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Chapter 36:

Review Examinations All exam solutions in this Chapter have been modified to reflect taxation law applicable to the 2012/13 income year.

FNSACC502B - Prepare Legally Compliant Tax Returns for Individuals Examination Paper – Paper 1 Question 1 Assessable Income Fully franked dividend from F/S Ltd-amount received Franking Credit (30/70 x 3,300) 70% franked dividend from Fl Ltd-amount received Franking Credit (2,900 x 30/70 x 30%) Unfranked dividend from Back Ltd Gross wages Bank interest ($103 + $97 tax deducted) Honorarium for duties as president of the swim club Deductions (Fully substantiated) Purchase of compulsory uniform Laundry of uniform (estimate) Sunglasses used for driving Investment journals Taxable Income

$

$

3,300 1,414 2,900 870 1,750 78,800 200 350

89,584

480 75 150 230

Income Tax (17,547 + 37% (88,649 - 80,000) Medicare Levy (1.5% x 88,649) Medicare Levy Surcharge (1% x 88,649)

20,747.13 1,329.74 886.49

Less Franking Credits (1,414 + 870) TFN Tax deducted PAYG Withheld Tax payable

2,284.00 97.00 20,500.00

397

935 88,649

22,963.36

22,881.00 82.36

Income Tax Law Compliance & Planning

Question 2 Espresso Machine Pizza Oven Nissan (60% business usage) Balancing Adjustment Motor Vehicle Cash Register Table & Chairs Capital Works Low Value Pool Total Deductions Low Value Pool Opening Balance Add Ceiling Fan Add I Phone Less decline in value Ceiling Fan IPhone Sale Proceeds Closing Balance

(4,410/5) x 2 (15,753/10) x 2

$ 1,764 3,151

(26,917/8) x (2) x (7/12) x 60%

2,355

$

25,000 - (26,917 - 2,355) (57,466/8) x (2) x (3/12) (1,400/8) x (8/12)(2) (2,800/5) x (2) x (6/12) (11,500 x 0.025) x (7/12) (990 + 163 + 47)

(438) 3,592 233 560 168 1,200 12,585 2,640 870 250

2,640 x 37.5% 870 x 18.75% 250 x 18.75%

Question 3 Assessable Income Sales of Instruments Tuition Fees (55,450 - 11,000) Interest from personal account Insurance recovery Sale of sheet music Stock Variance (52,000 - 40,000) Deductions Rent of shop premises paid (28,000 - 4,000) Purchases Advertising Superannuation for self Wages to employees (22,500 - 12,500) Decline in Value - Delivery Van (45,000/8 x/2 x 10/12 Van running costs Electricity & Telephone Gift to school building fund Insurance for contents of shop Tax agents Fees Legal Fees and S/Duty on business loan 1,000/5 x 10/12 Interest on business loan Taxable Income

398

990 163 47 230

1,120 3,760

1,430 2,330

$ 449,000 44,450 494 20,800 1,420 12,000 24,000 180,000 4,600 12,000 10,000 9,375 14,550 4,900 444 490 550 167 3,400

$

528,164

264,476 263,688

Chapter 36: Review Exam Solutions

Question 4 Rent Income (Rent $64,250 + agent's commission $5,200) Rent received Water rates recouped Unpaid rent recovered (13,400 - 10,400) Net Capital Gain (420,000 - 140,000 - 15,450 ) x 50% Payments Water & Council Rates Cleaning Agents Fees Building insurance Repairs and Maintenance Decline in Value Fixtures and Fitting Painting of Harbord property Travel to inspect properties (2,780 Km x 74c) Strata Levy Bank Charges Taxable Income

Net Capital Gain Proceeds Less Cost Legal Lawns Rates Commissions

$

$

69,450 1,640 1,040 3,000 132,275

3,200 740 5,200 380 4,400 1,200 1,800 2,057 2,400 140

207,405

21,517 185,888

420,000 140,000 7,200 2,350 1,500 4,400

Net Capital Gain (264,550 x 50%)

