Taxation Calculation: Analyzing Partnership and Individual Tax Returns

This assignment focuses on calculating the partnership and individual income tax liabilities for 'The Two B's,' a partnership comprising Mary Burns and Sally Brown, based on Australian taxation laws. The analysis includes calculating partnership income, cost of goods sold (COGS), and taxable income for each partner, accounting for various income sources, expenses, and deductions such as salaries, superannuation, and provisions for bad debts. The assignment also details Mary's individual tax return, considering her income from employment, dividends, and investments, along with deductible and taxable expenses. The calculations incorporate relevant tax rates, surcharges, and Medicare levies, culminating in the determination of the total tax payable for both the partnership and Mary, providing a comprehensive overview of the tax implications for both business and personal finances. The assignment references relevant working notes and Australian tax guidelines.

TAXATION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Calculating the partnership income and taxable incomes of partners................................1
2. Measuring tax payable for Mary........................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
In the present assessment there will be measurement based on partnership income as well
as individual income. There will be exemptions over the income or earning generated by them as
well as taxes to be levied in accordance with taxation slab provided by ATO. In the present case
study, Mary Burns and Sally Brown are the two partners who has started a partnership
organisation namely The Two B's. Hence, there will be calculations based on various income or
expenses generated by them in assessable year. Thus, personal income of Mary Burns will also
be calculated on the basis of transactions made by her in the financial year.
1. Calculating the partnership income and taxable incomes of partners
Measurement will be on the basis of both Australia resident partners Mary and Sally.
There will be calculations over the partnership and the turnover made by them. Hence, it will be
taxable in accordance with Australian taxation laws (Yeung and et.al., 2017). They will be
awarded with the various exemptions over such expenses of income on which they can easily
claim deductions in tax returns. The income statement of the firm is as follows:
Income statement of The Two B's
PARTICULARS Mary Burns Sally Brown
Gross Trading Receipts 950000 950000
COGS (i) 317000 317000
GROSS PROFIT 633000 633000
OTHER INCOME
Sale of shares 10000 10000
Cash on dividends BHP 5250 5250
Interest on bank of china 5500 5500
TOTAL INCOME 20750 20750
EXPENSES
salary to marry 40000
Salary to employees 125000 125000
Rent and power 30000 30000
superannuation to staff 42750 42750
superannuation to partners 25000 25000
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purchase of car 120000
interest on bank overdraft 9311.5 9311.5
Provision for long service leave (ii) 6238.5 6238.5
Provision for bad debts (iii) 15075.5 15075.5
Total expense 413375.5 253375.5
Earning before tax 240374.5 400374.5
Less: Tax 45671.155 130121.7125
Add: surcharged amount 18200 37000
Total taxable amount 63871.16 167121.71
ADD: Medicare levy (2%) 0 8007.49
ADD: Deficit (2%) 4807.49 8007.49
Tax payable 68678.645 183136.6925
Interpretation: On the basis of above measurement, it can be said that the partnership
firm has made profitable earning during the year as well as various transaction took place in
premises (Melo, Bartaula and Hale, 2016). This was decided between partners that all the income
and expenses will be divided as 50% to each individual so the turnover they have made will be
divide as 95000 to each person. The calculations of Cost on goods sold can be seen in the
working note 1. In which the opening balance of 37000 will be deducted with cost of inventory
for 546000. Thus, the cost will be considered as the closing value of the inventory in accordance
with the principle of Conservatism. Hence, it said the lower amount from Market price and the
cost value will be denoted as closing value of such stock. On the other side, Replacement value
and Purchase value of such article were added and that have finalised COGS for $634000.
Hence, the further income of the partners will be calculated by adding various other sources of
income such as interest from bank, cash received on dividends as we;l as sale of shares which
were summarised at $20750 for each individual.
Expenses incurred by the firm such as salary paid to Mary for $40000 was added only to
the Mary's account. Hence, the salary paid to employees along with superannuation in the
organisation was divided in both partner's account. However, the car was purchased by Mary was
fully used for office purpose that costs around $120000. Thus, the further expense will be
charges such as rent interest over draft, but the exemption was awarded in provision for long
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service leave taken by staff which are paid off for $13507 as shown in working note 2. Hence,
Provision for bad debts of 67000 will be deducted with the exemption over write off amount for
$36849 (as shown in working note 3). Thus, total amount of expenses computed at 413375.5 for
Mary and 253375.5 for Sally. Thus, earning before tax will be for 240374.5 and 400374.5 after
adding incomes and deducting expenses. Mary has to pay tax for 19% over generated income
and Sally has to pay for 32.5% as per tax rates facilitated by ATO over the income generated by
an individual. However, Mary will not oblige to make payments for Medicare levy (2%) as she
has insurance cover from a private hospital (Abou-El-Enein and et.al., 2016). Thus, the taxable
amount for both the partners is 68678.645 and 183136.6925 respectively.
