SOLUTION: Tax Documentation for Legal Entities | My Assignment Tutor

FNSACC601 – Prepare and Administer Tax Documentation for Legal Entities Final Assessment Assessment Instructions for the Candidate Requirements: Access to a computer loaded with Microsoft Word and ExcelAccess to an email systemCalculator Assessment Conditions: Your assessment can be completed in the program of your choice such as Microsoft Word or Excel.It is recommended that on completion of this unit, participants should be able to produce accurate work with not more than three re-submissions. On completion Upload your assessment document to the online platform.Remember to name the document to include the following: Unit name and number – assessment name and number – your name. Assessment Outcomes There are only two possible results of any assessment: CompetentNot yet competent Competent An assessment of ‘Competent’ recognises that you have clearly demonstrated to your assessor that you have current skills and knowledge as outlined in the units of competency for which application was made. Not Yet Competent If an assessment of ‘Not Yet Competent’ is made, the assessor will give you specific feedback as to the reasons for the result. This will also provide information about gaps found in the assessment of competency. You may also discuss options to address the gaps in competency with your assessor. PART A – Theory Questions Explain how the following have a role in interpreting and applying tax legislation in Australia. Ensure you include both a description and the role they have in assisting to interpret the legislation. Public and private rulings and determination Public rulings – advice issued by the ATO to explain an application of tax law to taxpayers generally, a class of taxpayers or a particular arrangement, and include: Taxation rulings (TR) Income Tax Rulings (ITR) Goods and Services Tax Rulings (GSTR) Taxation Determinations (TD) Goods and Services Tax Determinations (GSTD) Class rulings (CR) Product rulings (PR) Court and tribunal decisions Public rulings – advice issued by the ATO to explain an application of tax law to taxpayers generally, a class of taxpayers or a particular arrangement, and include: Taxation rulings (TR) Income Tax Rulings (ITR) Goods and Services Tax Rulings (GSTR) Taxation Determinations (TD) Goods and Services Tax Determinations (GSTD) Class rulings (CR) Product rulings (PR) All of the above and also past cases help the judge to quote them and to know the result achieved, if the circumstances are exactly the same they can apply the same judgement outcome Describe the three (3) methods specified by the TPB, for tax agents to manage conflicts of interest b) A number of mechanisms could be used, such as: avoid – you may decide to decline to act for the client in situations where you will be unable to manage the conflicts of interest regardless of arrangements put in place control – this involves identifying, assessing, evaluating, deciding and implementing an appropriate response to manage conflicts of interest. For example, depending on the particular circumstances, you may be able to control a conflict of interest by isolating the persons in your practice who will provide the relevant advice from those who are privy to the material information which may influence the advice disclose – you should sufficiently disclose conflicts of interest to your clients in a manner which will enable them to make an informed decision and give them a reasonable time to assess how the conflict may affect the services being provided and about its management. Indicate the supporting documentation the ATO might ask to be provided, to verify the amounts included in the tax return for each of the following: Assessable income Income statement or payment summary. Bank interest documents Bank statements for money received or payslips related to employement Letter from Employer. Bank statements for business income , invoices ,and sales receipts. Deductions Receipts for purchase of work related items Letter from employer to find the nexus if related to work. Bank statements or transactions related to claims. Ownership of assets if claiming such as invoice or ownership documents of car. To establish a valid distribution has been made by a Family Trust, in particular: The recipient is a beneficiaryWhere and when the distribution decided/declaredWhen and how the distribution was settled (i.e. was it paid or otherwise accounted for). Trust deed displaying the beneficiary. Trust distribution summary displaying the distribution made at year end decided by Trustee. The journal entry passed