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Assessment T-1.8.1 Case Study (50 Marks) Instructions: · This is an individual assessment with demonstration and role play · This assessment need to be completed in class and at home · The purpose of this assessment task is to assess the students’ knowledge essential to interpreting and analysing financial statistical data in a range of contexts and industry settings. · To make full and satisfactory responses you should consult a range of learning resources, other information such as handouts and learners’ resources and slides on Elearning. · All questions must be answered in order to gain competency for this assessment. · You may attach a separate sheet if required. · You must fill out the cover page of the assessment · You can use pencils to answer questions and for drawing alternatively you may work · You must staple the loose sheets together along with the cover page. · You must attach the loose sheets chronologically as per the page numbers Case Study: 1.00 Gather client data and verify client, organisational and legislative requirements Today your first day at Fergusons Accounting in Cammeray as Assistant Taxation Accountant, your reporting manager Justin Ferguson has welcomed you & he has advised you that Julie Earner is coming in to have her tax return prepared for 2017. Your Tax Agent Details Registration agent number: 99 http://www.tpb.gov.au/TPB/Finding_and_using_a_practitioner/Search_the_register/tpb/agent_register.aspx This TPB Register contains registration details of registered and deregistered tax and BAS agents and tax (financial) advisers. Office at 67 Morton St Wollstonecraft, NSW 2065 Ph No:02 9460 9998 Fax No: 02 460 9997 On Monday 1st November, Julie Earner arrives at your office. She is concerned that her tax return appears very complicated for 2017 & she asks you if she is too late to lodge her return. Julies Private Details Marriage Status: SingleAge: 39Employed: Yes Residency Status: Australian Permanent ResidentTax File No: 316 094 692 Address: 52 West St Crows Nest NSW 2065 Ph No: 0402 018 999 Email Address:
[email protected] Nationality: Colombian Residency Status: Australian Permanent Resident You ask Julie what she has been up to. Julie answers “Nothing too exciting, saving to go back to Colombia for a holiday but I did go to New Zealand for three months on a working holiday visa. I also went into partnership with my friend Claudia in importing jeans from Colombia- she is Colombian too-oh yes, I also bought an investment property in August last year & I have now been an Australian permanent resident now for 18 months.” You ask Julie if she brought any documentation along that will support the tax return preparation 1.01 Income Julie gives you three group certificates. One group certificate is from EziSolutions where she worked as a web designer. Another from Carlos’ Spanish restaurant where she did part time waitressing 2 nights per week & the last one is from the Bull & Dust Restaurant in New Zealand where she worked on a working holiday. She tells you that she was also made redundant from her last job in August last year where she worked as a bank teller for 3 years. She also produces some receipts for deductions & her bank statements. You ask Julie if she claimed the tax free threshold from EziSolutions & you tell her if she did not fill in the tax declaration document to supply a tax file number to her employer they would have had to tax her at 47% & if you were a foreign resident it would be at the rate of 45%. Julie tells you she signed the tax declaration form with EziSolutions. You tell her that she should always claim the tax free threshold from her main job because if you don’t you will be taxed at a higher rate on the larger part of your total income. Julie asks you, what is the tax free threshold for 2016/ 2017? You reply “$18,200- which means if you earn collectively less than that amount you will not pay tax.” Julie tells you that she is really happy that she is a permanent resident she can bulk bill at her doctors. You respond by saying “That’s good, but remember you are now paying the extra Medicare levy of 2% on your taxable income, before you became a permanent resident you were a student with the category 2 exemption, which you applied for and you did not pay the Medicare levy.” Julie asks “What is taxable income?” You reply “It is assessable income which generally means, your gross receipts minus any allowable deductions, that the ATO deems to be valid” You inform Julie that the PAYG summaries appear to be in order and they show the gross amount, tax withheld, her tax file number, superannuation guarantee and employer details. Julie asks, “What is superannuation guarantee?” · Superannuation Guarantee The Superannuation Guarantee often abbreviated to (SG) is a compulsory system of superannuation support for employees, paid for by employers. It is currently 9.5% & will remain that way until June 2018. It will then increase by 0.5% each year until it reaches 12% from 1st July 2022 · Issuing PAYG payment summaries Group certificates, which are often referred to as PAYG payment summaries, are required to be issued to employees by 14th July of each year, covering earnings in the preceding year to 30th June. The group certificates show that Julie has earned $95,565.00 and tax withheld $23,306 from EziSolutions, $4,222 and tax withheld $1963 from Carlos’ Spanish Restaurant, $2,500 and $600 tax withheld from the Bull & Dust Restaurant in New Zealand. 