Question: CLIENT INFORMATION: General Facts : Gareth Morgan is 49 years old and is an Australian resident for tax purposes. Gareth is an employee teacher working
CLIENT INFORMATION:
General Facts:
Gareth Morgan is 49 years old and is an Australian resident for tax purposes. Gareth is an employee teacher working for Brisbane Secondary College. Gareth has been working as an English teacher since he completed his Diploma of Education degree fifteen years ago. He lives in a house in St Lucia with his defacto partner Tracey (44 years old) and they have no dependants. Tracey owns the house at St Lucia and purchased it back in 2013.
Gareth is completing a Master of Education at Griffith part time. He attended classes two nights a week during each Semester.
Gareth has supplied you with the information below relating to his personal income tax affairs for the year ended 30 June 2023. However, he is not certain whether everything he has provided you with is assessable or deductible. Because of his uncertainty, he has asked you to carefully consider each item and determine whether it is assessable or deductible. Gareth wishes to minimise his 2022/23 taxable income wherever legally possible, and he will be lodging income tax returns in further years. Assume that the amounts detailed below are all of Gareth's receipts and expenditure for the 2022/23 income year, and that all his expenses are correctly substantiated (unless stated otherwise).
1. Personal information
Client | |
Full Name: | Gareth Morgan |
Date of Birth: | 16 December 1974 |
Occupation: | Teacher |
Tax File Number: | 111 222 333 |
Telephone Number: | (07) 5522 8877 |
Home Address: | 11 New St, St Lucia 4076 |
2. Prior income tax returns
Gareth used the services of his uncle (who is not a registered tax agent) to help him complete his 2021/22 tax return. His uncle sent him an invoice of $660 for the tax return preparation. Gareth paid it on 25 July 2022.
Gareth gave his friend, Neil, a carton of beer (worth $60) for some tax advice about selling some shares during the year.
Gareth paid his 2021/22 income tax liability three months late, so the Australian Taxation Office (ATO) imposed $146 in general interest charges (GIC), which he paid on 2 February 2023.
3. Salary and Wages
During the 2022/23 income year, Gareth worked as a teacher for Brisbane Secondary College.
Gareth was provided with a PAYG Payment Summary from his employer for the period from 1 July 2022 to 30 June 2023, which included the following information:
Name of Payer: Brisbane Secondary College
ABN of Withholder: 00 111 222 789
Gross payments: $97,590
Laundry Allowance: $184
PAYG tax withheld: $21,948
Reportable Super Contribution (RSC) $3000
Note that the gross payments of $97,590 include an amount of $1,020 for annual leave that was paid to Gareth on 1 July 2022, although he took the leave in the prior tax year of June 2022.
Note the RFBA relates to that Gareth has salary sacrificed some of his wages to be provided a car by the school. The RSC relates to $3,000 that Gareth has salary sacrificed into his superannuation. In addition, the School has paid in $10,246 as superannuation guarantee on behalf of Gareth.
Gareth does not have a HELP debt or a Financial Supplementary debt, or any trust distributions.
4. Australian Shares
The details of Greg's share portfolio and dividends received during the 2022/23 income year as follows:
Company Name | Date of dividend paid | Cash received (franking percentage) |
BHP | 31/7/22 | $830 (fully franked) |
CBA | 15/5/23 | $2,400 (60% franked) |
Westfarmers | 1/6/23 | $700 unfranked. |
In the case of all dividends, the company tax rate was 30%
5. Unexpected receipts
- Gareth received $200 cash from his sister as a birthday present.
- He also received a Christmas present (a $50 Myer gift card) from the School Principal. The principal gives a similar type of Christmas gift to all staff every year.
