Taxation Case Study: TelDrop Partnership

This case study provides a detailed analysis of taxation principles applied to various business scenarios. It includes calculations of taxable income for an individual, a sole proprietorship (Second Chance), and a partnership (TelDrop). The study covers aspects such as salary deductions, business expenses, profit distribution, and trust income. It also addresses the Australian Taxation Office's regulations and guidelines for determining tax liabilities for different business structures. The report concludes with a summary of key findings and a list of references.

Taxation

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
PART B...........................................................................................................................................4
PART C...........................................................................................................................................7
1. Calculating net income of TelDrop partnership firm for the year ended 30 June 2017..........7
2. Distributing the net income of the partnership for the year ended 30 June 2017....................9
PART D...........................................................................................................................................9
1. List any amounts for which there is no present entitlement as at 30 June 2017......................9
2 Amount retained by trust........................................................................................................10
(3) Taxable income....................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Corporate tax may be defined as obligations which are levied by the government on
concerned authority. Tax is charged or calculated on income according to the rates introduced by
Australian Taxation Office. In every country, tax is major income source for government which
in turn enables them to take initiatives for economic growth and development. Hence, to
determine the tax liability it is highly required for business entity to find assessable income
(Woellner and et.al., 2017). Further, bases of tax also highly differ from one individual to
another significantly. Moreover, tax liability is highly based on the income generated during the
financial year or period. The present report is based on the case scenario of George Smiley who
works as senior sales manager in a store which offers both telephone and ancillary equipments to
the customers. George Smiley also has his own businesses as well as such as second chance and
TelDrop. In this, report will present the manner in which net income can be assessed. Besides
this, it will also shed light on the ways through which tax liability for trustees can be identified.
PART A
On the basis of cited case situation, salary received by George during the accounting year
2016-17 accounts for $85000. Given case situation also presents that several deductions are
available to George which in offers several monetary benefits to him.
Calculation of taxable income
Particula
rs
Figur
e (in
$)
Salary 8500
0
Less: Tax
withheld
1550
0
69500
Cost of
seminar
attended
1000
Decline in
value
700
Repairs 560

to
equipment
Fees
charged
by an
accountan
t
540
Donation
to charity
300
Private
health
insurance
4000
Net
capital
gain
1800
0
Franked
dividend
7000
Franking
credit
1000
Total
expenses 33100
Taxable
income or
salary 36400
PART B
The cited case situation presents that George has opened another business such as Second
Chance. Case also presents that George undertakes accrual basis of accounting for recording and
disclosing the transactions.
Net income presents the amount determined through deducting tax from assessable
amount. The below mentioned table presents that amount of net loss for the period ended at
2016-17 accounts for $34857 respectively. Hence, no liability is imposed by government in front
of business entity when loss occurred. By considering the adjustments value of sales, closing
stock, purchase etc. has been determined in the following manner:
Working note: 1

Sales:
Particulars Figures (in $)
Cash sales 315000
Credit sales (38000 – 10000) 28000
Total sales 343000
The above depicted table presents that $10000 has been deducted from the amount of
credit sales. Moreover, $10000 included in debtors was related to the period ended at 30/6/2016.
Hence, amount of credit sales were related to the financial year ended at 2016-17 accounts for
$28000.
Working note: 2
Purchase:
Particulars Figures (in $)
Cash purchase 80000
Credit purchase (138000 –23000) 115000
Total purchase 195000
Tabular presentation shows that net or total amount of purchase is related to $195000
respectively. Cash book of Second Chance entails that amount of cash purchase is $80000.
Further, to find out the amount of credit purchase 23000 has been deducted from $138000
significantly. Hence, from evaluation it has been assessed that amount of credit purchase related
to 2016-17 implies for $115000.
Working note: 3
 Opening stock: $16000
 Closing stock: $19000
Hence, by considering adjustments value of opening and closing stock profit and loss a/c has
been prepared.
Working note: 4