Working Note:
1. Calculations for COGS
PARTICULARS AMOUNT
Opening Balance 370000
Less: Cost of inventory 546000
Add: Replacement value 490000
Add: Purchase value 320000
COGS 634000
2. Computation of provisions for long leaves
PARTICULAR AMOUNT
Provision for long leave 25984
Less: paid out 13507
Total provision 12477
3. Measuring the provisions for bad debts
PARTICULARS AMOUNT
Provision for bad debts 67000
Less: wrote off 36849
Total provision 30151
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2. Measuring tax payable for Mary
Tax return of Mary Burns will be calculated on the basis of guidelines facilitated by ATO
(Income tax returns, 2017). She will be benefited with the various deductions or exemptions over
her various income or expense made during the year. However, the income statement of the tax
return analysis of Mary as follows:
Income statement of Mary
PARTICULARS
AMOUNT
($)
EXEMPTIO
NS
AMOUN
T ($)
Salary 40000 25000 15000
Dividends received 70000
Salary from Part-time job 30000 9000 21000
Refunds from Government Medicare system 2000
Rent received from investment property 10000
TOTAL INCOME 118000
Less: deductible EXPENSES
Train fares for travel 1200
Gross medical expenses 5000
Cost of Painting 5000
Maintaining father's bill 5000 2282 2718
Rate paid on investment property 2000
Total deductible expenses 15918
Add: Taxable expenses
Rates of family house 2200
Electricity for family house 900
Tax agent's fee 3000
Interest paid of loan to acquire Investment
property 15000
Cost of replacing roof tiles 1000
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Cost of extending toilet 15000
Total taxable expense 37100
TAXABLE AMOUNT 139182
TAX (37%) 51497.34
ADD: Surcharge amount 19822
Amount taxable 71319.34
ADD: Medicare levy 0
ADD: Deficit 2360
Total tax payable 73679.34
Interpretation: The calculation listed above is relevant to the income earned by Mary
during the year through several sources like from employment, dividends, part-time job,
government Medicare refund and rent received from property (Wada and et.al., 2017). She is
able to claim the deduction over superannuation which are allowed to her by her organisation.
Thus, after measuring all the income through different sources the total income generated by her
is $118000. Hence, she will be able to claim the expenses which are deductible as per norms and
laws set by ATO. Thus, there deductible expense are travailing charges which Mary uses for
travailing to the work place such as train fares which are fully exempted.
The medical expenses made by Mary will be fully deductible as well as cost of painting
the investments' property. Hence, the rate paid by her on investment property which will be
added and the total deductible expenses is tends to $15918. Thus, she has to pay taxes over such
expenses which cannot be deductible under ATO regulations. Hence, these expenses are rates
and electricity charges of family house, fees paid to tax agent, interest over loan acquired for
investments property. However, the expenses like cost of repairing the roof and installation of a
bathroom will not be deductible so, it will also add to taxable expenses. Thus, the total taxable
amount is $139182, as it comes under the taxable slab of 37% with the surcharge amount for
19822 has to be paid and the total amount of tax will be $71319.34. Mary is an Australian
resident she has to make payments for Medicare levy but here she has acquired a medical
insurance from a private hospital so she will be exempted for paying such taxes. After adding the
Budgeted deficit over here income the total tax return will be paid her is $73679.34.
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CONCLUSION
As per the above study, there has been calculation relevant to the tax return of a
partnership firm as well as of an individual partner. Hence, measurement of partnership firm's
taxable payment this will be analysed over the turnover gained by organisation as well as the
measurement of cost of goods sold. Thus, Mary has purchased a car and it was 100% used for
office purpose so, it has been deducted. However, there has been various expense incurred by the
industry such as salary to staff, superannuation charges etc. which were come under total
expenses of the business. Thus, the taxable amount can be paid by both the partners are
68678.645 and 183136.6925 respectively. On the other hand the tax return for Mary will be
calculated at $73679.34 which can be paid by her after having various calculation relevant to tax
deductions over expenses of income.
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