400 from sickness and accident policy
U Sports Starts Ltd. paid $1,000 in superannuation guarantee payments to William’s nominated superannuation fund
V GST of $1,400 on sales received from customers on goods sold in his business
W Workers compensation received by William for lost wages

Note: Refer to paragraphs 10-005, 10-195 and other relevant paragraphs in your MTG.

Task 4 – Business Income and Trading Stock

Peta Perfect conducts a small business but chooses not to take advantage of the small business concessions. Her bank statement showed the following transactions for the year ended 30 June 2018:-

Extract of the Bank Statement for the year ended 30 June 2018 $
Sales receipts (reconciled to Sales Receipts Journal) 620,750
Insurance recovery for loss of income following fire at premises 150,000
Commissions from suppliers 12,200
Proceeds of business loan 295,000
Loan from brother 40,000
Fully franked dividends 49,000
Unfranked dividends 20,000
Proceeds of term deposit (includes capital of $50,000) 51,900
Cash drawings during the 2018 year 56,500

General Ledger balances are as follows:-

Item $
Accounts receivable as at 30 June 2017 40,000
Accounts receivable as at 30 June 2018 48,000
Trading stock held at 30 June 2017 66,500
Trading stock held at 30 June 2018 72,000
Stock taken during the 2018 year 3,800

 Note: Peta purchased $300,000 worth of trading stock during the year.

Required:

Calculate the Taxable Income of Peta Perfect under the accruals basis for the year ended 30 June 2018.

Task 5 – Deductions for salary and wage earner

Required:

  1. Identify the amounts, which can be claimed as a deduction by the
  2. Where the payment can be claimed as a deduction, identify a source document, which could substantiate the payment.
Item $ $ Deductible Amount
Luke is a salesperson and was fined for speeding while rushing to meet a customer. 500
Luke is a salesman and purchased a suit (which he wears when he goes to see customers) 350
Luke is a salesman and incurs costs for laundering his suit 90
Luke is a salesman who has incurred expenses in attending interviews for a new job (he wishes to leave his present job for one that pays more)  170
Tax agents fees to lodge objection against prior year tax assessment 450
Ian is a police officer who makes subscriptions to the police union 400
Ian is a police officer and makes personal superannuation contributions (concessionalcontributions) to a complying superannuation fund  2,800
Ian pays donations to public hospital 150
Sam is an ambulance officer who purchased Ambulance officer uniforms 300
Sam is an ambulance officer who incurred expenses for the laundry of Ambulance officer uniforms 160
GST remitted to the ATO 1,600
Michelle works as an accounts payable clerk and incurred expenses travelling from her home to workin her own car.  800
Michelle works as an accounts payable clerk and incurred parking fees for her own car when she parks in a parking station on the days she works back.  650
Michelle makes donations to Salvation Army(Registered Charity) 1

Task 6 – Tax Free Threshold & Medicare Levy Surcharge

Calculate the tax-free threshold for the following individuals for the year ended 30 June 2018. Use months rather than days in your calculations and show all your workings.

  1. Starr is single, aged 39 and became an Australian resident on 1 October
  2. Brendan is married, aged 42 and has no private health insurance. He ceased to be an Australian resident on 1 December

Calculate the Medicare levy surcharge for the following individuals for the year ended 30 June 2018.

  1. Murray is a single 42 year Murray received wages of $89,000, allowable deductions of

$3,000, had reportable fringe benefits of $18,000 and a net investment loss of $4,000 for the year ended 30 June 2018.

  1. Bella is single and has a taxable income of $110,000, reportable fringe benefits of $40,000 for the 2018 tax

Task 7 – Motor Vehicle Expenses

Daniel purchased and used a 3000cc motor vehicle on 1 July 2017 with an effective life of 8 years and maintained a logbook for 12 weeks during the year.

During the 12-week period, Daniel travelled 1,200kms which were all business related. Costs incurred during 2017/18 year include:

Item $
Petrol, oil and servicing 2,500
Registration and insurance 2,000
Speeding fines 350
Total 4,850

Note: The car had a market value of $60,000 when purchased.

Required:

Show all methods of calculating the motor vehicle expenses and choose the most advantageous method for Daniel for the year ended 30 June 2018.

