ACC00132-2018-2 INDIVIDUAL ASSIGNMENT 2
Description: Case Study requiring preparation of workpapers, calculation of taxable income and income tax payable, preparation of an individual tax return, and a letter of advice.
Weighting: 35%
Course Content: Focus on Topics 5-10, with knowledge of previous topics expected.
Due: Week 11
Remember: the purpose of an assignment is for you to demonstrate your knowledge and understanding of the topic. Make sure your answers are comprehensive enough to achieve this.
NOTE: THIS IS AN INDIVIDUAL ASSIGNMENT.
YOU SHOULD WRITE ALL WORK SUBMITTED YOURSELF AND IT SHOULD BE BASED ON YOUR OWN RESEARCH. EVIDENCE OF COPYING FROM OTHER STUDENTS WILL BE TAKEN SERIOUSLY AND REPORTED.
SUBMISSION INSTRUCTIONS:
1. A SINGLE WORD file containing your letter of advice, work papers and associated explanations, and income tax return from HandiTax should be submitted via the link on MySCU;
• You can prepare work papers in Excel, then copy and paste into your Word file
• Your income tax return prepared in HandiTax will need to be copied and pasted into your Word file
• Your letter of advice should be included at the beginning of this document
2. Further instructions regarding the Income Tax Return will be provided during class in Week 10 and by way of announcements on MySCU in the weeks prior to the due date for submission. DO NOT WAIT FOR THESE INSTRUCTIONS TO START YOUR ASSIGNMENT – IT SHOULD BE ALMOST COMPLETE BY THE BEGINNING OF WEEK 10. THIS WILL ALLOW YOU TIME TO FOCUS ON COMPLETING THE TAX RETURN COMPONENT IN WEEKS 10 AND 11.
3. You will submit using the Turnitin Assignment link on MySCU. Before you submit ensure that;
• You have a single Word file that contains all the required components
• You have reviewed the similarity index and report and are satisfied that your work is your own
CLIENT INFORMATION
Your client (use your own name as the client name) comes to see you in August 2018, asking to prepare an income tax return for the year ended 30 June 2018. The folder of receipts, invoices and other paperwork provided reveals the following information;
Employment
Your client is employed as a sales agent for a real estate company called Best Real Estate Pty Ltd. The payment summary from Best Real Estate Pty Ltd shows the following:
ABN 91 089 780 218
Gross Payments $120,000
Tax Withheld $32,032
Travel Allowance (in relation to attending Real Estate
Conference in Perth for 5 days) $2,011
Reportable superannuation contributions $15,000
Your client owns a Lexus IS350. They purchased the car on 2 July 2017 for $84,160. The car travelled 36,000 kms during the year and your client has indicated that about 82% 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:
• Registration & Insurance 1,672
• Fuel & Oil 6,240
• Services 1,100
• Tyres 1,060
• Tolls for roads and tunnels 725
• Speeding fine 240
• Lease payments 8,940
Your client uses a mobile phone for contacting clients when buying and selling houses. It was purchased in May 2017 for $1,029 and is used 80% for work purposes. In addition to this a monthly amount of $60 is paid by your client each month on a plan that includes calls, texts and internet use.
Investments
Due to the investigation into the banking sector, on 8 March 2018 your client sold 750 shares in Commonwealth bank for $76.17 each. Brokerage fees on the sale were $115. Of these shares, 500 were originally acquired in September 1991 at a cost of $6.70 per share. There was a 2 for 10 bonus share offer in March 2008, which were issued from the company’s share capital account (not a dividend). The remaining Commonwealth Bank shares were acquired in July 2008 for $38.54 per share.
Dividend statements from Commonwealth Bank show fully franked dividends paid as follows:
• $2.30 per share on 29 September 2017
• $2.00 per share on 28 March 2018
Your client also sold some shares that were inherited from their grandmother. The grandmother passed away on 31 August 2017 and the shares were transferred to your client on 17 November 2017. The 2,000 Qantas shares were originally acquired by the grandmother in July 2008 for $3.02 each. The value of these shares in August 2017 was $5.72 per share and the value in November 2017 was $5.84 per share. They were sold by your client in February 2018 for $5.22. Total brokerage of $20 was paid in relation to the sale of these shares.
Your client purchased a townhouse at Main Street, Beachville NSW 2478 during the year to rent out and earn income from. A contract was entered into to purchase the property on 12 February 2018 for $350,000 and settlement took place on 15 March 2018. Your client used the proceeds from the above sales of shares and personal savings to pay for the townhouse, but needed to borrow $200,000 for the remainder of the purchase price, stamp duty ($11,240) and legal costs ($1,050). In order to obtain the loan, your client paid borrowing expenses of $450 on 15 March 2018.
The building was originally constructed in 2009. A Quantity Surveyor’s report commissioned at the time of purchase shows the construction cost of the unit was $110,000. The quantity surveyor also identified the following items included in the purchase for depreciation purposes:
• Air conditioner (room unit) $950 (value at purchase date)
• Hot Water System (electric) $780 (value at purchase date)
As the townhouse was in a state of disrepair, your client undertook some repair and renovation work so that the townhouse was not available for rent until the end of April 2018. Rent of $370 per week was received from then until 30 June 2018. The following expenditure was incurred 31 March 2018:
• Stove $1,200
• Carpet $3,300
• Painting inside the house $4,100
Your client has decided to use the diminishing value method of depreciation where applicable.
