John Pty Ltd is incorporated in Australia. It is a retailer who sells clothes to the public. The following transactions occurred in the year ended 30 June 2013. All figures below are GST exclusive amount.

a) During this year, Tom Ltd received $35,000 government grant; and paid $150,000 GST, $20,000 FBT, and $5,000 Income Tax.

b) It also declared and paid $21,000 fully franked dividend to its shareholder (you can assume the open balance of franking credit account is zero).

c) The company paid $20,000 cash bonus to its staff.

d) The company purchased $100,000 stock during the income year. The opening balance of its stock was $180,000 and the closing balance was $160,000.

e) The company also sells goods to customers on credit. During the year, a number of customers owing a total of $15,000 defaulted on their accounts which are yet to be written off.

f) A competitor has recently applied to the council for permission to operate as a clothes retailer in the commercial building next to John Pty Ltd. John Ptd Ltd incurred $10,000 in legal fees opposing the application. The action was successful.

Advise John Pty Ltd of the Australian income tax implications of the above transactions. Provide relevant case law, ATO rulings and section references to support your answer.

Answer rating: 100% (QA)

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