399

155,450 264,550 132,275

Income Tax Law Compliance & Planning

Question 5

$

Salary (59,570 + 10,430) Redundancy payment 136,200 - (8,806 + (4,404 x 15)) Long service leave Annual leave Superannuation lump sum benefit (Taxed Element) Taxable Income Income Tax 54,547 + 45% x (308,761 - 180,000) add Medicare Levy (308,761 - 150,000) x 1.5% less Lump sum Tax Offset Less: PAYG (10,430 + 12,200) Tax Payable Lump Sum Tax Offset Income Tax Less tax on 70,000 Less tax on 150,000 less tax on (21,039 + 6,388) x 30% less tax on 61,334 x 15%

70,000 61,334 21,039 6,388 150,000 308,761 112,489.45 2,381.41 114,870.86 80,764.25 34,106.61 22,630.00 11,476.61

112,489.45 14,297.00 8,228.10 9,200.10 31,725.20 80,764.25

Offset

400

Chapter 36: Review Exam Solutions

Question 6 Fuel Insurance Registration Service/Repairs Decline in Value (28,200/8 x 200%) Total Operating Cost

$ 5,200 920 350 1,040 7,050 14,560

Usage Salon to home Home to salon Salon to college College to home Other private travel Travel to conference

3,150 3,150 1,840 2,147 5,632 900 16,819

Work related percentage (1,840 + 900/16,819)

16.29%

Methods available Log book (14,560 x 16.29%) One third Operating cost (14,560/3) 12% Original Cost (12% x 36,200) Cents per km's (5,000 kms x 0.74c) Max. Deduction

2,372 4,853 4,344 3,700 4,853

Question 7 Part A Gain on sale jewellery Loss on sale of rare coin Loss on sale of painting Gain on holiday house Gain on shares Loss brought forward Net Capital Gain (2,050 + 112,500) x 50% Part B Shares in Janet Ltd (123.4/92.0 = 1.341 x 4,500 = 6,034 (no gain or loss) Boat (15,500 - 14,400) Investment property (350,000 - 220,000) Shares in Angela Ltd (1,500 - 4,000 ) Shares in Louise Ltd (12,000 - 2,200) (138,400 - 7,300) x 50% Net Capital Gain

401

$ 3,900 (850) (1,000) 2,050 120,000 1,500 (9,000) 112,500 57,275 No discount 0 1,100 130,000 (2,500) 9,800 138,400 65,550 72,850

(2,500) 9,800 7,300

Income Tax Law Compliance & Planning

Question 8 Parent Tax Offset (1,726 - (5,011-282/4) MAWTO LITO 445- (54,400 - 37,000 x 0.015) Medical: Mack (220 + 2,200) Jill (280 + 420 + 350 + 400) Terry (125 + 80 ) Beatrice (400 + 95) Mitch (220 + 1,230 + 330) (6,350 - 2,120) x 20% Total Tax Offset

$

$ $ 544 500 184

2,420 1,450 205 495 1,780

6,350 846 2074

$ Question 9 Taxable Income Tax free threshold (13,464 + (4736/12*6) = 15,832 Tax Payable: (37,000 - 15,832 ) x 0.19 (72,000 - 37,000 ) x 0.325 Add Medicare Levy (72,000 x 1.5% x 166/365) Tax Payable

402

4,021.92 11,375.00

$ 72,000

15,396.92 491.18 15,888.10

Chapter 36: Review Exam Solutions

FNSACC502B - Prepare Legally Compliant Tax Returns for Individuals Examination Paper – Paper 2 Question 1 Franking Credits Partially franked dividends Unfranked dividends Taxable Income Tax on $20,997 Less: LITO & SAPTO Limited Less Franking credits Private Health Insurance (3,000 x 35%) Tax refundable

$ 120 559 20,318 20,997 531.43 531.43 0 120.00 1,050.00 1,170.00

*no capital gain/loss on ABC Ltd shares (indexing can’t make a loss). Question 2 Gross salary Redundancy 120,000 - (8,806 + (4,404 x 23)) Annual leave Long Service Leave Super fund Lump sum (taxed source)

$ 27,650 9,902 1,400 27,200 200,000

Superannuation income stream (taxed source) Taxable Income Income Tax Less MAWTO

30,000 296,152

Less Lump Sum Tax Offset PAYG Withheld Income stream 30,000 x 15% Tax Refund

106,815.40 500.00 106,315.40 1,817.28 108,132.68 82,716.85 24,000.00 4,500.00 3,084.17

