Sample Finance Paper on Taxation: Ace Pty Ltd

Question 1

Ace Pty Ltd has adopted two methods for depreciating the assets of the firm namely diminishing value and prime cost. IFR has specified the terms that must be met to claim depreciation. That the assets must last longer than one year and must have useful life that is determinable. The property must not be excepted like intangible property, property disposed and placed in the service in the same year. The property must be owned by the person or organization making the claim and must be used in business activities or income generating activities. Depreciation is an allowable expense even though if does not affect the cash flow of the business (Ohrn 2019). The higher the depreciation the lower the income of the business and the lower the tax liability of the business.

Question 2

  1. The only deduction that can be considered for the year is $20,000 since it is the actual amount that was paid in the year.
  2. The insurance expenditure will be disbursed for a period of 12 months but the prepaid expenditure would be established since the financial year end at June 2020.
  3. The expenses incurred will be deductible under the current financial year 2020 though they have not been paid. The expenses incurred will be treated under accrual concept and will be documented on the income statement under cash basis.
  4. This is a deductible expense even if it spreads over the two financial years but would not exceed 12 months for an SBE tax payer. If the not registered under SBE tax payer, the only claim will be 1/12 of the payment for the current year and the other in the succeeding financial year.
  5. The amount paid to the managing director for an early termination of employment of his contract is deductible. This expense will decrease the expenses of the coming year (Gaul, 2019).
  6. The interest expense incurred for the loan is deductible even though the company has ceased operation while the interest had to run for 3 years.

Question 3

  1. The proportion that the employee used on personal purposes will be treated as fringe benefit on the monthly payment made. The 80 % ($96) used on personal purposes is taxable while the 20% ($24) is exempted on the employee (Clement, Kahn and Meer, 2018)
  2. The contribution made by the employer for the employees to the complying superannuation fund is a tax deduction (Rappaport and Bajtelsmit, 2019).The $1,000 is exempted to the employee and treated as a tax deduction to the employer for the contribution made.
  3. The loan of $20,000 issued to one of the shareholders and with no interest charged on it, it is a loan hence exempt benefit (Ambadkar, 2020)
  4. After working late in the company, the employer paid an uber for $50 to the employee, which is a fringe benefit and to the employee it is taxable.
  5. The cost of $120 for flowers that were sent a sick employee is an exempt benefit.
  6. The cost incurred for fueling the private car provided for the employee for private use is a fringe benefit (Van, Jong, Wesseling and Meerkerk, 2019)
  7. The sandwiches provided at the employer’s premises while on seminars are deductible and exempt also to the employee.

Question 4

Taxable income for Michael for the year ended 30th June 2020

Michael share in the partnership on profit is nil (50% 152,000 = 76,000)

In the taxable income, this is an exempt from the partnership share of profit

Gambling win of $500 will be taxed on the prescribed percentage

Michael’s salary-working as a partner $ 50,000

-As a part time inspector $ 9,400

Total taxable income is $ 59,900

Question 5

  1. An individual who is subjected to Top marginal tax rate
Particular   Amount
Income from other sources    
Dividend received 700  
To the shareholder, the dividend will be exempted since the company had already paid the  distribution tax on dividend    

 

  1. An individual whose tax rate is at 15%

To the hands of the shareholder, the individual is exempted from taxation since the employer had taxed the amount (Borden, 2018).

  1. Company with other assessable income $100,000
Item   Amount
Income from other sources    
Assessable income 100,000  
Less-Losses carried forward 40,000 60,000
Add dividend   700
Total income   60,700
Dividends are exempted to the shareholders. Tax at 30%   18,000

 

This is according to McClure, Lanis, Wells, and Govendir (2018)

  1. Company with other assessable income $88,000
Items   Amount
Other sources of income    
Other assessable income   88,000
Dividend   700
Total income   88,700
Less-Dividends   7,000
Total income   81,700
Tax at 30% (exempt on dividends)   24,300

 

Question 6

Advise to the tax payers on different cases.

  1. Since Ajela had bought the camera from other country, from the purchase she cannot get any input tax benefit.
  2. The company pays accommodation for one of its managers. This is a fringe benefit that enables the company to run it operation efficiently since it operates through the use of accrual concept tax benefit is therefore available (Jones, 2020).

The tax invoice received by Daniel for his house has no connection with NIC Ltd hence cannot get input tax credit.

Since the company has not paid the membership fee for Daniel, the company uses accrual concept on its financials, hence ITC cannot be availed until the bill is received and payment of amount (Bergmann, Fuchs and Schuler, 2019)

The $1,000,000 which is the total input tax that comprises financial supplies of $80,000 while the balance is a taxable supply. Under gst, inputs related to financial supplies cannot be considered.

 

References

Ohrn, E. (2019). The effect of tax incentives on US manufacturing: Evidence from state accelerated depreciation policies. Journal of Public Economics180, 104084.

Clemens, J., Kahn, L. B., & Meer, J. (2018). The minimum wage, fringe benefits, and worker welfare (No. w24635). National Bureau of Economic Research.

Jones, S. (2020). Employee incentives and PAYE: employees tax. Tax Breaks2020(411), 4-5.

McClure, R., Lanis, R., Wells, P., & Govendir, B. (2018). The impact of dividend imputation on corporate tax avoidance: The case of shareholder value. Journal of Corporate Finance48, 492-514.

Bergmann, A., Fuchs, S., & Schuler, C. (2019). A theoretical basis for public sector accrual accounting research: current state and perspectives. Public Money & Management39(8), 560-570.

Borden, B. T. (2018). Income-Based Effective Tax Rates and Choice-of-Entity Considerations under the 2017 Tax Act. Brooklyn Law School, Legal Studies Paper, (562).

Rappaport, A. M., & Bajtelsmit, V. (2019). The Present and Future of Retirement Income Adequacy: The Role of Employer Retirement Plans. Benefits Quarterly2, 8-20.

van Eck, G., de Jong, G., Wesseling, B., & van Meerkerk, J. (2019). Simulating the impact of tax incentives using a type choice model for lease cars. Case Studies on Transport Policy7(4), 814-822.

Ambadkar, N. (2020). BUSINESS TAXATION (MCQ’s).

Gaul, C. (2019). Employment termination benefits. TAXtalk2019(77), 70-71.