- Gareth received a National Teaching Award of $5,000 for Outstanding Contribution to Student Learning in November 2022. Gareth can use the money for development of his teaching expertise and to go to relevant conferences. 6. Interest
Gareth maintains several bank accounts. He provides you with the following information in relation to interest earned during the 2022/23 income year:
Suncorp Bank savings account (net interest) $219
(TFN withholding tax of $211 deducted by bank -refer to note (a)
Macquarie Bank term deposit (gross interest)-refer to note (b) $1,110
Notes:
a. Gareth opened his Suncorp Bank savings account on 15 July 2022 as they offered a higher interest rate than her previous bank. When opening the bank account, Gareth was in a hurry and inadvertently forgot to provide the bank with his tax file number. Accordingly, for the 2022/23 income year Suncorp bank has deducted 49% (or $211) TFN withholding tax in respect of the interest earned. The net amount of $219 was credited to his account.
b. On 28 July 2022, Gareth deposited $30,000 in a six-month term deposit with Macquarie Bank paying 4% p.a. interest. Rather than receiving the interest on the maturity of the term deposit on 28 January 2023, Gareth elected to rollover the interest of $600 together with the principal of $30,000 for a further six months to mature on 28 July 2023. Gareth estimates that approximately $510 in interest would be accruing on this new term deposit from 28January 2023 to 30 June 2023.
7. Expenses
During the 2022/23 income year, Gareth incurred a number of expenses that he believes are related to his employment as a teacher. Gareth informs you that he has receipts for all the following expenses.
|
Expenses | Amount | ||||||||
| Australian Education Unionmembership For the year 2022/23 | $1,320 | ||||||||
Annual membership of the English Teachers Association of Queensland | $420 | ||||||||
Annual subscription to the Weekend Australianwhich Gareth uses as a teaching resource | $156 | ||||||||
| Attendance at Teaching Conference Gareth attended an annual two-day education conference for secondary teachers held in Adelaide in April 2023. The school did not require any of its teachers to attend the conference. Gareth attended with two of his colleagues who usually go to the conference every year as they see it as useful and informative. Gareth paid for the following expenses:
Lunch was provided at the conference, Gareth paid for his other meals on each of the two days: -Breakfast ($22 and $29). $51 -Dinner ($38 and $45) $83 Note: The school reimbursed Gareth for the cost of the taxi travel ($244) Gareth used some of the money from his teaching award to pay for this. |
$1,759
$134 | ||||||||
| Home office expenses Gareth often prepares for his teaching and marks his student's work at home (an average of five hours a week for 40 weeks of the year). He set up a 'home office' in a separate area of his house; this takes up 15% of the entire floor space of his house. A colleague at his school told him that he can claim deductions for a proportion of the following expenses: Interest on mortgage loan Council rates Water rates Home insurance Electricity | $3,000 $1,500 $800 $700 $1,400 | ||||||||
| Vehicle Information Gareth uses this car when he must travel between the Brisbane and Teneriffe campus for a weekly staff meeting. The vehicle is a 2.0 litre Toyota Corolla (with an ordinary engine) which the school started leasing it 1 July 2022 - it has a value of $26,000 (including GST). Gareth has kept a logbook for the vehicle and according to his logbook, over a twelve-week period the car travelled 1,212 kilometres. This total was made up of:
The expenses that Gareth incurred over the whole income year in relation to the vehicle were as follows:
| $3,160 $240 $860 $760 $80 | ||||||||
| Ties Gareth's employer requires all male teachers to wear a tie to work. In order to comply with the school's dress policy, Gareth purchased three ties during the year for a total cost of $150. Gareth has never worn the ties outside of work and he does not intend to do so. | $150 | ||||||||
Gareth purchased stationery items on 6 occasions during 2022/23, in each case he spent less than $10. He has misplaced all the receipts for these purchases. | $55 |
8. Gifts and Donations
During the 2022/23 income year, Gareth made the following payments:
Payment | Amount |
Fred Hollows Foundation (cash donation) | $300 |
50 tickets in a raffle organised by the Australian Heart Institute; first prize is a new car | $500 |
Political donation to the Liberal Party | $5,000 |
9. Boat
Gareth sold his boat for $11,000 on 14June 2023 to a private buyer. Gareth did not use the boat for income producing purposes. He had bought the boat second-hand for $10,500 on 7May2020. Gareth had some repairs done to the boat in May2023, at a cost of $1,100. Other costs of ownership include a total of $250 for the annual insurance premium that Gareth has paid since he acquired the boat.
