Applied Income Tax: Comprehensive Analysis for Assessment 2 Part A

This document presents a comprehensive solution to an applied income tax assessment, focusing on the calculation of taxable income for a partnership and the individual tax liabilities of its partners, Monique and Aden. The assessment includes detailed calculations of assessable income, deductions, and net partnership income. It addresses specific items such as salary expenses, rent, bad debts, depreciation, and capital gains. The solution thoroughly analyzes the distribution of partnership income, considering interest on loans and drawings. Furthermore, it determines the individual taxable income for each partner, factoring in partnership distributions, capital gains, and other relevant deductions. The document then calculates the tax liability for each partner based on the provided tax brackets and PAYG withheld, concluding with the net tax payable or refundable for each individual. This solution demonstrates a clear understanding of tax principles and their application in a partnership scenario.

ASSESSMENT 2 PART A
APPLIED INCOME TAX

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................1

Calculation of Taxable partnership income
Particulars Details Amount
Assessable Income:
Sales ordinary income section
6-5
615000
Add: Closing balance of
accounts receivable
40000
Less: Opening balance of
accounts receivable
30000
Total assessable income 625000
Deductions:
Salary expenses paid to
employee section 8-1
186000
Rent on premises 92000
Bad debts 2500
Supplies and overheads 27300
Depreciation 25000
Total allowable deduction 332800
Net Partnership Income
section 90
292200
Notes:
 Superannuation contribution made on behalf of Monique and Aden are not allowable as
deductions as the firm is liable for its employee’s superannuation contribution and not of
partners.
 Sales for the current year has been determined as follows:
Cash sales – opening account receivables + Closing account receivables (stated in
balance sheet at closing date) = 615000 – 30000 + 40000 = $625000.
 Calculation of capital gain
Capital proceeds = $835000
Cost of acquisition = $495000

Total capital gain = 835000 – 495000 = $340000
Less: 50% capital gain discount = (170000)
Net capital gain = 170000
All the assets of the partnership firm belong to its partners only and whatever gain arises
by selling it, must be declared within individual tax return of the partners.
Accordingly, above capital gain would be distributed among Monique and Aden (equal
partners) and taxed accordingly which is as follows:
Monique = 170000 * 50% = 85000
Aden = 170000 * 50% = 85000
 Treatment of partnership income
Partnership income = 292200
Less: interest on Monique’s loan = 63000
Interest on capital
Monique = 350000 * 6% = 21000
Aden = 250000 * 6% = 15000
Add: Interest on Drawings
Monique = 100000 * 9% = 9000
Aden = 140000 * 9% = 12600
Net distributable income of partnership firm
= 292200 – 63000 – (21000 + 15000) – 9000 – 12600 = $171600
Monique’s Share = 85800
Aden’s share = 85800 Individual taxability of partners
Monique
Assessable income
Partnership distribution = 85800 + 63000 + 21000 – 9000 = 160800
Add: Capital gain = 85000
Less superannuation contribution = 15000
Less: Donation made to Red Cross = (3000)
Taxable income of Monique = 160800 + 85000 – 15000 – 3000 = 227800
Tax liability

0 – 18200 = 0%
18201 – 45000 = 19% = 5092
45001 – 120000 = 32.5% = 24375
120001 – 227800 = 37% = 39886
Total tax payable = 5092 + 24375 + 39886 = 69353
Less: PAYG withheld = (40000)
Net tax liability = $29353
Aden
Assessable income
Partnership distribution = 85800 + 15000 – 12600 = 88200
Add Capital gain = 85000
Less superannuation contribution = 5000
Taxable income of Monique = 88200 + 85000 – 5000 = 168200
Tax liability
0 – 18200 = 0%
18201 – 45000 = 19% = 5092
45001 – 120000 = 32.5% = 24375
120001 – 168200 = 37% = 17834
Total tax payable = 5092 + 24375 + 17834 = 47301
Less: PAYG withheld = (30000)
Net tax liability = $17301

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