Amount of store alteration such as $ 45000 as whole considered for determining
assessable income. The rationale behind this, amount of store alteration is highly related to the
concerned accounting year such as 2016-17.
Working note: 5
It is mentioned in the case situation that Motor Vehicle expenses were amounted to
$12800. Case also depicted that part of Motor vehicle used for business purpose related to 45%.
By considering this, amount such as $5760 has been considered which 45% of $12800.
Working note: 6
By taking into account given adjustments it can be said that advertisement expenses
related to the year of 2016-17 accounts for $4666.67 respectively. Thus, to determine the suitable
net assessable income or loss 12 months have been considered.
Net income of Second Chance for the year ended at 2016-17 is as follows:
Particulars
Figure
s (in $)
Sales 343000
Closing stock (19000 - 4170) 14830
357830
Opening stock 16000
Total purchase (cash + credit) 195000
211000
Gross profit 146830
Insurance: flood damage 7000
Insurance: storm damage 13000 20000
Operating profit 166830
Legal expenses 2000
Entertainment of suppliers and large customers 1660
Repairs 12000
Staff wages 80000
Superannuation for staff 7600

Advertising 27000
Add: Expenses 4666.67 31666.67
Alterations 45000
Motor vehicle expenses 5760
Council rates - business 6000
191687
Assessable amount -24857
Less: Other deductible expenditure 10000
Net loss -34857
PART C
1. Calculating net income of TelDrop partnership firm for the year ended 30 June 2017
By considering the given case situation it can be presented that George has opened
business under the partnership agreement. Hence, George and Toby are agreed to share their
profits or losses equally. In accordance with the laws and legislation, firms in which two or more
person comes together to share their profit or losses them it is known as partnership firm (Lam
and Whitney, 2016). ATO presented partnership as a group or association of people who
operates business with their mutual understanding or discussions. Under partnership agreement,
business entities require to mention the ratio on which they will share profit or loss in the near
future and the manner in which they will be controlled. Such agreement is highly significant
which in turn helps in preventing disputes to a great extent (Barkoczy, 2016). In addition to this,
from the perspective of taxation partnership agreement is highly significant which in turn helps
in assessing suitable tax liability. It is highly significant only when profit or loss is not equally
distributed by the partners.
Key aspect of partnership firm according to ATO is enumerated below:
 In partnership firm, income, loss as well as control is shared by the partners.
 Further, partnership firm has his own TFN and requires lodging annual returns by
presenting all the income and deductions which are available to business (James, 2016).

 Besides this, partnership firm must have registration for GST. Hence, GST turnover of
partnership should be $75000 or more.
 Being a partner of business one can claim for tax deductions and thereby become able to
get financial benefits.
Calculation of net income for the year ended at 30-6-2017
Particulars
Figures (in
$)
Fees received 580000
Closing stock 13000
Purchasing of parts to be used in business 36000
Gross profit 557000
Add:
Interest on drawing- George 500
Interest on drawing- Toby 980
Operating profit 558480
Less: Expenses
Rent of premises and sundry expenses 152000
Salaries of part time technicians 230000
Salary of George 68000
Salary of Toby 75000
Bank loan repayment - interest 1500
Interest on capital-George 1000
Interest on capital- Toby 1000
Interest on loan from Toby 2500
Superannuation contributions 21000
Total expenses 552000
Earnings before taxation 6480
Less: Tax (30% of 6480) 1944
Net profit 4536
The above depicted table shows that net income of DelTop partnership firm implies for
$4536 respectively. Hence, after deducting expenses from revenue net income has been derived
by concerned authority. Thus, tax liability of DelTop partnership firm for the financial year
2016-17 is $1944. From the assessment of rules and regulation, it has been identified that tax

