Identify and analyse the tax treatment of various types of income and deductions.

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.
• 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
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.
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
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.
– 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
Cash payments included: $10,000
• 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
• Fee for maintenance of computer systems – $2,500
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
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 Compensation from Rental bond board for tenants who left and $23,750
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
Payments $2,100
Mortgage repayments to Westpac Bank – principal $4,500
– interest
Loan application fees to Westpac Bank for a 10-year mortgage loan $23,800
to buy the house – paid on approval of the loan 1 July 2019 $825
Council & Water rates $3,400
Building Insurance premium $850
Payment to solicitors – for lease preparation fees $150
– to eject tenants for non-payment of rent $375
Repairs – to paint the outside walls of the house, carried out on 10 July 2019 Construction costs of brick room to store garbage bins $1,100
and gardening equipment, carried out on 1 May 2020 $6,000
Garden hose and attachments $165
Travel costs to the rental property for inspections (see Note 3) $830
Pest control costs to eliminate cockroach infestation $280
Payment to a registered tax agent – preparing 2017/18 tax return Payments to the Australian Taxation Office $170
– Additional tax on an amended assessment $400
– Fine for the late lodgement of 2017/18 tax return $760
Other information
Note 1) Himanshu will use the Commissioners estimate of effective life for calculation decline in value which can be found under “Residential Property Operators”.
Note 2) The rental bond board were only able to pay part of the money owed by the tenants. A further amount of $650 is outstanding. Himanshu is attempting to recover this amount by legal means.
Note 3) Himanshu lives in Sydney, he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants.
Required
Himanshu wishes to minimise his income tax for 2019/20. Calculate Himanshu’s taxable income for 2019/20. You are required to enter income and deduction details where applicable in the tax return form provided in the excel sheet.
Submit all workings of EACH income & deductions of calculations and any tax offsets available for
Himanshu in a word format (written report) including relevant section numbers as per
ITAA36/ITAA97. In your report, clearly advise whether Himanshu is eligiable to claim a dependant tax offset (Invalid and invalid carer tax offset).
End of Assessment 2
Learning Rubric: Assessment 2 Case Study (Individual)
Assessment Criteria Fail
(Unacceptable) 0-49% Pass
(Functional)
50-64% Credit
(Proficient) 65-74% Distinction
(Advanced)
75 -84% High Distinction
(Exceptional)
85-100%
Knowledge and understanding (technical and
theoretical knowledge)
40% Limited understanding of required concepts and
knowledge
Key components of the assignment are not addressed.
Knowledge or understanding of the field or discipline.
Resembles a recall or summary of key ideas.
Often confuses assertion of personal opinion with information substantiated by evidence from the research/course materials.
Thorough knowledge or understanding of the field or discipline/s. Supports personal opinion and information substantiated by evidence from the research/course materials.
Demonstrates a capacity to explain and apply relevant concepts.
Highly developed understanding of the field or discipline/s.
Discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Well demonstrated capacity to explain and apply relevant concepts.
A sophisticated understanding of the field or discipline/s.
Systematically and critically discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Mastery of concepts and application to new situations/further learning.
Evaluation of information selected to support the case study
45% Limited understanding of key concepts required to support the case study.
Confuses logic and emotion. Information taken from reliable sources but without a coherent analysis or synthesis.
Viewpoints of experts are taken as fact with little questioning. Resembles a recall or summary of key ideas.
Often conflates/confuses assertion of personal opinion with information substantiated by evidence from the research/course materials.
Analysis and evaluation do not reflect expert judgement, intellectual Supports personal opinion and information substantiated by evidence from the research/course materials.
Demonstrates a capacity to explain and apply relevant concepts.
Identify logical flaws.
Discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Well demonstrated capacity to explain and apply relevant concepts.
Viewpoint of experts are subject to questioning. Systematically and critically discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Information is taken from sources with a high level of interpretation/evaluation to
The response shows a complete lack of understanding of the case, its context and application of tax law in regards to decline in value, trading stock, GST, accrual basis in taxation in an business environment; and other investment related income & deductions. independence, rigor and adaptability.
The response shows some understanding of the case, its context and application of tax law in regards to decline in value, trading stock, GST, accrual basis in taxation in an business environment; and other investment related income & deductions. Questions viewpoints of experts.
Shows a good understanding of the case, its context and application of tax law in regards to decline in value, trading stock, GST, accrual basis in taxation in an business environment; and other investment related income & deductions.
Analysis and evaluation reflect growing judgement, intellectual independence, rigor and adaptability.
Shows a great understanding of the case, its context and application of tax law in regards to decline in value, trading stock, GST, accrual basis in taxation in an business environment; and other investment related income & deductions. develop a comprehensive critical analysis or synthesis.
Identifies gaps in knowledge.
Exhibits intellectual independence, rigor, good judgement and adaptability.
Shows excellent understanding of the case, its context and application of tax law in regards to decline in value, trading stock, GST, accrual basis in taxation in an business environment; and other investment related income & deductions.
Effective communication while giving advices
to client
5% Difficult to understand for audience, no logical/clear structure, poor flow of ideas, argument lacks supporting evidence.
Line of reasoning cannot be followed in regards to deductions claimed for the client. Information, arguments and evidence are presented in a way that is not always clear and logical.
Line of reasoning is often difficult to follow in regards to deductions claimed for the client. Information, arguments and evidence are well presented, mostly clear flow of ideas and arguments.
Line of reasoning is easy to follow in regards to deductions claimed for the client. Information, arguments and evidence are very well presented; the presentation is
logical, clear and well supported by evidence.
Great line of reasoning and analysis has been performed in regards to deductions claimed for the client. Expertly presented; the presentation is logical, persuasive, and well supported by evidence, demonstrating a clear flow of ideas and arguments.
Excellent line of reasoning and detailed analysis has been performed in regards to deductions claimed for the client.
Correct citation of key
resources and evidence
10% Demonstrates inconsistent use of good quality, credible and relevant resources to support and develop ideas. Demonstrates use of credible and relevant resources to support and develop ideas, but these are not always explicit or well developed. Demonstrates use of high quality, credible and relevant resources to support and develop ideas.
Demonstrates use of good quality, credible and relevant resources to support and develop arguments and statements. Shows evidence of wide scope within the Demonstrates use of highquality, credible and relevant resources to support and develop arguments and position statements. Shows evidence of wide scope within
Demonstrates no section numbers or incorrect section numbers per
ITAA1936 and ITAA1997.
Demonstrates some section numbers per ITAA1936 and
ITAA1997 with some errors. Demonstrates some section numbers per ITAA1936 and ITAA1997 with a couple of errors. organisation for sourcing evidence.
Demonstrates more than enough correct section numbers per ITAA1936 and ITAA1997. and without the organisation for sourcing evidence.
Demonstrates sufficient correct section numbers per ITAA1936 and ITAA1997.