1.02 Business Structure & Partnerships You ask Julie about her business venture with Claudia. Julie-“I am a silent partner-I invested $30,000 into the business & Claudia runs it & pays all of the expenses from the partnership’s bank account. The business is called “Colombian Fashion Jeans” & we started it in July last year- we are equal partners for profit distribution purposes- I have an extract from the 30thJune financials.” Sales $125,000.00 Opening Inventory $0 Purchases $42,000.00 Closing Inventory $4988.00 Variable Expenses $58,000.00 Fixed Expenses-$12,5000.00 You inform Julie that you will add her share of the profit distribution to her personal income tax. Julie asks. “Why? Doesn’t the partnership pay the tax?” You reply, “Under the Income Tax Assessment Act 1997 the partnership distributes the profit amongst the partners & they pay the tax. The partnership still must submit a tax return though.” 1.03 Investment Property Income You ask Julie about her investment property. Julie tells you that she is really happy with the investment& she is getting a steady interrupted income from the property. You ask, “Where is it located?” Julie tells you,-“42 Morton St Wollstonecraft-not far from the shopping centre & the restaurants.” You ask, “Do you have financials on the property?” Julie gives you the financials Rental Income $25,300.00 Advertising for tenants $250.00 Bank charges $35.00 Body corporate fees and charges $600.00 Borrowing expenses $256.00 Capital works $1,500.00 Cleaning $300.00 Council rates $1,200.00 Decline in value of depreciating assets $150.00 Entertainment $65.00 Gardening and lawn mowing $150.00 Insurance $550.00 Interest expenses $355.00 Land tax $1,300.00 Legal expenses $265.00 Parking Fines $175.00 Pest control $300.00 Phone $600.00 Property agent fees and commissions $350.00 Repairs and maintenance $652.00 Stationery and postage $45.00 Travel undertaken to inspect or maintain the property or to collect the rent $65.00 Water charges $356.00 Total Expenses $9,519.00 You tell Julie that she cannot claim entertainment or parking fines you ask her about the depreciation expense. Julie tells you, it was on the carpets. You ask Julie which depreciation method did she use? Julie-“Method?” The ATO will let you either use the straight-line method or the diminishing value method. This is a non-cash expense that reduces your tax liability. In the straight-line method the depreciation is the constant every year.” e.g. Purchased carpet 1st July for $5,000 & it has an effective life of 5 years-the depreciation expense would be$1,000 per year. In the diminishing value method the formula is slightly different. e.g. Purchased carpet 1st July for $5,000 & it has an effective life of 5 years-the formula would be (200%÷5)*$5,000 for the first year which would equal $2,000 (200%÷5)*($5,000-$2,000) for the second year which would equal$1,200 (200%÷5)*($5,000-$2,000-$1,200) for the third year which would equal$720 Julie- “The straight-line method.” 1.04 Interest Earned You ask Julie if she earned any interest on her savings as has a fairly high income stream. Julie replies that her bank statement for her savings account shows $249 interest. Progressive spreadsheet Income EziSolutions $95,565.00 Carlos’ Spanish restaurant $4,222.00 Bull & Dust Restaurant $2,500.00 Partnership Income $8,744.00 Rental Income $16,021.00 Interest Earned $249.00 1.05 Capital Gains You- Capital gain is the difference between what you paid for an asset and the cost base of your CGT asset – that is, where you receive more for an asset than it cost you. The cost base of a CGT asset is largely what you paid for it, together with some other costs associated with acquiring, holding and disposing of it. If you own an asset for at least 12 months before you dispose of it, you may be able to reduce the amount of your capital gain.” Example If you bought a diamond ring for $11,000 on the 1/07/2014 & you sold it for $15,999 one month later then you would be liable to capital gains tax (CGT) on $4,999-this would have to be added to your assessable income which would result in paying tax on this extra amount.-it might even take you into a higher tax bracket.” Julie looks troubled-“Funny you say that but I did sell some jewellery in June for $1,500-will I pay CGT on that?” You ask, “When did you buy the jewellery & for how much?” Julie-“Now you are stretching the