ABKA151 - Fundamentals of Income Tax Assessment v eva hulstein

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Jan 9, 2024

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www.thecareeracademy.com [ABKA151: ASSESSMENT] Fundamentals of Income Tax Read through the requirements below, and then complete all parts of the assessment and then save your work as either a Word document or a PDF file. Once you have saved your work click on the Assessment Submission link within this topic and upload your completed assessment to your tutor for marking. Part A: Background Bend-it Physio Limited has been operating for a number of years. They have a 30th June balance date and the Profit and Loss Statement for the year ended 30th June 20XX is presented below. It is time to prepare the income tax return for the year and Bend-it have asked for your help. After some investigation, you have noted the following: 1. Accounting depreciation is $1,200 greater than the depreciation calculated using the permitted depreciation rates from the ATO. 2. The Dividends received have no franking credits attached to them. 3. Speeding tickets were incurred by the Director who was speeding on his way to work so he didn’t miss a meeting. 4. The company has a loss of $10,800 brought forward which it can claim. 5. Legal fees relate to the purchase of an office space that the business will move into next year.

www.thecareeracademy.com [ABKA151: ASSESSMENT] Bend-it Physio Pty Ltd Profit & Loss Statement for the year ended 30th June 20XX $ $ Income Sales 250,00 0 Less: Cost of sales (118,49 0) Net Sales 131,51 0 Other Income Dividends 4,780 Interest income 6,480 Total Other Income 11,260 Gross Profit 142,77 0 Expenses Accounting Fees 3,000 Advertising 6,230 Bank Charges 1,297 Lighting and Heating 2,368 Motor Vehicle Expenses 3,000 Printing, Postage and Stationery 7,056 Bad debts written off 1,800 Rent 24,000 Salaries and Wages 45,000 Speeding tickets 120 Depreciation 9,047 Legal fees 9,900 Total Expenses 112,818 Accounting Net Profit Before Tax 29,952 Required Using the Profit & Loss Statement and the notes above, prepare the tax calculation for the year ended 30th June 20XX, including the total income

www.thecareeracademy.com [ABKA151: ASSESSMENT] tax payable by Bend-it Physio Pty Ltd. Assume for the purposes of this assessment that the company tax rate of 25% applies. You must include your workings. Tax calculation 20XX Accounting Net Profit Before Tax 29,952 Add Back Non-Allowable Deduction Bad debits written off 1,800 Salary and wagers 45,000 Spending tickets 120 Legal Frees 9,900 Adjusted Tax Profit 56,820 Tax Profit Losses brought forward 10,800 Adjusted Tax Profit 46,020 0.032% Tax Payable 14,726.40

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www.thecareeracademy.com [ABKA151: ASSESSMENT] Part B Scenario Working as an Accountant in a local firm, you are currently in a meeting with Ian Henderson, a recent client. Ian is a recent Graduate who has worked as an Engineer for the entire tax year and has provided you with a series of documents to get an estimate on his tax return. He is an Australian Citizen. The information he has provided is listed below. - A payment summary from his employer (see below) - You have analysed receipts that he has provided you and have deduced that $3,500 of deductions is claimable on his return - Ian mentions that he had funding his Engineering degree with a HELP Repayment loan and has not made any repayments. Required

www.thecareeracademy.com [ABKA151: ASSESSMENT] From the information provided, please calculate the Tax Payables/Refundable for his return by answering the following questions and filling in the necessary table. Assume for the purpose of this assessment that the Appendix at the end of this document are the current rates. Please refer to the said Appendix for the necessary tax tables to be used for the following questions. Question One Calculate the Taxable Income l Taxable Income = Income – Deductions = $85,500 -$3,500 =82,000 Question Two Calculate the Tax Due ($) on the Taxable Income you have calculated above. Refer to the Appendix for the appropriate table. Using theindividual tax rates from the ATO for the 2021 year you need to locate the income bracket that applies to Ian. His Taxable income is $85,500. The tax due on this income is equal to $4.446.000.00 plus 32.5c for each $1 over $45,000. To calculate 32.5c for each $1 (32.5%) over $45,000 you need to first deduct $45,000 from the taxable income = ($85,500 – $45,000) = $40,500. You then need to multiply $17,500 by 0.325 (which is 32.5%). $40,500×0.325 = 13,162.500.00 You then need to add $13,162.500.00 to the amount calculated above to give the tax on taxable income. Tax on Taxable Income is therefore $4.446.000.00 + $ 13,162.500.00=$13,607,000