for distribution and the income declared in beneficiary account or offset against their loan. To establish a complying SMSF has accounted for and correctly included all contributions (Note: it would not be less than a Tax Agent would require to prepare and lodge the return) SMSF member statement to show different types of contirbutions received. Employer contribution summary displaying Employer contribution to SMSF. Personal contribution if any (ATO notice of intenet to claim deduction document if any) Concessional contributions are tax at 15% such as personal contribution, Spouse contributionetc.Also find if there is non concessional contribution as theya re not tax deductible and not assesable to super fund. Such as Employer contrbution gurantee.Salary sacrifice, Contrivution for wiwhich tax was paid. Identify whether the following are considered fringe benefits, giving reasons for your answer. West Point Motors Pty Ltd is a resident company that owns and operates a car dealership. During the year it provided the following benefits: Mark, a salesperson, receives the use of a car No FBT unless garages the car at his premises and use it for personal usage. Dianne, Mark’s wife who does not work at the Dealership, receives the use of a car Yes FBT – as its used for personal purposes. Geoff, a Director, is given use of a car instead of receiving a Director’s Fee Yes FBT applies as director is also considered to be employee and if the car is being used for personal usage, FBT applies. Anne the full time bookkeeper, who works from home 1 day per week and in the office for the remaining 4 days, is given a mobile phone and computer Portable electronic devices are exempt from FBT if used for work purposes. PART B – Practical Activities You are currently employed as a Tax Agent for a local Accounting Firm (Tax Agent number 12345678). Your clients include individuals (salary & wage earners and sole traders) as well as companies, trusts and partnerships. The policies and procedures of your firm require you to use the Microsoft Excel templates provided to complete your calculations. The ATO website should be used to verify current tax legislation and to seek advice and guidance. All client communications should be via email. Client details required to complete the Individual Tax Return are recorded on a new client details form. QUESTION 1 Hot Pink Batts Pty Ltd manufactures pink batts. The company wishes to use all available small business concessions to minimise taxable income. Hot Pink Batts Pty Ltd has prepared the following Profit & Loss Statement for the 2019 financial year: $$Gross Sales2,400,000Less Cost of Goods SoldOpening Stock33,000Purchases and Manufacturing Costs1,250,0001,283,000Closing Stock– 300,000983,000Gross Profit1,417,000Add Other IncomeDiesel Fuel Rebate (Government Subsidy)3,500Dividend from American Company – Note 18,000Interest Income2,00013,5001,430,500ExpensesGross Wages680,000Superannuation62,000Provisions for Customer Warranty Claims – Note 230,000Truck Expenses31,000Accounting Depreciation – Note 360,000Share of Loss from Partnership with Al Insulation Pty Ltd13,000Tax Related Expenditure – Note 424,000Other Deductible Expenses400,0001,300,000NET PROFIT BEFORE INCOME TAX130,500 NOTE 1 Hot Pink Batts Pty Ltd owns shares in an American company. The $8,000 dividend received from this investment is net of $4,000 tax withheld by USA government. NOTE 2 The amount of warranty expenses paid to customers during the 2019 income year was $11,000. NOTE 3 Decline in Value for tax purposes needs to be determined using the following information: General SBE Pool Balance at 30 June 2018$ 90,000 Purchase of New Machine on 1 December 2018 $ 98,000 Purchase of New Computer on 1 February 2019 $ 900 NOTE 4 Tax related expenditure is comprised of the following: Payroll Tax $ 7,000 Tax Agent Fees $ 6,000 ATO Penalties $ 4,000 ATO General Interest Charge $ 7,000 NOTE 5 $50,000 of PAYG tax instalments were paid for the 2018/19 income year. REQUIRED: Using the templates provided: Prepare a statement reconciling net profit with taxable income Calculate the net tax payable by the company for the year, clearly showing all your workings Who would you consult if you required advice and guidance to determine any income tax related issues? QUESTION 2 Zany Funds Management Pty Ltd is an investment company. There is a carried forward tax loss of $80,000 from the 2018 financial year. The company has prepared the following Profit & Loss Statement for the 2019 financial year: Income Distribution from Unit Trusts – Note 1$ 1,000Bank Interest3,500Unfranked Dividends6,000Fully Franked