Your client (use your own name as the client name) is the sole director of FinForensics Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. FinForensics analyses financial information and provides investment advice to registered clients.
The payment summary from FinForensics Pty Ltd shows the following:
FinForensics also paid $99 a month for your client’s mobile phone account and additional superannuation contributions of $10,000 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 Audi Q5. They purchased the car on 1 June 2016 for $85,000. The car travelled 38,500 kms during the year and your client has indicated that about 75% is work related but they have not kept a log book. Your client pays for all the running costs for the vehicle. During the year these costs included:
|Fuel & Oil||$||5,950|
|Excess on insurance claim. The insurance||$||500|
|company paid for the balance of the cost of|
DIVIDENDS & INVESTMENTS:
FinForensics Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 60% of the issued shares in the company. The shareholders were paid a lump sum of $140,000 in April. They explained that the company had been very successful over the last couple of years and had accumulated significant cash reserves. 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 $15,000.
The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2016. 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 2016.
|Share||Date Purchased||Number of||Price Paid per||Market Value at|
|by Father||Shares||Share at time of||Date of Death|
|BHP||4 Jan 1985||2,500||$5.00||$20.37|
|CBA||12 Sept 1991||2,000||$5.40||$75.94|
|COH||4 Dec 1995||1,000||$2.90||$124.77|
|FLT||1 Dec 1995||1,000||$0.95||$32.29|
|MYR||7 Nov 2009||10,000||$4.10||$1.21|
|TLS||3 Nov 1997||2,000||$3.30||$5.75|
The following fully franked dividends were received by your client during the year:
The taxpayer sold the BHP and MYR Shares on 5 January 2017 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $25.63 each and the MYR Shares for $1.35 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $113 for the BHP Shares and $30 for the MYR Shares. These amounts include GST.
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 12 January 2017 for $500,000 and settlement took place on 1 March 2017. The taxpayer’s daughter moved in immediately. She pays rent of $400 on Wednesday 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 $140,000. The quantity surveyor also identified the following items included in the purchase for depreciation purposes:
|Asset||Value at time of purchase|
|Hot Water System (electric)||$850|
|Air conditioner (room unit)||$1,200|
The taxpayer purchased a refrigerator for $990 and a washing machine for $1,800. These were installed in the unit for use by the tenant on settlement date. The taxpayer elects NOT to use a low value pool for depreciating assets and chooses the diminishing value method of depreciation where applicable
Other costs paid in realtion to the property before 30 June 2017 include:
|Stamp Duty on property purchase||$||17,195|
|Legal Fees on property purchase||$||1,240|
|Body Corporate Fees||$||1,000|
|Loan Repayments (Interest only)||$||7,600|
|Quantity Surveyor’s Report Fee||$||699|
OTHER ADDITIONAL INFORMATION:
|Dry cleaning of work suits||$450|
|Personal contributions to Superannuation made by the taxpayer||$12,000|
|(Sunsuper Account #70086511)|
|Donations were made to:|
|o The Greenpeace Trust $1,000,|
|o The Australian Kidney Foundation $1,000; and|
|o The “Sea Shepherd” $1,200.|
|Association of Financial Advisors Membership Fees||$840|
|Subscription to “Money Magazine”||$110|
|“Vogue Living” magazine subscription||$120|
Fees paid to the bank in January 2017 to establish the loan to purchase the unit were $600. 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 2016/17 was $3,000 of which 50% 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 $8,000 as compensation for medical expenses incurred because of the injuries from the accident. Payment was received in December 2016.
The family is covered by private health insurance with BUPA. The policy was taken out on 1 April 2017. The premium paid to the end of the year was $1,260 and they claimed a rebate of $113. The policy number is 142536 and the health fund has notified them that the Benefit Code is 30.
The taxpayer’s date of birth is 16 April 1977, 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 2016/17 year and was entitled to deductions of $1,200.
The document should be indexed with a separate heading for each category you deem appropriate. Some suggested headings include:
Work Related Income Other Income
Rental Property Deductions
Tax Payable, Offsets & Levies (include all levies and offsets considered, explain why they are or are not applicable and reconcile to the tax return calculation).
Organise your work papers so that amounts are directly transferrable to items on the Income Tax Return and provide cross references to the tax return label where the amount is reported. Make sure that all calculation steps are visible in your workpapers. This is particularly important if you do calculations in Excel and paste them 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.
TIME MANAGEMENT TIP: YOUR WORKPAPERS SHOULD BE COMPLETE BY THE END OF WEEK 9 OR EARLY IN WEEK 10.
|Presentation: Use of Excel with tabs||5|
|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|
|Poor – insufficient detail to support decisions|
|Appropriate Use of Authority:||10|
|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:||21||116|
|INCOME TAX RETURN & SCHEDULES||76|
|LETTER OF ADVICE|
|Addressed to client in first person|
|Pitched at an appropriate level for client understanding|
|Correct spelling and use of grammar||18|
|REDUCED TO MARK OUT OF 35||35|