Lump Sum Tax Offset Income Tax on Taxable Income Less tax on 57,650 (@ marginal rates) Less Tax on 175,000 200,000 - 175,000 x 15% Tax on 1,400 + 27,200 x 30% Tax on 9,902 x 15% Offset

106,815.40 10,283.25 0.00 3,750.00 8,580.00 1,485.30 82,716.85

Add Medicare Levy (296,152 - 175,000) x 1.5%

403

Income Tax Law Compliance & Planning

Question 3 Assessable Income Gross Wages Clothing allowance Gross Rental Income Recovery Rental Bond Board

$ 45,000 1,000 25,000 3,020

Less Deductions Water rates Maintenance of Lawn New bathroom 3,400 x 2.5% x 3/12 Capital works 120,000 x 2.5% x 9/12 Repairs to roof following storm damage in December 2012 Dryer 2,200/10 x 200% x 9/12 Heater Refrigerator 1,800/12 x 200% x 7/12 Less carried forward losses Taxable Income

Question 4 Taxable Income is: Tax free threshold 13,464 + (4,736 x 5/12) 19% x (37,000 - 15,437) + 32.5% x (64,000 -37,000) Income Tax Less LITO 445 - 1.5% x (64,000 - 37,000) Add Medicare Levy 64,000 x 1.5% x 136/365 Tax Payable

404

1,040 820 21 2,250 3,200 330 250 175

$

74,020

8,086 65,934 4,000 61,934

$ 64,000

12,871.97 40.00 12,831.97 357.70 13,189.67

Chapter 36: Review Exam Solutions

Question 5 Assessable Income Sales

$ 976,000

Subsidy received from supplier for promoting product

$

10,000

Non Cash Business Benefit Deductions Rent (156,000 - 12,000) Purchases (216,000 + 37,300 - 29,200) Trading Stock Variances (96,200 - 75,400)

500

986,500

144,000 224,100 20,800

Superannuation contributed on behalf of employees

19,000

Wages (118,000 + 35,000) Bank Charges business account Entertainment Allowances paid to employees

153,000 850 2,100 12,000

Fringe Benefits Tax (related to staff Christmas party)

2,400

Personal Superannuation Contributions Other Expenses all deductible Loan Application Fee (600/5 x 8/12) Legal Costs and Stamp Duty (400/5 x 8/12) Loan Repayments – Interest Low Value Pool O/balance 2,200 x 37.5% 600 x 18.75% Computer for 1,500/3 x 200% x 11/12 Decline in value deductions other assets Taxable Income

26,000 79,500 80 53 18,000 825 113 917 39,600

$

Question 6 Assessable Income Interest on overpaid tax from ATO Christmas Bonus Unfranked dividend from SOPAC Ltd Gross wages (PAYG tax withheld $20,500) Bank Interest (97 + 103) Less Deductions Purchase of compulsory uniform Laundry of uniform (estimate) Donations Sunglasses used for driving Taxable Income

743,338 243,162 $

100 2,900 2,000 79,800 200 480 75 230 150

85,000

935 84,065 19,051.05

Income Tax Add: Medicare Levy Medicare Levy Surcharge

1,260.98 840.65

Less TFN

97.00 20,500.00

Tax Payable

405

2,101.63 21,152.68 20,597.00 555.68

Income Tax Law Compliance & Planning

Question 7 Rinehart Ltd shares 9,000 - 6,800 Land 45,000 - 33,500 (30,000 + 2,000 + 1,500) Investment Property 210,000 - (130,000 x 123.4/92) Racehorse (145,000 - 12,000)

Other/PUA $ 2,200 11,500 35,670

(40,000)

(2,200 + 11,500 + 133,000 - 4,330) Less 50% Net Capital Gain Dividend Franking Credits

142,370 71,185 71,185 4,200 1,800 77,185 210 130

C/Fwd collectable loss Painting 22,000 - 25,000

(40,000) (4,330)

340 76,845

3,000

Question 8 Fuel Insurance Registration Service/Repairs Car washes Decline in Value

$ 5,200 920 350 1,040 400 14,367

Total Operating Costs

22,277

(900 + 1840/16,819) x 100%

16.29%

( ( ( (

35,670

133,000

Loss Brought forward

Less Subscription - Investor Less Subscription - Financial Review Taxable Income

No Discoun t

a ) Logbook 22,277 x 16.29% b ) 1/3 Operating Costs 22,277/3 c ) 12% x 57,466 d ) 2,740 x 52/12 11,873 5,000 km's x 0.74