10. Inherited property at 20 Windsor Avenue, Caloundra
Unfortunately, Gareth's grandfather, Richard, died on 16 October 2021, and left Gareth his house at 20 Windsor Avenue in Caloundra. Richard bought the Caloundra house on 2 March 1992 for $155,000 and lived in it as his main residence until his death. Richard did not use the property for any income producing purposes during this time. At the date of Richard's death, the house was worth $710,000.
When Gareth inherited the property and decided to keep the property as a holiday home, for his own personal use. However, he found that he wasn't using the property very often, so he decided to sell it.
Gareth sold the property under a contract dated 30 April 2023 for $965,000, with the date of transfer being 30 July 2023. Gareth incurred the following costs in selling the property:
Legal costs $1,650
Real estate agent's fees $6,760
During Gareth's period of ownership of the property, he also incurred the following expenses (for his whole ownership period):
Rates $3,240
Insurance $3,660
Property maintenance $2,560
Gareth advises you that he has a carried forward capital losses of $4,000 from the sale of his BHP shares in 2020.
11. Painting
Gareth was left an oil painting in his grandmother's will. His grandfather died on 16 October 2021 and the value of the painting on the date was $15,000. The original purchase price of the painting was $550 on 18 June 1995. Gareth decides to sell the painting as part of an online art auction. The highest bid for the painting was $11,980 plus there was a fee charged for the auctioneer of $90. The auction takes place on 10 August 2022.
12. Rental Property - House at 1001 View St, Cleveland
Gareth borrowed $300,000 from the Commonwealth Bank (CBA) on 1 July 2022, all of which he used to finance the rental property purchase. He incurred a $1,200 loan establishment fee. The term of the loan is 25 years.
On 7 July 2022, Gareth purchased a three-bedroom house (constructed in 1965) located at 1001 View St, Cleveland for $878,000. In acquiring the property, he incurred legal fees of $900 and transfer duty of $15,860. At the time of purchase, the house needed repainting. Gareth managed to get the house repainted by the end of July at a cost of $8,000. The house was listed with QLD Realty as 'available for rent' as of 1 August 2022.
On 18 August 2022, tenants signed a one-year lease and moved in. In the 2022/23 income year, Gareth derived gross rental income of $31,700.
Expenses relating to the rental property for the 2022/23 income year are as follows:
- Council rates $ 2,680
- Insurance $ 2,420
- Interest on CBA loan (paid in 2022/23) $ 9,000
- Pre-purchase building and pest inspection $ 350
- Painting $ 8,000
- Replace hot water system (refer note) $ 6,200
Gareth rents out the house partly furnished. On 10 August 2022, he purchased the following items for the house:
- Air conditioner (room unit) $1,280
- Washing machine $ 950
- Microwave oven $ 250
Note
Gareth purchased a new hot water system on 21 June 2023, as the old one started badly leaking on 15 June 2023. Unfortunately, the suppliers of the original electric hot water system are no longer in business, so Gareth must go with a different model. Gareth decides since he must purchase a new hot water system to go with a solar hot water system, as it is more energy efficient. This solar hot water system cost Gareth $6,200. Had he purchased a similar model to the existing hot water system this would have only cost Gareth $3,120.
Additional information (for 2022/23)
Gareth wants to use the diminishing value method to calculate any decline in value deduction claims and he does not wish to pool any low value assets.
Gareth is not registered for GST.
Gareth does not have any health insurance.
Gareth does not want to use electronic funds transfer (EFT) if he is entitled to a refund.
You should assume that the details given are all of Gareth's receipts and expenditure for the 2022/23 income year, and that all of his expenses are properly substantiated.
Gareth does not have a HECS/HELP debt, nor does he have a financial supplement debt or any post-graduate FEE-HELP debt.
Gareth did not receive any trust distributions.
If you are uncertain about how to interpret any of the facts provided, make an assumption about the relevant fact(s) but, please, explicitly state the assumptions you make.
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