rates for partnership firm is 30%. In the real life, partnership firm is recognized or treated as
separate entity. Company’s liability is not highly affected from the aspect whether it is
registered or not (Alghamdi and Rahim, 2016). Hence, partnership firm and partners come under
their respective slabs. Thus, by charging 30% tax rate on net profit tax liability has been
determined for DelTop such as $1944 respectively.
2. Distributing the net income of the partnership for the year ended 30 June 2017
Particulars
Figures (in
$)
Total Net income 4536
Part of Toby (50%) 2268
Part of George (50%) 2268
Tabular presentation shows that part of Toby and George implies for $2268 each
respectively. Moreover, it is presented in the case scenario that both the partners such as George
and Toby will share their profit equally. Hence, by taking into consideration such aspect equal
ratio has been considered to determine the level of net income for each partner. According to the
ratio of .5:.5 amounts has been allocated to each partner. Hence, at the time of allocation terms of
partnership agreement has been undertaken by the partners.
PART D
1. List any amounts for which there is no present entitlement as at 30 June 2017
It can be seen from the table that George Smiley received the income for £41000. Along
with this, James Smiley which is the George brother received £17000. The other three
beneficaries are Scott, Jennifer and Mathew Smiley. These people received less amount of
money which is ewquivalent to 5000,5000 and 3000. As per Australia tax law those individuals
that receive an amount less then 6000 are not liable to pay any tax on the income that is received

from the trust. Thus, it can be said that in the present case Scott, Jennifer and Mathew are not
liable to pay tax and are entitled to obtain relaxation from the payment of tax or tax liability. This
means that other entities which are George and James Smiley are liable to pay tax to tax
department (An overview of trusts in Australia, 2017). It can be said that releaxation is given to
those in terms of payment of tax. It is very important to give relaxation in tax to the individuaals.
This is because by doing so it is ensured that those who have less income will not face shortage
of money due to payment of tax. Time to time many amendments are made in the law and by
doing so it is ensured that appropriate amount of tax is charged on the individuals. Usually
percentage of tax is very high on the income and due to this reason those that are liable to pay tax
have to pay heavy amount of cash inflow to the tax department of the nation. Thus, it can be said
that in order to ensure that low income individual will not face huge problem lots of relaxation is
given to them in terms of tax.
2 Amount retained by trust
No amount is retained by trust as it can be observed that in total amount of balance
retained by trustee is equal to zero. This is because entire amount of net income of trust is
£68000. If total of allocations will be done then it can be observed that allocation is higher than
net income of trust. This can be verified from the example that is given below.
Table 1Calculation of amount retained in the business
Net income of trust 68000
Allocation of fund
George Smiley 41000
James Smiley 17000
Scott Smiley 5000
Jennifer Smiley 5000
Mathew Smiley 3000
Total 71000
Value -3000

It can be seen from the table that from the net income of trust expenditures is 68000 and overall
expenditure amount is 71000. This reflects that more than net income of trust allocation is made
which means that nothing is retained in trust.
(3) Taxable income
Table given above reflects that when in any case maximum £1308 amount is more then the
mentioned value then in that case income of trustee is taxable in nature. As per above table net
income is 68000 and this means that 47% income is taxable. It can be said that £31960.
CONCLUSION
By summing up this project report, it has been concluded that rules and regulations
revealed by Australian taxation office are highly significant. It can be stated from the report that
by deducting expenses from income assessable income can be identified. Hence, by paying tax
on profit and deducting it from margin net income can be assessed. It can be seen in the report
that Deltop has allocated profit to partners equally. Besides this, it can be seen in the report that
deductions mentioned in Income Tax Act help in presenting the suitable view of net income.

REFERENCES
Books and Journals
Alghamdi, A. and Rahim, M., 2016. Development of a Measurement Scale for User Satisfaction
with E-tax Systems in Australia. In Transactions on Large-Scale Data-and Knowledge-
Centered Systems XXVII (pp. 64-83). Springer Berlin Heidelberg.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
James, K., 2016. The Australian Taxation Office perspective on work-related travel expense
deductions for academics. International Journal of Critical Accounting. 8(5-6). pp.345-362
Lam, D. and Whitney, A., 2016. Taxation and property: Practical aspects of the new foreign
resident CGT witholding tax. LSJ: Law Society of NSW Journal. (21). p.84.
Woellner, R. and et.al., 2017. Australian Taxation Law 2017 27th edition. OUP Catalogue.
Online
An overview of trusts in Australia, 2017. [Online]. Available
through:<https://www.davidgarry.com.au/overview-of-trusts-in-australia.html>. [Accessed
on 12th May 2017].