Michael Convin, a single resident taxpayer aged 49, runs a sole trading business selling coffee machines. His business is registered for GST.

During the year, Michael has had the following transactions in relation to sales, purchases, and inventory (trading stock. Michael did not choose Small Business Entity option). All GST exclusive unless states otherwise.

Cash received from accounts receivable for credit sales $185,000
Cash paid to accounts payable for purchases of trading stock $78,000

Inventory (trading stock) on 1 July 2020 $3,000
Inventory (trading stock) on 30 June 2021

- at cost. $2,000

- at market selling. $1,500

- at replacement. $1,800

Ledger balances were as follows (GST inclusive)

1 July 2020 Accounts receivable $1,760. Accounts payable $1,540

30 June 2021. Accounts receivable $1,980 Accounts payable $1,430

Additional cash receipts included: (All GST exclusive unless states otherwise)

• Insurance recovery from the insurance company due to extensive damage caused by a hailstorm and included

- Compensation for loss of income. $7,900

- Repairs carried out on shop caused by storm damage $2,700

- Medical costs incurred by Michael form injuries $900

• Capital contributed by Michael to expand the business $10,000

• Proceeds from sale of existing motor vehicle (adjustable value $6,500) $9,000

Cash payments included:

Cash Drawings by Michael $3,000

Fines for breach of Australian Customers regulations $900

Net wages to employees $12,000

PAYG withheld from employees and paid to the ATO $2,900

Superannuation for employees $1,230

Superannuation guarantee charge $190

PAYG instalments for Michael’s personal tax commitments $2,500

Other deductible expenses $14,000

Purchase of motor vehicle BMW (40% used for business,

useful life 8 years, purchased on 1 May 2021). $89,000

Purchases of new coffee machine (100% business usage,

useful life 10 years, purchased on 1 August 2020). $62,000

Other information regarding Michael’s Business

(1) Other deductible expenses above include all assets’ decline in value except for newly purchased assets, i.e., BMW motor vehicle and Coffee machine.

(2) Michael has taken home a coffee machine from the stock purchased for private use at total value of $1,200.

Required

Advise Michael Convin his net tax liability payable (including all possible tax offsets) to the ATO. He wishes a maximum deduction for 2020/21 tax year. Ignore SBE concession.

Answer rating: 100% (QA)

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