Dividends – Note 17,00017,500ExpensesAccounting fees7,000Capital Loss on sale of shares10,000Ongoing financial advice19,000Other deductible expenses40,00076,000NET LOSS(58,500) NOTE 1 The income distribution from the unit trust included $300 of franking credits. Fully Franked Dividends represents the amount received from non SBE entities. NOTE 2 One PAYG tax instalment was paid on 28 October 2018 of $11,000 (this related to the 2018/19 tax year) REQUIRED: Using the template provided: Prepare a statement reconciling net profit with taxable income Calculate net tax payable/refundable Calculate ALL losses carried forward by the company QUESTION 3 The Rosy Discretionary Trust has a property investment portfolio. During the 2019 income year the Trustee recorded a net trust income of $168,000. All of the income is derived from Australian property investments. The trustee resolved to distribute the net income of the trust as follows: Rosy (aged 28)30%Indiana (Rosy’s sister aged 16)10%Sarah (Rosy’s sister aged 16, working full time at Coles since January)10%RPM Pty Ltd (Australian resident company – 100% owned by Rosy)10%The Robe Soccer Club (non-profit, tax exempt community organisation)5%Ben (aged 29) – Rosy’s Friend who is a bankrupt10% There was one discretionary distribution made: $10,000 was paid towards Indiana’s school fees. The balance was undistributed. REQUIRED: Using the templates provided Complete a Distribution schedule Calculate the tax payable by the trustee QUESTION 4 Wharf and Alexander are father and son. Together they operate a business partnership providing security services. Wharf is aged 45. His son, Alexander aged 20, works full-time in the partnership. During the 2018 financial year the partnership began business and made a loss of $10,000. This loss was distributed equally between both partners. The partnership agreement states that all profits and losses will be shared equally after allowing for wages to partners and interest on capital. During the 2018/19 income year the partnership had the following transactions: RECEIPTSGross Fees$ 610,000Business Loan from Wharf50,000Gross Bank Interest1,000PAYMENTSInterest on Overdraft7,000Interest on Loan from Wharf5,000Lease of all Security Systems Equipment owned by Wharf – Note 150,000Interest on Capital – Wharf3,000Wages to Employees250,000Wages to Wharf40,000Wages to Alexander45,000Superannuation paid for Employees10,000Other overheads (deductible)168,000 NOTE 1 Wharf owns all the security equipment and leases all the equipment to the partnership. Wharf is entitled to a deduction of $34,000 for decline in value of the equipment. REQUIRED: Using the templates provided Calculate Net Partnership Income Prepare a Partnership Distribution Statement Calculate Wharf’s Taxable Income Calculate Alexander’s Taxable Income QUESTION 5 Your supervisor has provided you with the following information she has prepared for a client. The partnership consists of three partners; Matthew, Helen and Lynn James, who operate a boat hire business (Industry code 66390). Partnership Net Income $ $ Assessable Income Boat Hire Fees 491,000 Less: Deductions Boat Operating Expenses 54,000 Salaries – employees 36,000 Superannuation – employees 3,000 Rent 41,000 Interest on Loan 1,000 Other Expenses 55,000 Lease of Boats 92,000 282,000 Partnership Net Income 209,000 Assets Plant and Equipment 20,000 Liabilities Bank Loan 15,000 DISTRIBUTION – PNI Matthew Lynn Helen TOTAL Partners Salaries 60,000 18,000 78,000 Interest on Capital 14,000 11,000 6,100 31,100 Interest on Drawings (2,400) (1,800) (1,200) (5,400) Share of Adj. Net Inc. 52,650 35,100 17,550 105,300 124,250 62,300 22,450 209,000 REQUIRED: Complete the Partnership tax return for 2019 Attach a copy of the Partnership tax return to an email to Helen (the nominated contact for the partnership) requesting she sign and return the form for lodgment with the ATO QUESTION 6 Browns Pty Ltd, an investment company, paid the following dividends to shareholders: $35,000 fully franked on 15 July 2018$35,000 fully franked on 15 January 2019$21,000 unfranked paid on 15 July 2019 (declared on 20 June 2019) Franking account balance at 30 June 2018 was $8,500 credit REQUIRED: Using the template provided: Prepare a franking account How much (if any) franking deficit tax will be payable by Browns? How much of the franking deficit tax can be used to offset future tax liabilities (show calculation)? DOCUMENTS TO BE UPLOADED Part A – Final Assessment documentPart B Excel spreadsheet – Qu 1, 2, 3, 4, 6Part B Qu 5 – Partnership Return (PDF document)Part B Qu 5 – Email to Lyn (screen shot or PDF)