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LAW6001 Assessment 2: Individual Case Study Page 1 of 10 ASSESSMENT 2 BRIEF Subject Code and Title LAW 6001 Taxation Law Assessment Assessment 2: Case Study (Individual taxpayer’s tax return) Individual/Group Individual Length For the Report 2000 words +/- 10% excluding References Learning Outcomes a) Identify and analyse the tax treatment of various types of income and deductions. b) Effectively apply taxation law in determining tax outcomes in various scenarios and sole trader structure c) Apply the legislation to determine the assessable income and availability and amount of the tax deduction associated with employment and business structure on an accrual basis including GST application. d) Calculate the specific deduction associated with trading stock balances e) Calculate depreciation using the prime cost and diminishing value method and calculate an associated balancing adjustment following the disposal of a depreciating asset f) Preparation and calculation of individual income tax return on various income and deductions using current tax return form. Submission By 11:55pm AEST/AEDT Sunday of Week 7 Weighting 20% Total Marks 100 marks Context: This assessment assesses your research skills, your ability to synthesise an original piece of work to specific content requirements and your ability to produce a comprehensible piece of advice which addressing the client’s needs. It also assesses your written communication skills. The ability to deliver to a brief is an essential skill in the workplace. Clients may well approach advisors seeking a combination of specific information needs and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. It is therefore important to be able to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches to addressing the client’s needs. Instructions: • Your case study needs to identify and discuss the tax implications of the various issues raised. LAW6001 Assessment 2: Individual Case Study Page 1 of 10 • In the case study, the taxpayer’s assessable income, allowable deductions must be identified and recorded in the excel sheets (2019 individual tax return form) where applicable (only blue coloured cells in the excel sheet are required to fill) as per the information provided in the case study. • In addition, a report (word document, approx. 2,000 words) must be submitted for the calculations of the assessable income; allowable deductions and taxable income of the taxpayer including identifying and discussing them. E.g., how the amounts of income & deductions have been derived. If any receipts and payments are not assessable or deductible, the reasoning for non-inclusion of these in assessable income or deductions as per relevant legislation or cases. • Critically analyse the following case study. With respect to each task: • Review relevant case law and legislation (ITAA1936, ITAA1997) • Apply the law to the facts of the case study • Reach a conclusion/ give practical advice to your client. • You will be assessed in accordance with the Assessment Rubric. • This case study must be presented as an individual effort. The case study requires individual research. It is expected the student will survey the relevant literature, including decided cases, and select appropriate additional resources. • Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation. • The format of the report should be a business report and using APA referencing style LAW6001 Assessment 2: Individual Case Study Page 1 of 10 Case Study: Comprehensive Individual Tax Return Himanshu Patel, a resident taxpayer aged 59, runs a sole trading business selling imported food items. His business is registered for GST. He also works on a casual basis as an import/export agent at Blue Marlin Pty Ltd (ABN: 89 125 678 968). He has a rental property in Lakemba, Sydney. Himanshu is taking care of his wife Hayali Patel, who has lost eye sight in her left eye 9 months ago, on the 1st of October 2018 as a result of a car accident. Himanshu is solely taking care of Hayali. Personal Information Name: Himanshu Patel TFN: 300 001 000 Date of Birth: 15 July 1974 Address: 23 Market Street, Newtown NSW 2200 Contact: 0456 587 987 (Work: 02 9578 3648) Bank account: BSB 225887 Account 378458 Himanshu is not covered by a private hospital cover. Spouse: Hayali Patel Date of Birth: 30 July 1989 Currently receives disability pension from Centrelink $9,200 for the 2020 tax year. She has no deductions to claim for the 2020 tax year. Income/Expense Information Himanshu and Hayali have a joint term deposit account at ANZ. Total interest received from the joint account was $500 for the 2020 financial