Charles and Johanna Mortdecai were business partners in an art appreciation training business called Appraise the Masterpiece
Question:
Charles and Johanna Mortdecai were business partners in an art appreciation training business called “Appraise the Masterpiece” which operated under the SBE system. They owned their business premises which they had bought in the previous year for $650,000. The building had cost $230,000 when it had been constructed in June 2009.
Charles had a 60% partnership interest and Johanna had the remaining 40%.
Their partnership books showed the following Income and expenses for the current year:
INCOME
• Income from art classes. Some customers had private lessons for which they paid weekly but most customers paid in advance for a term’s fees. At 30 June 2016 $150,000 in fees for term three which was to commence on 24 July 2016 had been received. Refunds were offered up to one week before the classes commenced. $968,000
• Lease premium received from lessees who had leased a portion of the premises. $20,000
• Rent from tenants $30,000
• Insurance payout for loss of earnings from the business when the former building was damaged in a storm. $60,000
• Interest received from Charles($3,000) and Johanna ($2,000) on their drawing $5,000
• Dividend received from Bankwest $5,000
Franking Credits were $2,143
EXPENSES
• General operating expenses. This included insurance, motor vehicle expenses, telephone and electricity expenses $200,000
• Interest on capital to partners, $10,000 to Charles and $8,000 to Johanna $18,000
• Interest paid to Charles, he lent the partnership
$400,000 to assist with the purchase of the new building. $20,000
• Repair to new studio to repair leaks in the bathrooms. The leaks were not obvious when the building was purchased last year but were discovered during the current year. $3,200
• Repair to premises as a result of a tap left on in the bathroom which flooded part of the premises $5,100
• Superannuation for staff $13,500
• Superannuation for Charles $50,000
• Superannuation for Johanna $50,000
• Wages – staff $150,000
• Wages – Charles $120,000
• Wages – Johanna $100,000
• Tax Agents Fees $5.250
• Legal fees in relation to advice on setting up a new business. $1,250
• A motor vehicle was provided to one of the employees, a log book was maintained and the business use was determined to be 82% of the total expenses incurred for the motor vehicle $10,200
• Depreciation Expense $7,670
• The partnership incurred borrowing costs of $789 on 1 June PY when they took out a loan at Bankwest to purchase new equipment, the loan was for 3 years
QUESTION
a) Calculate the net income of the partnership
b) Calculate the taxable income by each partner
c) Calculate the net tax payable of each partner
d) Provide the legislative references from the Income Tax Assessment Act 1997 and 1936.
Business Law Text and Cases
ISBN: 978-0324655223
11th Edition
Authors: Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, F