You have been asked to prepare the 2019/2020 individual tax return for Nick Elder (Nick). He...

 
 
 
 
 

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You have been asked to prepare the 2019/2020 individual tax return for Nick Elder ("Nick"). He is the sole director of Elders Clothing Pty Ltd which operates a fashion retail business. The company is owned equally and jointly by Nick and his wife Sarah. Nick's DOB is 13th July 1970 whilst Sarah's DOB is 9th Jan 1974. Sarah works as a teacher and earns $80,000 from this. Nick and Sarah have two young children. The family is covered by private health insurance with HBF. The policy was taken out on 1 May 2020 and the premium paid to the end of the year was $1030 and this attracted a rebate of $203 (Benefit code 30). The policy number is RDA181919. Employment Related Income Nick is paid a salary from Elders Clothing Pty Ltd and has provided you with the following details Elders Clothing Pty Ltd ABN 84 111 122 223 Gross Payments $200,000 $63,200 Tax Withheld Nick still has a HECS debt of $6,000 as at the end of 30 June 2020. In addition to the salary, Elders Clothing Pty Ltd pay the following for Nick; Reimbursement of CAANZ fees of $1200. Nick is a trained accountant and he uses these skills as CEO of this business. ● ● Payment of his mobile phone bill which totalled $900 for the year Additional superannuation contributions of $5200. This is in addition to superannuation guarantee requirements. Nick owns a Mercedes which was purchased on 1 July 2019 for $88000. The car travelled 25,000 km during the year and Nick estimates that 70% of that travel is business related, although he does not have a log book. He pays for the following costs associated with the car ● ● He also paid the following costs during the year. Dry cleaning of work suits $500 Vogue fashion magazine of $300 Donations to the local soccer club where they get no advertising in return for $500 Donation to a bushfire appeal go fund me page of $500 Payment for an insurance policy that covers his income in the event of illness or death. The premium is paid directly from Nick's bank account on a monthly basis and the total for 2019/2020 was $6000. 60% of this relates to life insurance with the balance relating to replacement of income in the event of a serious illness. ● ● $4000 $400 $1000 $1300 Excess on insurance claim (balance paid by insurer) $500 Road tolls $200 ● Fuel Service Registration Insurance Dividends and Investments During the year Elders Clothing Pty Ltd paid a fully franked dividend of $200,000 which represents the cash amount paid out. The company is an SBE and pays tax at 27.5%. The proceeds were used to repay a bank loan for a holiday home that Nick owned. The total interest paid on that loan during the 2019/2020 year was $15,000. In addition to the shares in Elders Clothing Pty Ltd, Nick has a number of other investments including A $500,000 term deposit which expired on 2nd July 2020 at which time interest of $2,000 was paid. Of this interest, $1,800 was accrued to 30th June 2020. Nick acquired 10000 shares in Afterpay Ltd on 2nd July 2019 for $1.50 share and sold them on 1st May 2020 for $3.40/share. He also owns 1000 Flight Centre Ltd shares which were acquired on 1st August 2018 for $1.60/share which he sold in April 2020 for $0.60/share. Nick inherited the following shares from his father who passed away on 15th July 2019. On finalisation of the estate, the shares were transferred to Nick in December 2019. The applicable shares were Share ● BHP CBA Date purchased by Nick's father 4 Jan 1985 4 Dec 2005 Number shares 2,300 1,500 of Price paid per share $5.00 $10.50 Market value at date of death $18.40 $20.30 The CBA shares were sold on 3rd Feb 2020 for $19/share and he had to pay brokerage of $30 to complete the sale. During the year, he received fully BHP dividends of $1000 which was fully franked (using 30% tax rate). He elected to not receive the cash but instead participated in a dividend reinvestment plan and acquired a further 10 shares. Rental Property Nick owns an apartment on the Gold Coast (Unit 4, 285 Pacific Parade Bilinga Qld 4225) which is rented to their daughter for $200/wk (in advance). The market rent is $400/wk. The property was acquired on 1st Jan 2020 for $520,000 with settlement occurring on 1st March 2020 and his daughter moved in immediately. (Hint: consider issues of market rent here). In the first week of settlement, there was a significant amount of repairs made costing $3,000 to bring the property up to a more liveable standard. The building was originally constructed in 2001 and a quantity surveyor's report commissioned at the time shows a construction cost of $120,000. Nick also purchased a washing machine for $1,200 which was installed on 3rd March 2020. Nick does not use low value pooling for depreciating assets and uses diminishing value as the basis for depreciation. Other costs paid in relation to the property include Stamp duty on property purchase Legal fees on property purchase Body corporate fees Council rates Water rates Loan repayments - principal component $25,000 $3,000 $1,700 $930 $560 $1,200/mth Loan repayments interest component $320/mth Fees paid to bank to establish the bank loan $980 which runs for 15 years REQUIRED A) Using the excel template provided, prepare a set of fully referenced workpapers for the preparation of the 2019/2020 income tax return. (35 Marks) B) Use handitax to prepare the 2019/2020 tax return. Use your client's name and the dummy TFN from the client set up sheet. All other details are to come from the assignment instructions. (25 Marks) C) Prepare a short 3 minute video for Nick summarising their tax position and explaining the important aspects of the items that are included in their tax return. You should also discuss recommendations for improving their future tax position. (10 Marks) (Note: a maximum of 5 Marks may be lost for a lack of or inappropriate referencing.) You have been asked to prepare the 2019/2020 