year. Himanshu has paid $400 to a registered tax agent for preparing his tax return for 2019 tax year. In addition to the above, the following information relates to his employment (Part A), business income/expenses (Part B) and rental receipts/payments (Part C). All expenses have been substantiated unless it states otherwise. Part A: Regarding his employment Employer: Blue Marlin Pty Ltd (ABN: 11 235 365 874) Gross wages for the 1st of July 2019 to the 30th of June 2020: $7,800 (PAYG withheld: $200) He also received $2,000 shift allowance and $800 reimbursement for work related software fees from his employer. Himanshu received a car from employer as a fringe benefit (showing as reportable in his PAYG summary, valued $60,000 not exempt from FBT) Work related allowable deductions to claim (telephone & stationery) $300 Part B: Regarding his Business During the year, Himanshu has had the following transactions in relation to sales, purchases, and inventory (trading stock). Himanshu did not choose Small Business Entity option nor low value pool. Cash received from accounts receivable for credit sales $85,000 Cash paid to accounts payable for purchases of trading stock $43,000 Inventory (trading stock) on 1 July 2019 $7,100 Inventory (trading stock) on 30 June 2020 - at cost $8,400 LAW6001 Assessment 2: Individual Case Study Page 1 of 10 - at market selling $8,600 - at replacement $8,500 Himanshu has taken home some food items from the stock purchased for consumption by his family at total value of $2,500 Ledger balances were as follows (GST inclusive) 1 July 2019 30 June 2020 Accounts receivable $17,600 $19,800 Accounts payable $5,280 $5,830 Additional cash receipts included: • Volume rebates from overseas suppliers $3,500 • Insurance recovery from the insurance company due to extensive damage caused by a hailstorm and included - Compensation for loss of income $7,900 - Repairs carried out on shop caused by storm damage $2,700 - Medical costs incurred by Himanshu form injuries $900 • Capital contributed by Himanshu to expand the business $10,000 Cash payments included: • Cash Drawings by Himanshu $3,000 • Fines for breach of Australian Customers regulations $900 • Net wages to employees $12,000 • PAYG withheld from employees and paid to the ATO $2,900 • Superannuation for employees $1,230 • Superannuation guarantee charge $190 • Fringe benefit tax $850 • Lease payments on shop fittings and plant equipment $940 • PAYG instalments for Himanshu’s personal tax commitments $2,500 • Fee for maintenance of computer systems – Covering the period 1/4/2020 to 30/9/2020 $1,680 • Other tax deductible operating expenses $9,200 • Decline in value (see note 1) $ ? Other information regarding Himanshu’s Business Note 1) Himanshu uses plant and equipment in his business as follows. Himanshu wishes a maximum deduction for 2019/20 tax year. Ignore SBE concession. You must show clearly decline value to claim this year and closing adjustable value balance of the each asset in the word report. Assets Cost ($) Purchase date Effective life Adjustable vale (30/6/2019) Business usage DIV method Mobile phone 3,000 1/6/2018 4 years 2,188 60% Diminishing Value Office Furniture 15,000 1/6/2018 10 years 13,375 100% Prime Cost LAW6001 Assessment 2: Individual Case Study Page 1 of 10 Laptop Computer 4,000 1/8/2020 3 years 100% Printer 150 1/3/2020 2 years 100% Part C: Regarding his Rental property Himanshu purchased a house as a residential investment property on the 1st of July 2019. Purchase price of the property was $300,000 comprised of the following payments. All amounts include GST where applicable. • Land and buildings $276,800 • Depreciable assets adjustable value on the 1st of July 2019 (See Note 1) - Carpets $5,000 - Hot water system electric $1,200 - Ceiling fans $1,600 - Barbecue (fixed) $1,400 - Window blinds internal $8,000 - Window curtains $6,000 $300,000 The previous owner provided a statement to Himanshu certifying that the property was constructed and completed on the 1st of January 1996 at a construction cost of $100,000. The house was in good condition except that the outside walls required complete repair. Himanshu recorded the following receipts and payments for the 2019/20 tax year in respect of the rental property: Receipts Rent received (net of agent commission withheld $1,250) by 28 June 2020 $23,750 Compensation from Rental bond board for tenants who left and did not pay the rent they owed (see note 2) $1,300 Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2020 $3,000 Insurance recovery for storm damage to roof $2,100 Payments Mortgage repayments to Westpac Bank – principal $4,500 – interest $23,800 Loan application fees