ASSIGNMENT INSTRUCTIONS

EMPLOYMENT:

Your client Helga Hemp is the sole director of Sunshine Futures Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. Sunshine Futures analyses financial information and provides investment advice to registered clients.

The payment summary from Sunshine Futures Pty Ltd shows the following:

▪ ABN                              84 111 122 223

▪ Gross Payments         $130,000

▪ Tax Withheld               $38,200

Sunshine Futures also paid $95 a month for your client’s mobile phone account and additional superannuation contributions of $7,800 under a salary sacrifice arrangement. This amount is in addition to superannuation guarantee requirements. The phone payments related to a fixed monthly contract in the employee’s name and payments were made directly to the phone company by the employer.

Your client owns an BMW X5. They purchased the car on 1 July 2019 for $99,000. The car travelled 36,500 kms during the year and your client has indicated that about 80% 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:

DIVIDENDS & INVESTMENTS:

Sunshine Futures Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 40% of the issued shares in the company. The shareholders were paid a lump sum of $150,000 in April. They described this payment as a fully franked dividend. The proceeds were used to reduce the line of credit that was taken out to purchase the home in which they live. Interest paid on the home loan for the year was $24,000.

The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2019. On finalisation of the estate the following shares were transferred to your client and the client received notification that all the shares had been transferred on 1 December 2019.

The following fully franked dividends were received by your client during the year:

▪ CBA         $ 680.00

▪ COH        $ 740.00

The taxpayer sold the BHP and MYR shares on 5 January 2020 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $26.54 each. The MYR shares sold for $1.81 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $140 and $120 for the BHP and MYR shares respectively. These amounts include GST where appropriate.

RENTAL PROPERTY: 4/285 Pacific Parade, Bilinga, 4225

The taxpayer owns a unit on the Gold Coast which is rented to their daughter. A contract was entered into to purchase the property on 22 January 2020 for $620,000 and settlement took place on 1 March 2020. The taxpayer’s daughter moved in immediately. She pays rent in advance of $410 each week. The first payment was made on the day she moved in. (HINT: You need to research the issues around renting properties to relatives and include your findings in your workpapers and letter of advice.)

The building was originally constructed in 2005. A quantity surveyor’s report commissioned at the time of purchase shows the construction cost of the unit was $210,000.

The taxpayer purchased a refrigerator for $2,180 and a washing machine for $1,800. These were installed in the unit for use by the tenant on settlement date. The taxpayer elects NOT to use a low value pool for depreciating assets and chooses the diminishing value method of depreciation where applicable.

Other costs paid in relation to the property before 30 June 2020 include:

OTHER INFORMATION:

▪ Fees paid to the bank in January 2020 to establish the loan to purchase the unit were $960. The loan is for 25 years.

▪ The taxpayer also has an insurance policy that covers their income in the event of an accident or death. The premium is paid directly from their bank account each month. The total for 2019/20 was $9,000 of which 70% relates to the replacement of income in the event of an accident.

▪ In 2015 the taxpayer was involved in a car accident and sustained injuries that required medical attention and rehabilitation therapy. In December 2015 the court awarded the taxpayer $60,000 as compensation for medical expenses incurred because of the injuries from the accident. Payment was received in December 2019.

▪ In April 2020 the taxpayer received $3,800 Income Replacement payments from their insurance policy.

▪ The family is covered by private health insurance with BUPA. The policy was taken out on 1 May 2020. The premium paid to the end of the year was $1030 after they claimed a rebate of $103. The policy number is RDA1465 and the health fund has notified them that the Benefit Code is 30.

▪ Preparation and lodgement of 2019 tax return by Diagno Accountants was $4200.

▪ The taxpayer’s date of birth is 14 February, 1964, and they are married. You can make up the name & date of birth of the spouse. The spouse earned a salary of $64,000 for the 2019/20 year and was entitled to deductions of $200.

REQUIRED:

1.Using the EXCEL template provided, prepare a set of work papers to enable you to complete the online quiz for this assessment – separate sheets within you EXCEL document as indicated. Include detailed explanations about whether each item is assessable income or gives rise to an allowable deduction. Show all workings, explain why you have treated items as you have, and provide appropriate authority for your decisions by referencing sections of the legislation, case law and/or income tax rulings. NOTE: In professional practice your work papers need to be complete so that they can be reviewed by your supervisor and relied upon in the event of any future audit. They should also be reconciled and cross-referenced to reporting labels on the income tax return.

2. The TEMPLATE of workpapers includes separate sheets for:

a. Salary & Wages Income

b. Other Income (e.g., interest and dividends)

c. Capital Gains

d. Deductions

e. Rental Property

f. Tax calculation

g. Letter of advice

3. Tax Payable, Offsets, & Levies: Include all levies and offsets considered (Medicare, Medicare surcharge, franking credits, tax paid, low income rebate, private health rebate) and be able to explain why they are or are not applicable and reconciled to the tax return calculation.

4. Organise and use your work papers so that amounts are directly transferrable to items on the Income Tax Return. This will assist you in Handitax. 5.Depreciation calculations can be done using Handitax with the total transferred to the rental property sheet and the schedule of your Income Tax Return.

6. Use Handitax to prepare the income tax return, including any relevant schedules, for the year ended 30 June 2020. Use your client’s name, and the Dummy TFN from the client set up sheet. All other details are to come from the assignment instructions.

7.Write and video a professional letter of advice to your client summarising their tax situation and explaining the important aspects of the items that are included in their tax return and those that have been disregarded. You should include advice to the client about potential improvements to their record keeping and other information that is relevant for future tax planning. 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. Your language should be clear and audible 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. Do you need to provide your client with any instructions?