Other costs paid in realtion to the property before 30 June 2018 include:
• Council rates (paid 31 May 2018) $458
• Water rates (paid 1 May 2018) $185
• Insurance (paid 1 April 2018) $1,340
• Interest on $200,000 borrowing (April, May & June 2018) $2,000
• Travel to the property to undertake some of this repair work
Other Information $840
Purchase of suits for work (to look professional for clients)
Costs of attending 5-day Real Estate Conference in Perth – your client’s 16-year-old daughter accompanied your client on this trip $960
(accommodation $1,425, meals $1,250, taxis $180) $2,855
Personal contributions to Superannuation made by the taxpayer
(Mysuper Account #45362102) Donations were made to: $4,100
o The Cancer Council $800
o The RSL Art Union Prize Home $50
Subscription to “Your Investment Property” magazine $100
Cost of having a registered tax agent prepare 2017 income tax return $245
Your client has an insurance policy that covers their income in the event of an accident or death. The total premium for 2017/18 was $2,600 of which 25% relates to the replacement of income in the event of an accident. The remainder relates to the death component.
In August 2017 your client was injured playing football, breaking their foot, which required surgery and rehabilitation. The total costs incurred for surgery, rehabilitation and doctor appointments during the year were $8,670. Your client has commenced legal proceedings to recover these costs from the person who caused the injury.
Your client does not have any private health insurance.
Your client’s date of birth is 12 February 1964 and is single but has a 16-year-old daughter.
REQUIRED:
1. Using Excel prepare a set of work papers for the above items identifying whether each item is assessable income or gives rise to an allowable deduction. Show all workings, explaining why you have treated items as you have, and providing appropriate authority for your decisions by referencing sections of the legislation, case law and/or income tax rulings. You are preparing your client’s income tax return and supporting work papers, so you are not writing an essay. Remember, quantity does not always equate to quality, so be concise.
Your work papers should be indexed with a separate heading for each category you deem appropriate. Some suggested headings include:
Work Related Income and Deductions Other Income Capital Gains
Rental Property
Other Deductions
Tax Payable, Offsets & Levies (include all levies and offsets considered, explain why they are or are not applicable and reconcile calculations to the tax estimate printed from HandiTax).
Your work papers need to be complete so that they can be reviewed by your supervisor and relied upon in the event of an audit in the future. They should also be reconciled and crossreferenced to reporting labels on the income tax return. Make sure that all calculations are shown in your workpapers (see note below re depreciation). This is particularly important for calculations in Excel that are pasted into your Word document.
Depreciation calculations can be done using HandiTax with the total transferred back to the rental property section of your workpapers for reconciliation purposes.
2. Use HandiTax to prepare the income tax return, including all relevant schedules/worksheets, for the year ended 30 June 2018. Use your own name, and the Dummy TFN that you will be assigned. All other details are to come from the assignment instructions. Print the Worksheets & Error Report from HandiTax to include in your Word file.
3. Write a professional letter of advice (about 1 - 2 pages long) to your client summarising; their tax situation (tax payable or refundable)
the important aspects of the items that are included in their tax return and those that have been disregarded
advice to your client about potential improvements to their record keeping and other information that is relevant for future tax planning
instructions to your client regarding the income tax return
Your letter should be comprehensive but concise (2 pages only). If it is too long your client won’t bother reading it. It should be written in language and pitched at a level your client will understand. It should not be too technical; your client is unlikely to be interested in which sections of the legislation form the basis of your decisions.
It is recommended that you seek help from Student Learning Support to ensure that you have used professional language and your letter is error free.
TIME MANAGEMENT TIP: YOUR WORKPAPERS SHOULD BE COMPLETE BY THE END OF WEEK 9 OR EARLY IN WEEK 10. ADDRESS EACH AREA AFTER THE RELEVANT TOPIC
MATERIAL IS COVERED e.g. ADDRESS INCOME ITEMS AFTER TOPICS 5 & 6 COVERED.
ACC00132-2018-2 Assignment 2
Marking Criteria Student Name:
WORKPAPERS:
Presentation, including use of Excel for work papers and calculations 5.00
Explanations: 10.00
Excellent - extremely thorough
Good - comprehensive but could be more detailed in sections
Reasonable attempt but more detail to support decisions required
Reasonable in sections but more research required to arrive at correct conclusions
Poor - insufficient detail to support decisions Item Discussion:
INCOME 11.00
CGT 23.00
RENTAL PROPERTY 20.00
DEDUCTIONS 24.00
Appropriate Use of Authority: 10.00
Excellent - all items correctly referenced to a variety of appropriate sources
Good - most items correctly referenced to appropriate sources; could have made better use of case law and rulings
Reasonable - some items correctly referenced to appropriate sources; could have made better use of case law and rulings
Poor - inadequate authority provided Tax Payable Calculation & Cross-referencing: 14.00 117.00
INCOME TAX RETURN & SCHEDULES 65.00
LETTER OF ADVICE
Business Format
Addressed to client in first person
Pitched at an appropriate level for client understanding
Appropriate advice
Accurate advice
Comprehensive/Concise
Correct spelling and use of grammar 28.00
TOTAL MARKS
Penalty for late submission (immediate 5% of total marks available + 5%
of total marks available for each day late)
Days late
REDUCED TO MARK OUT OF 35 210.00
0.00
210.00
35.00
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