406

(57,466/8 x 200%

3,629 7,426 Max 6,896 3,700

Chapter 36: Review Exam Solutions

Question 9 Parent Tax Offset - Father (1,726 - (5,011 - 282/4) MAWTO LITO 445- (50,400 - 37,000 x 0.015) Medical Expenses Kendrick 320 + 2,200 Stephanie 420 + 420 + 350 + 400 Ian 125 + 80 Bronte 300 + 95 Leigh 220 + 1,230 + 330

$

$ 544 500 244

2,520 1,590 205 395 1,780 6,490

6,490 - 2,120 = 4,370 x 20% Total tax Offsets

874 2,162

407

Income Tax Law Compliance & Planning

FNSACC601B - Prepare and Administer Compliant Tax Returns for Legal Entities Examination Paper – Paper 1 Question 1 Assessable Income

$

$

$

$

Gross Commission received (1,875,500 + 19,500)

1,895,000

Fully Franked dividends Franking credits (31,500 x 30/70) Interest from Miles from an advance

31,500 13,500 24,500 1,964,500

Deductions Capital works 2.5% x 100,000 Salaries and superannuation paid to employees Interest paid to Wendy on loan Deductible overheads

2,500 485,000 10,000 818,500 1,316,000 648,500

Partnership Net Income Miles Interest on Capital Partners Salary Share of adjusted Partnership Net Income Franking credits

0 280,000 150,667 430,667 8,965

Assessable Income - Miles Income from Partnership Net Rental Income Net Capital Gain 2/3 x (190,000 - 40,000)

Wendy 12,500 130,000 75,333 217,833 4,535

Total 12,500 410,000 226,000 648,500 13,500

430,667 18,000 100,000 548,667

Deductions Interest from Miles from advance Superannuation paid on behalf of Miles

24,500 40,000 64,500 484,167

Taxable Income Assessable Income - Wendy Income from Partnership Interest on Loan Net Capital Gain 1/3 x (190,000 - 40,000)

217,833 10,000 50,000 277,833

Deductions Car Expenses Taxable Income

3,000 274,833

408

Chapter 36: Review Exam Solutions

Question 2 Assessable Income Contributions from employers (TFN provided) Contributions from employers (no TFN provided) Contributions from members $52,000 claimed Interest from other investments held Proceeds from sale of shares - Danger Industries Ltd

$

$

746,000 25,800 52,000 209,460 86,000 1,119,260

(2/3 x 207,000 - 78,000)

Deductions Fund administration expenses 25,850 24,800 50,650 1,068,610

(30,000 x 1,119,260/1,298,960)

Death and Disability Insurance Premiums Taxable Income Exempt Income Interest from investments held to pay current income stream benefits Fully franked dividends from investments held to pay current income stream benefits Franking Credits (23,100 x 30/70)

146,700 23,100 9,900 179,700

Tax on low tax component 15% x (1,068,610 - 25,850) Tax on no TFN contribution 46.5% x 25,800 Less PAYG Instalments Franking Tax Offset Tax Payable

156,414.00 11,997.00 168,411.00 7,200.00 9,900.00

409

-17,100.00 151,311.00

Income Tax Law Compliance & Planning

Question 3 (a) Belinda Jessica Jack Trustee - no present entitlement

$ 81,000 63,000 27,000

S97/101 S98 S98 S99A

9,000 180,000

Trustee S 98 - on behalf of Jessica Tax on $63,000 Medicare Levy LITO

3,572 + (32.5% x (63,000 - 37,000)) 1.5% x 63,000 445 - (1.5% x (63,000 - 37,000))

12,022.00 945.00 55.00 13,022.00

S98 - on behalf of Jack Tax on $27,000 Medicare Levy

45% x 27,000 1.5% x 27,000

12,150.00 405.00 12,555.00

S99A - no present entitlement Tax on $9,000 Medicare Levy

45% x 9,000 1.5% x 9,000

Jessica Tax on $102,000 Medicare Levy Medicare Levy Surcharge

(63,000 + 9,000 + 30,000) 17,547 + (37% x (102,000 - 80,000) 1.5% x 102,000 1% x 102,000