www.thecareeracademy.com [ABKA151: ASSESSMENT] Question Three Is Ian’s taxable income below the Medicare Levy threshold (will be able to claim the reduction for low-income earners)? If not, is Ian subject to the Medicare Levy and how much would this amount be? Once the tax on taxable income is known you then need to calculate the medicate levy amount. This is 2% of the taxable income amount. John's Taxable income is $85,500 The Medicare Levy Amount is calculated as $85,500×0.02 (which is 2%) =$1,710.00 Question Four Is Ian’s subject to the Medicare Levy Surcharge? Once the Medicare Levy Amount is calculated, you will then need to calculate the HELP repayment. The Repayment amount is calculated by multiplying the repayment income (in this instance, this is the same as the taxable income) by the applicable repayment rate: Repayment Rate × Taxable Income The HELP repayment amount is calculated as $85,500×3% =$2,565.00 Note: refer to the repayment rate table for the rates). Question Five Will Ian need to pay off part of his HELP Debt this period? If so, please calculate the amount that will be included in his Tax Return. Please refer to the Appendix for the appropriate table.

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www.thecareeracademy.com [ABKA151: ASSESSMENT] The taxable income is over $45,001, meaning that you will get $325 minus 1.5 cents for each $1 over $45,000. You first need to calculate the reduction offset amount: Reduction of offset amount = ($85,500 - $45,000) × 0.015 = $607.50 The maximum tax offset of $325.00 is then reduced by the offset amount of $607.50: Low Income Offset = $325.00 -$607.50 =$282.50 Question Six Will Ian be able to claim the low-income tax offset? If so, how much will this be? The taxable income is over $45,001, meaning that you will get $325 minus 1.5 cents for each $1 over $45,000. You first need to calculate the reduction offset amount: Reduction of offset amount = ($62,500 - $45,000) × 0.015 = $262.50 The maximum tax offset of $325.00 is then reduced by the offset amount of $262.50: Low Income Offset = $325.00 -$262.50 =$62.50

www.thecareeracademy.com [ABKA151: ASSESSMENT] For income between $48,001 - $90,000 you can get the maximum tax offset of $1,500.00 Since his Low Income Offset is $62.50 therefore his Middle Income Offset will be $1,500.00 - $62.50 = $1437.50 The total offset he will be able to claim is then $1437.50 + $62.50 = $1,500.00 Question Seven Please fill in the table below and calculate the necessary values based on the values you have obtained. Items Amount ($AUD) Tax on Taxable Income ( question 2) $82,000

www.thecareeracademy.com [ABKA151: ASSESSMENT] (Add) Medicare Levy ( question 3) $1,710.00 (Add) Medicare Levy Surcharge (question 4) $2,565.00 (Add) HECS Repayment ( question 5) $282.50 (Minus) Low Income Offset ( question 6) $1,500.00 = Gross Tax Payable $88,057.50 Total Tax Withheld $44,028.75 Estimated Tax Payable/Refund $22,014.375 Appendix Appendix A – Tax Due ($) on Taxable Income chart

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www.thecareeracademy.com [ABKA151: ASSESSMENT] Taxable Income Tax Rate Tax due ($) $0 – $18,200 0% 0 $18,201 – $45,000 19% 19c for each $1 over $18,200 $45,001 – $120,000 32.50% $5,092 plus 32.5c for each $1 over $45,000 $120,001 – $180,000 37% $29,467 plus 37c for each $1 over $120,000 $180,001 and over 45% $51,667 plus 45c for each $1 over $180,000 *The above rates do not include the Medicare Levy of 2%

www.thecareeracademy.com [ABKA151: ASSESSMENT] Appendix B – Repayment Rate for Australian Study Loans Australian Study Loans include SSL, TSL, SFSS and HELP loans. 2021-2022 Repayment Income Thresholds Repayments Income (RI*) Repayment Rate Below $47,014 Nil $47,014 - $54,282 1.0% $54,283 - $57,538 2.0% $57,539 - $60,991 2.5% $60,992 - $64,651 3.0% $64,652 - $68,529 3.5% $68,530 - $72,641 4.0% $72,642 - $77,001 4.5% $77,002 - $81,620 5.0% $81,621 - $86,518 5.5% $86,519 - $91,709 6.0% $91,710 - $97,212 6.5% $97,213 - $103,045 7.0% $103,046 - $109,227 7.5% $109,228 - $115,781 8.0% $115,782 - $122,728 8.5% $122,729 - $130,092 9.0% $130,093 - $137,897 9.5% $137,898 and above 10% n Tutor Comment:

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