Liam is in the business of selling computers and related software from a building he owns in Haymarket, Sydney. Most customers pay at the time of delivery. However, Liam provides credit to his largest customers. During the year ended 30 June 2019 Liam received $2,800,000 in cash for sales of computers and related software. Sales which had been made during the year ended 30 June 2018 but which were paid for in the year ended 30 June 2019 were $260,000 and are included in the $2,800,000 above. At 30 June 2019 sales of computers and related software not yet paid for amounted to $430,000. Liam purchased the building in Haymarket in 1986. On 1 April 2019 Liam leased part of the building to a third party for $650 per month.

During the year ended 30 June 2019 purchases of computers and related software were $1,800,000 and at the end of 30 June 2019 stock on hand was $150,000 (valued at cost) or $285,000 (valued at market). Liam’s closing stock for the year ended 30 June 2018 was $630,000. During the year ended 30 June 2019 Liam took 2 computers from his stock for private use in his home. The computers cost him $1,240 each and had a market value of $1,630 each. Liam also gave away another 4 similar computers to his friends during the year.

Liam had an overall loss for the year ended 30 June 2018 from all his activities of $180,000 (no capital losses were included in this amount). H o w e v e r , included in this loss of $180,000 was a donation to a charity of $25,000. In addition, during the year ended 30 June 2018 Liam received exempt income of $11,000.

Expenses that related to the business during the year ended 30 June 2019 were as follows:

• Motor vehicle expenses $14,000

• Accounting fees $4,000

• Telephone expenses $23,500

• Wages - this included $150,000 paid to his spouse who worked for 3 days a week in the business. Another employee who also did the same job for 3 days a week was paid a market value wage of $120,000. $380,000.

In May 2018 the business was burgled and part of the premises was set on fire. The insurance company finalised Liam’s claim and Liam received $36,000 for lost profits in July 2019. In addition, during the year ended 30 June 2019 Liam received an inheritance of $80,000 (lump sum) and real estate of $1,630,000 from a distant relative who died on 14 August 2018.

Required: 

Calculate Liam’s taxable income or loss for the year ended 30 June 2019. (please provide the sections No. with why is it )

Liam wants to minimise his taxable income for this year. Assume all depreciating assets, if any, have an effective life of 5 years unless otherwise stated. He does not wish to use the SBE election. You must give reasons for your answer.

Answer rating: 100% (QA)

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