Task 8 – Termination Payments

After five years' service, Sam, who is 35 years old, is made redundant from his place of work in 2017–18 and receives the following payments:

  • redundancy pay – $40,000
  • payment in lieu of notice – $1,723
  • unused annual leave – $5,234
  • unused long service leave – $11,423
  • gratuity – $25,000

Under Sam’s workplace agreement, payment in lieu of notice and the gratuity are payable on termination of employment. Sam has five years of completed service and his redundancy meets the conditions of a genuine redundancy.

Sam also received $140,000 in salary and wages income during the year.

Required:

  1. Calculate the tax-free limit on the genuine redundancy
  2. Calculate the taxable component of the genuine redundancy part of the payment and indicate the applicable tax
  3. Calculate the remaining ETP cap amount.
  4. Calculate the whole of income cap amount, determine the lesser of the caps, and indicate the

Note: You must show all your workings and may refer to the tables on paragraph 42-270 in your Master Tax Guide.

Task 9 – Capital Gains

Christine is a married resident taxpayer with no dependants. The following has been taken from her taxation records.

Private Residence

  • Private residence purchased in March 1998 for $300,000.
  • Christine currently lives in the house and its market value as at 30 June 2018 is $900,000.

Rental Property in Cairns

  • Purchased on 7/8/89 for $150,000 (the property was built in 1971).
  • Exchanged contracts for the sale of this property on 30 June 2018 for $850,000.
  • Settlement of the sale was finalised on 12 October
  • Legal expenses on purchase $4,000 paid August
  • Stamp duty on purchase $2,500 paid August
  • Additional room added to property paid for on 1 July 2013 for $20,000.
  • Landscaping to the property paid for on 1 July 2005 for $2,000.
  • Legal expenses on sale $5,000 paid June
  • Real estate agents commission on sale $4,500 paid June

Shares

  • Dragon Ltd shares sold on 11 February 2018 for $20,000, purchased on 1 May 1985 for $8,000.
  • Raider Ltd shares sold on 20 April 2018 for $11,000, purchased on 1 July 2006 for $10,000.
  • Eel Ltd shares sold on 2 August 2017 for $120,000, purchased 1 May 2006 for $30,000.
  • Tiger Ltd shares sold on 30 June 2018 for $40,000, purchased on 1 April 2018 for $16,000.

Other information

  • Christine has capital losses carried forward from the previous year of $8,000.
  • Rental income from her Cairns property from 1 July 2017 to date of sale $12,000.
  • Total allowable deductions in respect of this rental income for the year ended 30 June 2018 was $15,800 (including capital write off 5% x $20,000 = $500).

Required:

  • Calculate the net capital gain for Christine for the year ended 30 June 2018 by using the CGT method that provides the best outcome for
  • Calculate the taxable income of Christine for the year ended 30 June 2018.

Task 10 – Depreciation

Liz operates a small restaurant. She does not wish to take advantage of the small business concessions and her business is registered for GST.

Assets that Liz had acquired post 10 May 2006 and held at 1 July 2018 were shown in the Fixed Assets Register below:

Asset Cost ($) Adjustable Value 1/7/18 Effective Life (years) Depreciation Method
Carpets 19,000 1,600 4 Diminishing Value
Freezer 9,000 950 3 Diminishing Value
Curtains 13,000 1,800 5 Prime Cost
Furniture 8,000 900 7 Diminishing Value
Coffee Machine 6,000 1,000 7 Prime Cost
Oven 7,500 800 6 Diminishing Value
Hot water service 4,000 1,300 8 Diminishing Value

Liz had also commenced the use of a low value pool on 1 July 2008. The pool balance as at 1 July 2018 was $4,100.

Liz places all eligible assets into the Low Value Pool.

During the year, Liz purchased the following new depreciable assets. The purchase price of the assets included GST.

Asset Purchase Price ($) Including GST Date of Purchase Effective Life (years)
Refrigerator 990 1/9/17 6
Notebook Computer 1,089 1/4/18 5
Cash Register 3,300 1/5/18 7

Required:

  • Calculate the deduction for decline in value available to Liz in respect of the year ended 30 June
  • Calculate the value of the low value pool as at 30 June

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