Taxation of a Property Investor and Entrepreneur

The assignment involves preparing a tax return for an individual who owns rental properties and has other income sources. The client received fully franked dividends from various companies, sold shares to raise the deposit for a property purchase, and has rental income from renting out a unit on the Gold Coast. The taxpayer also has various expenses related to the property, including stamp duty, legal fees, and loan repayments. Additionally, the client made personal contributions to superannuation, donated to charity, and had insurance premiums paid directly from their account. The assignment requires preparing a set of work papers that include detailed explanations about whether each item is assessable income or gives rise to an allowable deduction, as well as preparing an income tax return using Handitax software.

INDIVIDUAL ASSIGNMENT 2
Description: Case Study requiring preparation of workpapers, calculation of
taxable income and income tax payable, preparation of an individual tax
return, and a letter of advice.
Weighting: 35%
Course Content: Focus on Topics 5-10, with knowledge of previous topics
expected.
Due: Week 11
Remember: The purpose of an assignment is for you to
demonstrate your knowledge and understanding of the topic.
Make sure your answers are comprehensive enough to achieve
this.
NOTE: THIS IS AN INDIVIDUAL ASSIGNMENT.
YOU SHOULD WRITE ALL WORK SUBMITTED YOURSELF AND IT
SHOULD BE BASED ON YOUR OWN RESEARCH. EVIDENCE OF
COPYING FROM OTHER STUDENTS WILL BE TAKEN SERIOUSLY
AND REPORTED.
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ASSIGNMENT INSTRUCTIONS
EMPLOYMENT:
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:
 ABN 84 111 122 223
 Gross Payments $130,000
 Tax Withheld $38,376
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
Servicing $1,200
Registration $ 760
Insurance $1,800
Tyres $2,400
Excess on insurance claim. The insurance
company paid for the balance of the cost
of repairs.
$ 500
Car Washing $1,300
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.
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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
by Father
Number of
Shares
Purchased
Price Paid per
Share at time
of purchase
Market Value
at 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:
 CBA $1,990.00
 COH $1,300.00
 FLT $ 400.00
 TLS $ 155.00
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:
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Asset Value at time of purchase
Stove $ 750
Hot water system (electric) $ 850
Carpet $3,750
Dishwasher $ 700
Air conditioner (room unit) $1,200
Window curtains $2,700
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
Council rates $ 900
Water Rates $ 350
Insurance $ 685
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
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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.
REQUIRED:
1. Using a WORD document, prepare a set of work papers. 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. Your work
papers need to be complete so that they can be reviewed by your supervisor
and relied upon in the event of an audit in the future. They should also be
reconciled and cross-referenced to reporting labels on the income tax return.
The document should be indexed with a separate heading for each category
you deem appropriate. Some suggested headings include:
 Work Related Income
 Other Income
 Capital Gains
 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.
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TIME MANAGEMENT TIP: YOUR WORKPAPERS SHOULD BE COMPLETE BY THE
END OF WEEK 9 OR EARLY IN WEEK 10.
2. Use Handitax to prepare the income tax return, including any relevant
schedules, for the year ended 30 June 2017. Use your own name, and the
Dummy TFN that you have been assigned. All other details are to come from
the assignment instructions.
3. Write 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 letter should be about
2 pages long – comprehensive but concise. If it is too long your client won’t
bother reading it. It should be written in language 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?
SUBMISSION INSTRUCTIONS:
1. A WORD file containing your work papers and associated explanations should
be submitted via the link on MySCU.
2. Your letter of advice should be in a second WORD document and submitted via
the link on MySCU.
BOTH THE ABOVE FILES MUST BE INCLUDED IN A SINGLE SUBMISSION
3. Further instructions regarding the Income Tax Return will be provided during
class in Week 10 and by way of announcements on MySCU in the weeks prior to
the due date for submission. DO NOT WAIT FOR THESE INSTRUCTIONS TO
START YOUR ASSIGNMENT – IT SHOULD BE ALMOST COMPLETE BY THE
BEGINNING OF WEEK 10. THIS WILL ALLOW YOU TO FOCUS ON COMPLETING
THE TAX RETURN COMPONENT IN WEEKS 10 AND 11.
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