Calculating Partnership and Individual Tax Liabilities in Australia

This assignment solution provides a comprehensive analysis of Australian taxation law, focusing on the calculation of net partnership income and the individual tax payable by Barry. The solution begins by calculating the net partnership income, detailing various receipts such as gross trading receipts, cash dividends, and interest income, along with corresponding expenses like salaries, rent, and depreciation. Several working notes are included to explain the calculations for capital gains, dividends, interest, stock valuation, and provisions for bad debts and long service leave. Following the partnership income calculation, the assignment calculates Barry's individual tax liability, outlining his income sources (capital gains, partnership income, salary, dividends, interest, and rental income) and allowable deductions (train fares, rates, electricity, tax agent fees, medical expenses, interest, and maintenance). The final calculation determines Barry's taxable income, total tax, and Medicare levy, adhering to the individual tax rates. The solution references relevant sections of the Income Tax Assessment Act 1997 and provides links to ATO resources for further clarification.

AUSTRALIAN TAXATION
LAW

TABLE OF CONTENTS
Calculate net partnership income...........................................................................................1
Calculate tax payable of Barry...............................................................................................3
REFERENCES...........................................................................................................................4

Calculate net partnership income
Particulars Tax sections Amount
Receipts
Gross trading receipts 3900000
Cash Dividend(W.N.2) S44 0
Interest income from bank of china(W.N.3) 10000
Insurance proceeds received for writing off the clear 80000
Total 3990000
Expenses
Salary to Barry
S8-
1ITAA1997 40000
Interest on loan of funds by Brett
S8-
1ITAA1997 10000
Salaries paid to employees
S8-
1ITAA1997 950000
Rent and power 60000
Purchase of trading stock(W.n.4) 200000
Superannuation to staff
S6-5
ITAA1997 85500
Superannuation paid on behalf of Barry
S6-5
ITAA1997 25000
Superannuation paid on behalf of Brett
S6-5
ITAA1997 25000
Purchase of BMV motor vehicle(W.N.5) 40000
Purchase of treadmill(W.N.6) 135000
Interest on bank overdraft
S8-
1ITAA1997 18623
Provision for long service(W.N.7) 12477
Provision for bad debts(W.N.8) 85151
Total 1686751
Income from partnership income 2303249
GST @10%(Section 8.1 of ITAA 1997) 230324.9
Franking credit on BHP shares S207 10500
Net Income of partnership 2062424
Barry 1031212
Brett 1031212
Capital gain 13426.88
Barry 6713.439
Brett 6713.439
Working notes
W.N.1
Particulars Amount
Capital gain 20000
Indexation factor 0.671344
1

Indexed capital gain 13426.88
CPI of 1999 164.3
CPI in 2017 244.733
CPI of 1999/CPI in 2017 0.671344
Indexation rules has application in determining the indexed capital gain arises from
the sales of shares from the Australian company. It is long term capital gain as the shares
acquired by an individual in January 2004 and sold the same on 31st may 2017 that is the
reason it falls under the category of long term capital gain as the shares held with the
individual for more than one year (Indexation, 2017). Shares acquired by an individual in
2004 which according to the principle falls in the slab of post September 1999 for
ascertaining the indexation factor.
Indexation factor is determined by dividing consumer price index of 1999 with the consumer
price index of the sale year to ascertain the indexation factor.
W.N.2
Particulars Amount
Cash dividend 10500
Fully franked dividend 10500
Franking credit(S20) 10500
Cash dividend received by the partnership from the BHP is not treated as the normal
receipt as this dividend is fully franked as the tax paid on the total amount of the dividend is
used as a tax deduction from the total taxable income of the firm. It is deducted from the total
income of the partnership to reduce its overall tax obligations.
W.N.3
Particulars Amount
Gross interest 11250
Tax withheld (S207) 1250
Net interest received 10000
Out of total interest income received by the firm from bank of china $1250 is keeps as
tax withheld amount that reduces the total interest amount of $11250.
W.N.4
Particulars Amount
2

Opening stock 370000
Purchase 620000
Less: closing stock 790000
Balance 200000
The valuation of the closing stock based on the inventory valuation principles of IAS
that closing stock is determined on lower of costs or net realisable value. Cost of closing
stock is $790000 and net realisable value is $860002 out of which $790000 is consider as the
suitable amount.
W.N.5
Particulars Amount
Purchase price 120000
Insurance receipts 80000
Balance 40000
W.N.6
Particulars Amount
Purchase 180000
Depreciation (S40-230) 45000
Balance 135000
W.N.7
Particulars Amount
Long service leave 25984
Paid 13507
Balance (Section 15.5 of ITAA1997) 12477
W.N.8
Particulars Amount
Provision for bad debt 122000
Bad debt written off 36849
Balance 85151
Calculate tax payable of Barry
Particulars
Tax
sections Amount
Income
Capital gain 6713.439
3

Partnership income 1031212
Dividend received from an Australian resident company S44 7000
Gross salary(W.N.1) 39000
Refunds from Government Medicare systems 2000
Interest on Bank deposits 5000
Rental income from an investment property
S6-5
ITAA1997 10000
Total 1100925
Payments
Train fares for travel to and from work
S8-1
ITAA1997 1200
Rates on family home 2200
Electricity for family home 900
Tax agent's fees
6-5(2) of
ITAA1997 3000
Gross medical expenses 5000
Rates paid on investment property
S8-1
ITAA1997 2000
Interest paid on loan 15000
Cost of painting
S-25-10
ITAA1997 5000
Cost of replacing roof tiles
S-25-10
ITAA1997 1000
Cost of extending the bathroom
Capital
expenditure 15000
Maintenance expenses(W.n.2) 3718
Total expenses 54018
Gross income 1046907
Tax deductions
Train fares for travel to and from work
S8-1
ITAA1997 1200
Rates on family home 2200
Electricity for family home 900
Tax agent's fees
6-5(2) of
ITAA1997 3000
Gross medical expenses 5000
Rates paid on investment property
S8-1
ITAA1997 2000
Interest paid on loan 15000
Cost of painting
S-25-10
ITAA1997 5000
Cost of replacing roof tiles
S-25-10
ITAA1997 1000
Cost of extending the bathroom
Capital
expenditure 15000
Maintenance expenses(W.n.2) 3718
Total deductions 54018
Taxable income 992889.5
4

Taxable income 992889.5
$0-$18200 0
$180000 and above 446800.3
Total tax 446800.3
Medicare levy @2% 8936.005
Total tax 455736.3
Tax is calculated as per the individual tax rates slab as tax rate of 45% as the taxable
income of Barry is higher than $180000 in a particular year (Tax deductions, 2017). The
current taxable income is lesser due to the tax deductions received by the firm to reduce its
overall tax liabilities imposed in a particular year.
REFERENCES
Indexation, 2017. Available through: <
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-
loss/Working-out-your-capital-gain/The-indexation-method-of-calculating-your-capital-
gain/> [Accessed on 12th October 2017].
Tax deductions, 2017. Available through: < https://www.ato.gov.au/Individuals/Income-and-
deductions/In-detail/Rental-property-expenses/> [Accessed on 12th October 2017].
5

6