Case Study One –
Part A
You are currently working as a graduate accountant and are provided with the following information from a client. The client, Susan, has the following income and expenses for the financial year ended 30 June 2020. Susan is employed as a financial planner for a local financial planning company. In addition to her employment Susan also operates a food store at the local markets on the weekend.
Income
35,000.00
1,000.00
25,000.00
145,000.00
3,000.00
10,000.00
25,000.00
45,000.00
2,000.00
1,000.00
Received Financial planner of the year award from the Institute of Managers. To receive the award Susan had to nominate herself and it was based on her client portfolio’s performance during the year.
Expenses
Sales of food, at the market stall
A wedding gift from her employer
Bonus received from her employer for successful completion of a large project Salary received from her employer (including PAYG Withholding of $22,000) Interest on Bank Deposits
Susan wins $10,000 at the casino
Sale of some personal jewellery (she brought the jewellery for $450)
Sale of shares (she brought the shares 13 months ago for $10,000)
Exempt income from foreign services provided with respect to Army Reserves
Rent on market stall for her business
Purchase of food stall, Susan estimates in cost she has $2,000 in food as at 30 June 2020 (as stock on hand) and advises that as at 1 July 2019 she had food as stock on hand at cost $3,000
Susan purchased work boots for $250, protective sunglasses for $250 and New dress for $300 (which he also wears on the weekend)
Bookkeeping fees for the market stall business
Purchase of new equipment for the market stall business
Cost of meals and entertainment that her employer reimbursed her for
Taxi fares for travel to and from work when her car was being serviced Membership fees, $530 relating to membership of financial planners’ association and $200 relating to membership fee for real estate institute
Rates on family home
Electricity for family home
2,000.00
5,000.00
800.00
1,250.00
2,000.00
400.00
200.00
730.00
3,200.00
900.00
500 Advertising packaging for market stall business
Susan has two children and her spouse passed away two years ago. Susan does have private health insurance. Susan advises you that she had carried forward tax losses from last year of $2,000 relating to her market stall. In addition to the above Susan advises she does work from home as she attends to emails late night after dinner at least 4 nights a week, however she works from kitchen table as she does not have a separate office at home.
College of Business and Law
Required:
- Determine which Income and Expenses are assessable income or allowable deductions.
Note you will need to cite legislative references, case law and tax rulings as applicable. Emphasis is on providing substantiation for you reasoning to include as assessable income or allowable deduction. Also refer to the relevant item number on the 2020 tax return where the amount would be disclosed, i.e. (interest income is item 10). An Example format is provided below. - Assume Susan is a resident for Australian taxation purposes, calculate her tax liability including any tax offsets and levies.
EXAMPLE FORMAT
Income
Assessable
Particulars
Legislation, Case law, Rulings, Reasoning
Y/N
Expenses
Deductible
Particulars
Legislation, Case law, Rulings, Reasoning
Item – 2020 Tax Return
Item – 2020 Tax Return
Y/N
Part B
During your meeting with Susan, she advises that her employer has offered her a position for 3 years in Thailand. She seeks your advice on residence issues for Australian taxations purposes. In particular she wants to understand the elements of the Domicile test and whether she can be seen as a non-resident for Australian tax purposes while she is in Thailand. Be sure to discuss Harding v FCT [2019] FCAFC 29.
(Part A 20 marks)
(Part B 5 marks)
Word Count: 1,000 – 2000 words
College of Business and Law
Theory Question
Required:
Discuss the difference between Tax law approach to determining taxable income and accounting principles in determining net profit in the Income Statement. Give examples and refer to accounting standards where necessary.
(5 marks)
Word Count: 500 words
