Preparing and Administering Tax for Legal Entities Case Study

This assignment focuses on the preparation and administration of tax documentation for legal entities, specifically addressing the case of Stephen John Murphy, a sole trader. The solution includes calculations of assessable income, allowable deductions, and total tax payable, including Medicare levy. It also assesses Stephen's financial position, highlighting the business's positive cash inflow and current ratio while noting the high overhead expense percentage. The analysis covers various aspects of tax compliance, such as income from business and rental properties, deductions for mortgage payments and repairs, and the treatment of purchased assets like a laptop and telephone. The assignment concludes that Stephen's business is currently in a healthy state, but emphasizes the need to reduce overhead expenses for long-term sustainability. Desklib offers similar solved assignments and study tools for students.

prepare and administer tax documentation for legal entities

Prepare and Administer Tax Documentation for Legal Entities
Task 5:
Balance Sheet
Capital
Amount($
) Fixed Assets
Amount(
$)
Net
Profit
46,6
57 Laptop
2,50
0
Drawing
s
-
32,000
14,6
57
Less:
Depreciation 938
1,
563
Creditors 2,300 Telephone
1,25
0
Less:
Depreciation
1
25
1,
125
Debtors
12,
400
Cash
1,
869
16,957
16,
957
Task 6: Answers for the following questions:
a. What rate of tax should Stephen be paying?
A: 15.13% (approx.)
b. What is his charge for the Medicare levy and surcharge?
A: 2% Medicare levy i.e. AUD 973 on the assessable income.
c. What superannuation should Stephen have received?
A: Stephen would not receive superannuation since he is a sole trader hence
superannuation does not apply.
d. What was Stephen’s assessable income?

Prepare and Administer Tax Documentation for Legal Entities
A: Stephen’s assessable income was $48,657.
e. What was Stephen’s tax payable or refund amount?
A: Stephen’s total tax payable including Medicare levy was $8,334 (Privatehealth.gov.au,
2018)
f. Did Stephen have any fringe benefits? If so what were they?
A: Stephen did not have any fringe benefits since he is a sole trader hence fringe benefits do
not apply.
g. How would you calculate the fringe benefits for reporting purposes?
A: Taxable value of all the fringe benefits provided to the employee should be added
together (Business.gov.au, 2018).
h. Is there any payroll tax due or paid?
A: No, there is no payroll tax due or paid (Payrolltax.gov.au, 2018).
Table 1: Calculation of Income Tax
Calculation of Taxable income and tax payable thereon
AUD
Income from Business 24,657
Gift received from client 2,000
Australian sourced Rental Income 22,000
Total Assessable Income 48,657
Allowable Deductions -
Total Taxable Income 48,657
Tax on Taxable Income
(3572+3789) 7,361
Medicare levy (48657`*2%) 973
Total tax payable 8,334
Effective Tax Rate (%) 15.13

Prepare and Administer Tax Documentation for Legal Entities

Prepare and Administer Tax Documentation for Legal Entities
Task 9: Financial position
Stephen’s business seems to be in a healthy state presently since it’s able to generate a positive cash
inflow in the business i.e. more funds are coming back to the business than invested. But the
Overhead Expense % (Overhead/Sales) constitutes approximately 91.21% of total sales of the
business which is not good for the business in long run and the overhead expense % should be
reduced. Also the current ratio (Current assets/Current liabilities) of the business is coming out to be
6.20 which is more than the accepted current ratio which shows that the business is able to meet it’s
short -term obligations.
Balance Sheet
Capital Amount($) Fixed Assets Amount($)
Net Profit 46,657 Laptop 2500
Drawings -32,000 14,657 Less: Depreciation 938 1,563
Telephone 1,250
Less: Depreciation 125 1,125
Creditors 2,300
Debtors 12,400
Cash 1,869
16,957 16,957

Prepare and Administer Tax Documentation for Legal Entities
References
1. ato.gov.au (2018). GST – completing your activity statement. [ebook] ato.gov.au. Available
at: https://www.ato.gov.au/uploadedFiles/Content/ITX/downloads/BUSqc17458n7392.pdf
[Accessed 15 Jul. 2018].
2. Taxsuperandyou.gov.au. (2018). Task C6.1 Preparation of a business activity statement | Tax
Super and You. [online] Available at: https://www.taxsuperandyou.gov.au/node/954/take
[Accessed 15 Jul. 2018].
3. Privatehealth.gov.au. (2018). Medicare Levy Surcharge. [online] Available at:
https://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/mls.htm [Accessed 15
Jul. 2018].
4. Business.gov.au. (2018). Fringe Benefits Tax (FBT). [online] Available at:
https://www.business.gov.au/info/run/tax/fringe-benefits-tax [Accessed 15 Jul. 2018].
5. Payrolltax.gov.au. (2018). Payroll Tax Australia |. [online] Available at:
https://www.payrolltax.gov.au/ [Accessed 15 Jul. 2018].