Your client John comes to see you in July 2014 asking to prepare his income tax return forthe year ended...

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Your client John comes to see you in July 2014 asking to prepare his income tax return for

the year ended 30 June 2014. His shoebox of receipts, invoices and other paperwork

reveals the following information;

John purchased a house on 26 August 1987 for a cost of $170,000 and also incurred legal

costs of $1,500 and stamp duty of $4,400 in relation to the purchase. John lived in the

house as his main residence until 31 July 2003, at which time he moved interstate for

work. The market value of the house at this time was $230,000.

From 1 August 2003 until 30 April 2014 the house was rented out to different tenants, the

last of whom damaged the home. The following costs were incurred in May 2014 to rectify

the damage to the house;

$

Replacing carpet on lounge room floor 800

Repairing holes in walls of 2 bedrooms 1,200

Repainting the entire inside of the house 3,000

Professional cleaning of the whole house 700

Replace bathroom vanity and basin 1,500

After this work was completed John decided to sell the house because he no longer

wanted to deal with irresponsible tenants. He sold the house on 15 June 2014 for

$300,000 less commission of $2,200.

John also sold on 15 June 2014 his 550 shares in Commonwealth Bank for $44,000. Of

these shares, 500 were originally acquired in September 1991 at a cost of $5.40 per

share. The remainder were acquired in a 1 for 10 bonus share offer in October 2000,

which were issued from the company’s share capital account.

In addition to the above transactions, John had the following income and expenses for the

year ended 30 June 2014;

Income $

Salary (occupation – sales representative) 54,000

Entertainment allowance 3,000

Rental income from the house mentioned above 16,200

Reimbursement of water rates for this property (by tenant) 320

Franked dividends from Commonwealth Bank shares 2,106

Family Tax benefit (for his 4 year old son) 5,200

Cash received from deceased grandmother’s estate 15,000

(Continued on next page)

Expenditure $

Meals incurred when entertaining clients in his job as a sales

representative for his employer 1,800

Purchase of work clothing and shoes 380

Child care costs (approved care for his 4 year old son) 4,800

Purchase of a mobile phone 1 October 2013 (used 80% for work purposes) 750

Monthly call costs on his mobile phone (above) 600

Train tickets for travelling to and from work 150

Rates on the rental property 1,200

Insurance on the rental property 850

Income protection insurance 650

Life insurance 180

Legal fees in relation to sale of rental property 1,100

Tax Agent fees (including $700 advice regarding sale of rental property) 1,000

Brokerage costs in relation to sale of shares in Commonwealth Bank 250

Medical expenses for himself and his son (including $1,200 hospital costs,

$900 doctor visits, $1,800 dental work, $720 remedial massage

costs not prescribed by doctor, $800 prescription sunglasses) 5,420

Amounts refunded by health fund and Medicare $1,500

John’s PAYG Payment Summary shows PAYG withholdings for the year 9,097

REQUIRED:

1. Discuss the tax implications of the sale of rental property, including any exemptions

available and the deductibility of the costs to rectify damage. Calculate the

assessable gain, if any.

2. Discuss the tax implications of the sale of the Commonwealth Bank shares.

Calculate the assessable gain, if any.

3. Discuss the assessability and deductibility of all the other items listed in the

information.

4. Calculate John’s taxable income for the year ended 30 June 2014.

5. Calculate the tax payable/(refundable) for John for the year ended 30 June 2014,

including all additional levies and tax offsets.

NOTE:

You must support your discussion and interpretation with reference to legislation, cases or

 

rulings.

  • 7 years ago
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