Stephen is a mechanic who is employed by Services While U Wait. He earns an annual salary

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Question:

Stephen is a mechanic who is employed by “Services While U Wait”. He earns an annual salary of $45,000 and receives extra money if he works overtime. During the current year in addition to his basic salary he also worked overtime for 50 hours. He was paid at $70/hour; however, 10 of these hours were performed in the last week of June CY and were not paid to him until 14 July of the following year.

In addition to his salary he also received a Tool Purchase and Maintenance Allowance of $1,500. Stephen bought miscellaneous spanners, screwdriver etc. for a total of $800. None of these items cost more than $300 and were generally to replace items he had lost or that were no longer working properly.

Stephen received franked dividends of $2,200 which had franking credits of $300 attached.

During the year, Stephen was left a legacy of $80,000 by his grandmother who died during the year.

Stephen owned a commercial rental prop erty from which he received rent of $11,000 for rent from 1 July CY to 30 May CY. On 1 June CY the tenant prepaid rent for 12 months.

Expenses in relation to the rental property were rates and taxes of $560 and interest of $15,000. After receiving the rent in advance, Stephen pre-paid interest of $7,500 for July of the following year to December of the following year. A monthly commission of 10% of rent collected was paid to the real estate company which managed the rental property. The hot water system broke down during the year and on 20 February CY it was replaced with a new system which cost $1,500 and had an effective life of 9 years. On 1 June CY Stephen took out a small loan to assist with some repairs he intended to carry out on the property. There was stamp duty of $200 paid on the loan and an administration fee of $50. These were all paid on 1 June CY. The loan was to be repaid in 3 years. No interest was paid in the current year.

Stephen sold a townhouse on 1 December CY for $400,000. It had cost $230,000 on 1 August 1998. Stamp duty of $12,000 had been paid on that date. During the period of ownership Stephen had paid rates and taxes on 1 August each year of $400 per year. Interest on the interest-only loan was $15,000 per year and was paid in a lump sum on 1 August of each year. The property was in excellent condition at purchase. In July PY Stephen had 2 rooms of the property painted at a cost of $500. This was to restore the paintwork to its original condition. Net rent from this property before the date of sale was $4,300.

Stephen also sold some shares on 1 June CY for $20,000. He had purchased the shares on 1 July CY for $15,000. Brokerage on sale only was $100. No brokerage had been paid on purchase of the shares.

Two years ago Stephen had sold a number of assets which resulted in a net capital loss of $33,000. No other assets had been sold since that time.

Stephen was required to travel to the homes of some clients and carry out services on their cars. This travel fell into the following categories:

Travel from home to clients’ homes 200

Travel from those homes to work 180

Travel from work to clients’ homes 300

Return to work from client’s homes 350

Stephen was required to take with him his full toolkit to enable him to properly carry out the work.

Stephen bought overalls for work which cost $340 to purchase and a further $100 in laundry expenses during the year.

Stephen’s tool kit had been bought two years ago at a cost of $1,500. At 30 June PY it had been written down to $880. It had an effective life of 12 years.

He also bought a new meter for use in his work on 18 July CY for a cost of $670. It had an effective life of 8 years. A new electric screwdriver was bought at a cost of $230 on 1 August CY.

He sold a piece of equipment on 30 April CY for $450. Its OAV was $650 and it had an effective life of 4 years and had been acquired after 9 May 2006.

Required:

Calculate Stephen’s taxable income and net tax payable including Medicare. He does not wish to use pooling.

Provide brief reasons for the exclusion of any items from the calculation.