individual tax return for Nick Elder ("Nick"). He is the sole director of Elders Clothing Pty Ltd which operates a fashion retail business. The company is owned equally and jointly by Nick and his wife Sarah. Nick's DOB is 13th July 1970 whilst Sarah's DOB is 9th Jan 1974. Sarah works as a teacher and earns $80,000 from this. Nick and Sarah have two young children. The family is covered by private health insurance with HBF. The policy was taken out on 1 May 2020 and the premium paid to the end of the year was $1030 and this attracted a rebate of $203 (Benefit code 30). The policy number is RDA181919. Employment Related Income Nick is paid a salary from Elders Clothing Pty Ltd and has provided you with the following details Elders Clothing Pty Ltd ABN 84 111 122 223 Gross Payments $200,000 $63,200 Tax Withheld Nick still has a HECS debt of $6,000 as at the end of 30 June 2020. In addition to the salary, Elders Clothing Pty Ltd pay the following for Nick; Reimbursement of CAANZ fees of $1200. Nick is a trained accountant and he uses these skills as CEO of this business. ● ● Payment of his mobile phone bill which totalled $900 for the year Additional superannuation contributions of $5200. This is in addition to superannuation guarantee requirements. Nick owns a Mercedes which was purchased on 1 July 2019 for $88000. The car travelled 25,000 km during the year and Nick estimates that 70% of that travel is business related, although he does not have a log book. He pays for the following costs associated with the car ● ● He also paid the following costs during the year. Dry cleaning of work suits $500 Vogue fashion magazine of $300 Donations to the local soccer club where they get no advertising in return for $500 Donation to a bushfire appeal go fund me page of $500 Payment for an insurance policy that covers his income in the event of illness or death. The premium is paid directly from Nick's bank account on a monthly basis and the total for 2019/2020 was $6000. 60% of this relates to life insurance with the balance relating to replacement of income in the event of a serious illness. ● ● $4000 $400 $1000 $1300 Excess on insurance claim (balance paid by insurer) $500 Road tolls $200 ● Fuel Service Registration Insurance Dividends and Investments During the year Elders Clothing Pty Ltd paid a fully franked dividend of $200,000 which represents the cash amount paid out. The company is an SBE and pays tax at 27.5%. The proceeds were used to repay a bank loan for a holiday home that Nick owned. The total interest paid on that loan during the 2019/2020 year was $15,000. In addition to the shares in Elders Clothing Pty Ltd, Nick has a number of other investments including A $500,000 term deposit which expired on 2nd July 2020 at which time interest of $2,000 was paid. Of this interest, $1,800 was accrued to 30th June 2020. Nick acquired 10000 shares in Afterpay Ltd on 2nd July 2019 for $1.50 share and sold them on 1st May 2020 for $3.40/share. He also owns 1000 Flight Centre Ltd shares which were acquired on 1st August 2018 for $1.60/share which he sold in April 2020 for $0.60/share. Nick inherited the following shares from his father who passed away on 15th July 2019. On finalisation of the estate, the shares were transferred to Nick in December 2019. The applicable shares were Share ● BHP CBA Date purchased by Nick's father 4 Jan 1985 4 Dec 2005 Number shares 2,300 1,500 of Price paid per share $5.00 $10.50 Market value at date of death $18.40 $20.30 The CBA shares were sold on 3rd Feb 2020 for $19/share and he had to pay brokerage of $30 to complete the sale. During the year, he received fully BHP dividends of $1000 which was fully franked (using 30% tax rate). He elected to not receive the cash but instead participated in a dividend reinvestment plan and acquired a further 10 shares. Rental Property Nick owns an apartment on the Gold Coast (Unit 4, 285 Pacific Parade Bilinga Qld 4225) which is rented to their daughter for $200/wk (in advance). The market rent is $400/wk. The property was acquired on 1st Jan 2020 for $520,000 with settlement occurring on 1st March 2020 and his daughter moved in immediately. (Hint: consider issues of market rent here). In the first week of settlement, there was a significant amount of repairs made costing $3,000 to bring the property up to a more liveable standard. The building was originally constructed in 2001 and a quantity surveyor's report commissioned at the time shows a construction cost of $120,000. Nick also purchased a washing machine for $1,200 which was installed on 3rd March 2020. Nick does not use low value pooling for depreciating assets and uses diminishing value as the basis for depreciation. Other costs paid in relation to the property include Stamp duty on property purchase Legal fees on property purchase Body corporate fees Council rates Water rates Loan repayments - principal component $25,000 $3,000 $1,700 $930 $560 $1,200/mth Loan repayments interest component $320/mth Fees paid to bank to establish the bank loan $980 which runs for 15 years REQUIRED A) Using the excel template provided, prepare a set of fully referenced workpapers for the preparation of the 2019/2020 income tax return. (35 Marks) B) Use handitax to prepare the 2019/2020 tax return. Use your client's name and the dummy TFN from the client set up sheet. All other details are to come from the assignment instructions. (25 Marks) C) Prepare a short 3 minute video for Nick summarising their tax position and explaining the important aspects of the items that are included in their tax return. You should also discuss recommendations for improving their future tax position. (10 Marks) (Note: a maximum of 5 Marks may be lost for a lack of or inappropriate referencing.)

Answer rating: 100% (QA)

a INCOME Salary 200000 Reimbursement of CAANZ fees 1200 Payment of mobile phone bill 900 Additional superannuation contributions 5200 Dividends and Investments Fully franked dividend 200000 Term depos... View the full answer