Question

In this question, all amounts exclude GST. Stevie Nicks and John Mitchell are a couple. In 2013, Stevie and John opened a bookstore in Coorparoo, a suburb of Brisbane. They operate the business as a partnership, running the business from rented premises. The bookstore has always specialised in selling first edition and collectors editions of books. The partnership business does not apply the provisions of Div 328. The partnership business has a low value pool.

The partnership agreement between Stevie and John states they are each entitled to a salary of $120,000 per year. Stevie is entitled to an annual bonus of $20,000 for managing the business. The partnership pays for Johns annual membership fee to the Coorparoo Golf Club where he often conducts business meetings. During the 20212022 income year, this fee totalled $2,000. They share the remainder of the profits 50:50.

At the height of the COVID-19 pandemic in Brisbane in February 2021, Stevie and John took their business online and they were able to maintain the same sales revenue levels in their 20202021 income year as before the pandemic, achieving their goal, which was for the business to survive the income year. The value of closing trading stock on 30 June 2021 totalled $280,000.

In this income year, the partnership business expands the range of books they sell online, to include fiction, recipe books and childrens books. The partnership rents a small warehouse in Woolloongabba, a neighbouring suburb to Coorparoo, as there is insufficient storage space for the new stock items in their existing premises.

These are the other relevant transactions for the 20212022 income year:

The value of closing trading stock of fiction, recipe books and childrens books on 30 June 2022 is:

o Cost price $1,823,000 o Market selling value $2,295,000

o Replacement value $1,973,000

The value of closing trading stock of first edition and collectors editions of stock items on 30 June 2022 is:

o Cost price $273,000 o Market selling value $227,000

o Replacement value $500,000

Sales revenue for the year totals $12,238,500.

The business purchased trading stock of first edition and collectors edition items at a cost

totalling $1,289,000.

The business imported trading stock of fiction, recipe books and childrens books at a cost totalling $3,567,000. Import duties payable on the importation of these stock items totalled $356,700.

To manage the foreign currency risk associated with the importation of these items, the business entered into forward exchange contracts with a bank. The bank charged the business commission totalling $3,000 for these.

The business purchased packaging and postage material at a cost totalling $35,000. These are used to send goods sold online to customers via mail and courier services. On 30 June 2022, packaging materials on hand were valued at $7,770.

The business incurred legal fees of $4,000 on 1 February 2022, in successfully blocking a competitors application made to the Brisbane City Council, to open a similar bookstore in the suburb of Coorparoo. This was the third application that the partnership has successfully blocked in as many years.

On 1 April 2022, the partnership gifted a valuable first edition book to QSTA, the Queensland Steam Train Association, a deductible gift recipient. QSTA sold the book and other donated items on auction at a gala fundraising dinner held on 15 April 2022. All of the funds raised went towards the restoration of a steam locomotive manufactured in 1910. The cost price of the book was $3,500 and its market selling value was $18,800. The book was sold for $65,000 at the auction.

The value of the partnerships low value pool as at 1 July 2021 was $8,000.

On 1 October 2021, the partnership purchased a computer for $1,200. Stevie used it from that date to surf the Internet to find stock for the bookstore (60% of the time) and to keep in contact with her friends on Facebook (40% of the time). The effective useful life of the asset is 3 years.

On 1 December 2021, the partnership purchased a printer for $250 to print customer orders. The effective useful life of the asset is 3 years.

On 1 March 2022, the partnership purchased a small delivery truck that costs $65,000. During the income year, Stevie and John used a logbook to record all their trips taken with this vehicle. The logbook reveals the following:

o Trips to collect trading stock purchases 890 km o Trips to deliver trading stock sold to Australia post or directly to customers 3,490 km

o Trips between the Coorparoo premises and the warehouse 1,200 km

The partnership pays for the following ongoing expenses in relation to the truck:

o Fuel $8,510

o Vehicle registration $720 o Insurance $1,250 o Stevies truck drivers licence renewal $800

The partnership employs casual staff to work in the bookstore and to pack online orders:

o Wages paid them totalled $360,000 o Overtime wages payments totalled $23,500 o Superannuation guarantee contributions totalled $36,433

The general business expenses of the partnership were as follows:

o Stationery and printing expenses $16,580 o Advertising $9,800 o Telephone, internet and website maintenance $18,950

o Postage and delivery $119,370 o Rent for warehouse and Coorparoo premises $60,000

o Interest on bank overdraft $15,000

In March 2022, Stevie and John were again forced to close the bookstore in Coorparoo when the greater Brisbane area was placed in snap lockdown after a number of COVID-19 cases were detected. Stevie and John struggled to cope with the emotional impact of another lockdown. Their accountant suggested they appoints one of the firms senior accountants to manage the bookstore for one month so that they can take a holiday to Byron Bay. Stevie and John took the advice, and the firm charged the partnership $12,000 to second the senior accountant to the business.

Explain how Stevies investment into her self-managed superfund would be treated if the partnership made the investment on her behalf in accordance with the partnership agreement. Your answer should deal with the impact on the partnerships net income and on Stevies taxable income.