Assessment 3 Case Study Data Background Shine Pty Limited (Shine) is an Australian resident company that was incorporated in 2015. After purchasing several investments including real estate and shares, in 2020 Shine commenced business as a computer equipment wholesaler with both Australian and overseas clients. Julia Tan, the Managing Director of Shine, has terminated Sahid Tram, the company's accountant, as she is concerned that there are several errors in the returns prepared. Julia has provided the following information produced by Sahid: a) Preparation of 2023 Income Tax Return Information & notes b) Preparation of 2023 Franking account & notes c) Preparation of 2023 June Business Activity Statement (BAS) & notes d) Preparation of 2023 Fringe Benefits Tax Return & notes Requirements Julia has requested that you prepare a statement of advice including: (a) Any necessary corrections to preparations of Sahid's Income Tax Return that impacts taxable income, income tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. Please use a reconciliation format - this reconciliation should start with Sahid's taxable income and incorporates any necessary adjustments for deductions and income to arrive at the final taxable income figure. In addition, calculate net tax payable/refundable. (b) cerate a franking account and advise the consequences of franking deficit tax. (c) Any necessary corrections to Sahid's preparations of Fringe Benefits Tax Calculations that impacts the taxable value of benefits and fringe benefits tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. (d) Any necessary corrections to Sahid's preparations of Business Activity Statement that impacts GST on sales, GST on purchases and net GST payable. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. (a) Preparation for Income Tax return provided by Sahid Assessable income $ Sales of goods and services Note 1 2,680,000 Dividends Note 2 41,000 Franking credits 17,571 Gross rent & other leasing income Note 3 119,000 Net capital gain Note 4 59,000 Allowable deductions Cost of Sales Note 5 958,000 Superannuation expenses Note 6 54,238 Rent expenses Note 7 52,290 Interest expenses Note 8 61,190 Repairs and maintenance Note 9 46,000 Depreciation expense Note 10 44,800 Motor vehicle expenses Note 11 26,700 All other expenses Note 12 1,498,000 Company loss (2021 to 2022) Note 13 130,000 Taxable income 45,353 Notes and workings accompanying the tax return Note 1 SALES OF GOODS AND SERVICES Sales of computer equipment in Australia $ 2,000,000 Sales of computer equipment to overseas $ 680,000 $2,680,000 Note 2 DIVIDENDS Dividends from base rate entities (fully franked) $ 13,000 Dividends from listed companies (fully franked) $ 28,000 $41,000 Note 3 GROSS RENT AND OTHER LEASING INCOME Rental income from subletting restaurant building $ 83,000 Rental income from residential properties * $ 36,000 $119,000 * For residential properties, a further $4,000 of rent from residential tenants was received in advance as at 30 June 2023 Note 4 NET CAPITAL GAIN Sale of business car (WDV $37,000, Proceeds $49,000) $ 12,000 Sales of shares investments * $ 47,000 $59,000 * Regarding the sale of shares, the total capital gains were discounted by 50%, as Sahid indicated that the shares were held for more than one year, making them eligible for the capital gains tax (CGT) (Purchased on 1 August 2020 for $18,000 and sold on 30 August 2022 for $112,000). Car above was held less than 12 months, hence no discount. Note 5 COST OF SALES Computer equipment parts costs Note 6 SUPERANNUATION EXPENSES $ 958,000 Superannuation contributions paid $ 43,390 Superannuation contributions accrued Note 7 RENT EXPENSES $ 10,848 $54,238 Management fees to residential property $ 13,390 Management fees to commercial buildings $ 27,900 Rates ($5,400) & Strata levy ($5,600) Note 8 INTEREST EXPENSES $ 11,000 $52,290 Interest paid on loan (purchased buildings for rental) $ 53,390 Borrowing costs for Rental above * $ 7,800 $61,190 * Interests and borrowing costs have been incurred since 1 July 2021 in relation to rental properties Note 9 REPAIRS AND MAINTENANCE EXPENSES Plumbing & other repairs for shops & offices $ 18,100 Removal of a wall to expand the kitchen area within the office * $ 27,900 $46,000 * The above was completed on 1 March 2023. Note 10 DEPRECIATION EXPENSES Office & shops equipment and fittings $ 44,800 * The above was calculated using straight line method, cost $498,000 less residual value $50,000 with useful life of 10 years (all depreciable assets above purchased on 31 August 2020). Shine Ltd is using a prime cost method for tax purposes. Note 11 MOTOR VEHICLE EXPENSES Running costs - car benefit $ 24,800 Speeding fines paid Note 12 ALL OTHER EXPENSES $ 1,900 $26,700 Salaries and wages paid $ 493,072 Other deductible operating costs $ 902,528 Fringe Benefits Tax Paid for 2022 $ 5,600 Employee's leave accrued $ 72,900 Income tax expenses Note 13 COMAPNY LOSSES $ 23,900 $ 1,498,000 Loss incurred for the year ending 30 June 2021 $ 90,000 Loss incurred for the year ending 30 June 2022 $ 40,000 $130,000 * Shine Pty Ltd, a resident Australian company, operated a business selling farmland in Western Australia until 1 September 2020, at which point it transitioned to selling computer equipment. Since the change in business activities, the company has incurred losses of $90,000 for the year ending 30 June 2021 and $40,000 for the year ending 30 June 2022. The company initially had five shareholders, each holding an equal share since its incorporation. However, three of five shareholders sold their shares to a new investor on 30 January 2022. Notes and workings for the company tax payable Sahid informed that the company net tax payable/refundable for 2023 should be as follows. Taxable income 45,353 Tax on taxable income x 30% 13,606 Less PAYG withholding (refer to franking account) -40,000 Net Tax Refund -26,394 (b) Preparation for Franking Account provided by Sahid DATE DESCRIPTION DR CR BAL 1-Jul Opening balance 1,000 15-Aug Fully franked dividends totalling $28,000 received - listed company 12,000 16,000 19-Oct PAYGI Payment for 2023 10,000 (3,000) 12-Jan Fully franked dividend of $56,000 paid 56,000 (53,000) 19-Jan PAYGI Payment for 2023 10,000 (43,000) 26-Apr Fully franked dividends totalling $13,000 received - base rate entities 5,571 (37,429) 27-Apr 2022 income tax refund 18,900 (18,529) 1-May Unfranked dividend of $56,000 paid 56,000 (74,529) 29-May PAYGI Payment for 2023 10,000 (64,529) 30-Jun Payment of PAYG withholding for suppliers who did not provide ABN 10,000 (54,529) Note 1 Note 1 FRANKING DEFICIT TAX Sahid informed that the company needs to pay $54,529 by 30 June 2025. (c) Preparation for the business activity statement provided by Sahid Sahid informed the following should be included in the annual GST return for 2023. G1 TOTAL SALES Sales of computer equipment in Australia 2,000,000 Sales of computer equipment Overseas 680,000 Rental income - commercial rent Rental income - residential rent 119,000 Net capital gains 59,000 2,858,000 G11 NON-CAPITAL PURCHASES Purchases of computer parts 1,053,800 Rent expenses 52,290 Repair 46,000 Motor vehicle expenses 26,700 All other expenses 902,527 2,081,317 Sahid informed that the company's GST payable for the 2023 should be as follows. 1A GST payable to the ATO = $2,858,000 /11 $ 259,818 1B GST refundable from the ATO = $2,081,317 / 11 $ 189,210 Net GST payable $ 70,608 (d) Preparation for the fringe benefits tax return provided by Sahid. Sahid informed the following should be included in the fringe benefit tax return for 2023. $ CAR FRINGE BENEFIT Car value 55,000 Estimated business use (no logbook kept) 40% TAXABLE VALUE 22,000 Note: A car was provided to the general manager for the entire FBT year. The car was available for private use and originally cost $55,000 including GST on 1 April 2022. The vehicle was parked at the general manager's residence, except for a period of 31 days when it was undergoing servicing. EXPENSE PAYMENT BENEFITS Overseas holiday trip costs for daughter of employee 6,000 Mobile phone accounts paid for an employee (on work use phone) 550 Tickets to concert provided to employee as a gift 250 TAXABLE VALUE 6,800 Sahid informed the FBT payable for 2023 is as follows. Total taxable value $28,800 * 2.0802 = $59,909 * 47% = $28,157.23 Part (a) Reconciliation of Taxable income & Net tax payable/refundable In this section, you are required to reconcile taxable income and determine whether net tax is payable or refundable. This involves calculating the taxable income after considering all allowable deductions and assessable income as per notes provided. After this, you apply the relevant tax rate to arrive at the final net tax amount for the company. You must include tax offsets and credits in your calculations. These tax offsets and credits may be sourced from the franking account.