Less PAYG Instalments s.100 credit Net Tax Payable Jack Tax on eligible income $27,000 Tax on excepted income $18,000 Medicare Levy

4,050.00 135.00 4,185.00

3,105 13,280

(27,000 + (8,000 + 10,000)) 45% x 27,000

0 675 12,825 N/A 432 12,555

410

-16,385.00 11,852.00

12,150

less than $18,200 1.5% x 45,000

Less LITO PAYG Instalments s.100 credit Net Tax Payable

25,687.00 1,530.00 1,020.00 28,237.00

12,987 -162

Chapter 36: Review Exam Solutions

Question 4 Net Profit After Tax Add Interest net of $465 TFN Tax Withheld Superannuation Guarantee Charge Client Entertainment Late Lodgement Fees paid to the ATO Loss on Sale of Acme Ltd Shares Depreciation - Plant & Equipment Leave Provision

$

$

4,076 465 1,400 2,300 1,000 3,000 9,000 11,000

Less Gain on Sale of old laptop Tax Loss on sale of old laptop Exempt Income Decline in value Leave Paid Taxable Income

3,000 16,000 41,100 22,000 3,500

Tax on $0 Less TFN withheld Refundable

28,165 32,241

85,600 0 0 465 465

2011/12 2012/13 (85,600 - 28,165 - 4,076) Exempt Income

95,000 53,359 -41,100 107,259

411

Income Tax Law Compliance & Planning

Question 5 Opening Stock Purchases Natural Increases Gross Profit

Opening Stock Purchases Natural Increases

Closing Stock 508 x (163,480 /7,060) Rations 12 x (163,480/7,060)

7,060

Sheep Trading $ 97,800 Sales 62,400 Deaths Rations 594,541 Closing Stock 754,741

5,480 760 820 7,060

97,800 62,400 $3,280 163,480

No. 5,480 760 820

$23.16

508

$11,763

$23.16

12

$278

Assessable Income Wool Sales (103,400 + 78,900) Tax Profit 2nd Wool Clip (78,900 - 23,800 - 17,400) Insurance proceeds from loss of sheep in bushfires (20% x 15,000) Transfers from Farm Management Deposits Gross Profit - Sheep Trading Election to spread tax profits from forced disposal (80% x 272,581) Deductions Wool selling expenses – regular clip Wool selling expenses – additional clip May Shearing expenses – regular clip September Shearing expenses – additional clip May Construction of fence Construction of dam (1/3 x 30,000) Other operating costs Water Pump (1/3 x 10,800) Rations 4 x (163,480/7,060) Taxable Income

No. 6,230 310 12 508 7,060

$

$ 742,700 0 278 11,763 754,741

$ 182,300 -37,700 3,000 145,000 594,541 -218,065 669,076

34,500 23,800

58,300

19,500 17,400

Tax Profit - Forced Disposal Proceeds from forced disposal Cost of Sales (3,500 x 160,200/7,060)

36,900 50,000 10,000 567,800 3,600 93 0

352,000 -79,419 272,581

412

Chapter 36: Review Exam Solutions

Question 6

01/07/2012 01/07/2012 17/09/2012 08/10/2012 27/10/2012 18/12/2012 11/02/2013 20/04/2013 18/06/2013 18/06/2013 30/06/2013

Question 7 (i) D ( ii ) E ( iii ) E ( iv ) A (v) B

Opening Balance FDT liability Dividend Received Dividend Paid 95,200 x 30/70 x 75% PAYG Instalment Tax Refund PAYG Instalment PAYG Instalment Dividend Paid 47,600 x 30/70 x 40% Underfranking Debit 47,600 x 30/70 x (75 - 40)% Partnership Income franking credit

(50,000 + 200,000 + 50,000) 0.25 x 250,000 = 62,500 Deducted from pool (20,000 x 15%) Immediate write-off

413

Debit

Credit

$

$

20,300 6,600 30,600 15,000 13,980 15,000 18,900 8,160 7,140 8,500

Balance $

-20,300 0 6,600 -24,000 -9,000 -22,980 -7,980 10,920 2,760 -4,380 4,120

Income Tax Law Compliance & Planning

FNSAC...