QUESTION BOOKLET. Family Name.. Given Names.. Student Number.. College.. Signature.

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1 QUESTION BOOKLET Family Name.. Given Names.. Student Number.. College.. Signature. FNSACC601B Prepare and administer compliant tax returns for legal entities Time Allowed 3 hours plus 10 minutes reading time 12 Pages in this Question Booklet 18 November 2013 Aids to be supplied by college: None Instructions to students: Mobile phones are to be turned off and removed from your person. You cannot access a mobile phone during this exam. Attempt ALL questions. All questions must be answered in the Answer Booklet provided. The use of pencil is acceptable provided it is clearly legible. The Student Declaration on the Answer Book must be completed and signed. Question and answer books must be handed in on completion of the exam. Aids to be supplied by student: Non-programmable calculator Annotated and/or highlighted and underlined copies of the following publications: o 2013 Master Tax Guide CCH o 2013 Taxation Handbook Thomsons Aids permitted where indicated: Standard Dictionaries Bilingual Dictionaries Technical Dictionaries Programmable Calculators Non-Prog Calculators Electronic Devices NO YES NO NO YES NO

2 Question 1 Small Business Entities (12 marks Dominique Hassleoff has operated a small bookshop specialising in movie themes since 2004 when she elected to become a SBE taxpayer using the accrual basis of recording. Dominique needs to minimise her taxable income for the year ended 30 June Dominique's transactions and other information relating to the bookshop for the year ended 30 June 2013 are as follows: RECEIPTS (excludes GST Receipts from customers 147,800 Commission from book suppliers 29,400 Lay-by receipts (note Interest on Business Bank Account 748 Sale of shelving (in general pool 1,000 PAYMENTS RELATING TO BUSINESS (excludes GST Purchase of trading stock 91,741 Gross wages to employees 76,951 Superannuation payment for employees 6,926 Purchase electronic cash register (01/02/13 effective life 6 years 8,500 Purchase of facsimile machine (29/10/12 effective life 5 years 975 Shop rent (note 2 26,000 Other deductible expenses 80,000 Note 1: Some of the books that Dominique sells are expensive. Dominique allows her customers to pay 35% deposit and then pay the balance over the next 3 months. Currently books to the value of $4,652 are being held at the store and $957 has been paid. If a customer changes their mind, she offers a full refund. Dominique does not sell books on credit. Note 2: The rent for Dominique's shop is $2,000 per month. Dominique has paid her rent until 31 July Note 3: 1/7/12 30/6/13 Trading Stock 3,400 10,300 * *(includes the lay-by amount Creditors 8,800 6,050 Asset pool balances as at 30 June 2012 General Pool 8,960 Long-life Pool 16,000 Required: (a Calculate Dominique's taxable income or tax loss carried forward for the year ended 30 June 2013 (8 marks. (b Calculate the general small business pool balance for 30 June 2013 (4 marks. Page 2

3 Question 2 Minors (5 marks Lindy Lancelot is aged 17 and is currently studying her HSC full-time at Summer Heights High School. Lindy lives at home with her parents who are both Dentists. During the year ended 30 June 2013, Lindy received the following amounts: Gross wages from part-time job at Little River Pizza Palace (PAYG withheld $150 7,000 Income Distribution from The Lancelot Dental Surgery Family Trust 9,000 (Trustee withheld $3,450 tax Income Distribution from estate of late uncle 33,000 (Trustee withheld $2,550 tax Fully franked Qantas dividend 1,400 (Lindy was given these from the estate of her late uncle Required: Calculate the net tax payable or refundable for Lindy in respect of the year ended 30 June Page 3

4 Question 3 Superannuation Funds (15 marks The Barker Superannuation Fund has the following information for year end 30 June 2013 RECEIPTS Fully Franked Dividend from Rio Ltd 63,000 Excessive (Non-Arm s length Fully Franked Dividend from Tunload Pty Ltd 14,000 Employer Contributions Super Guarantee Levy (Note 1 95,000 Employer Contributions Bonus paid for employees 13,000 Salary Sacrifice 25,000 Member Contributions employees 20,000 Member Contributions self employed (notice of deduction received 35,000 Interest on term deposit (Note 2 5,000 Interest on Cash Management Account (Note 2 15,000 Proceeds from sale of CSL Ltd shares (Note 3 87,000 PAYMENTS Income Stream paid to Members 23,000 Lump Sum payments to members 95,000 Transfers to other complying superannuation funds 43,000 Life insurance premiums 6,000 Administration Fees 12,000 PAYG Instalments 10,000 Note 1: One member has not provided their TFN to the fund yet. The contribution amount was $3,000. Note 2: The earnings from the bank accounts are used to 100% fund current income stream benefits. Note 3: The CSL shares were purchased in September 1986 for $56,000. Their market value on 30 June 1988 was $60,000. REQUIRED: For the year ended 30 June 2013: (a (b Calculate the Superannuation Fund s taxable income (10 marks. Calculate the Superannuation Fund s net tax payable (5 marks. Page 4

5 Question 4 Trusts (16 marks PART A (8 Marks The Estate of the late Grahame White derived net trust income of $200,000 (which includes $20,000 of franking credits for the year ended 30 June Grahame passed away in August 2005 and in accordance with his Will, this income was distributed as follows: $80,000 to his 27 year old brother Ken who has a physical disability; $60,000 to his 24 year old sister Diane who is under investigation for credit card fraud; $25,000 to his 17 year old sister Tammy who is enrolled fulltime at High School; $20,000 to his rabbit Phoenix aged 7. An additional $5,000 was paid to Tammy s private school to cover her school fees. The remaining amount was not distributed. All beneficiaries are resident taxpayers. REQUIRED: i Complete the trust schedule identifying the beneficiary, whether they are presently entitled, whether they are under a legal disability, the section under which entitlements are taxed, who is liable for the tax, the amount and any franking credits (4 marks. ii Calculate the net tax payable by the trustee in respect of the year ended 30 June 2013 (4 marks. PART B (8 Marks The Murtle Family Trust derived net income of $190,000 for the year ended 30 June All beneficiaries are resident taxpayers. Trust income was allocated as follows: Charles, aged 58, was presently entitled to $75,000; Richard, aged 18 and studying fulltime, was presently entitled to $30,000; Lucas, aged 17, and engaged in fulltime employment, was presently entitled to $30,000. Tom, aged 15, and studying fulltime at high school, was presently entitled to $30,000. The remaining $25,000 was retained and was reinvested. REQUIRED: i Complete the trust schedule identifying the beneficiary, whether they are presently entitled, whether they are under a legal disability, the section under which entitlements are taxed, who is liable for the tax and the amount (4 marks. ii Calculate tax payable by the trustee in respect of the year ended 30 June 2013 (4 marks. Page 5

6 Question 5 Company Reconciliation of Taxable Income (16 marks Go Go Jeans Pty Ltd, manufacturer of clothing, prepared an Income Statement for the year ended 30 June 2013 as follows: Operating Income (note 1 1,868,500 Less operating expenses: Depreciation (note 2 138,000 Loss on sale of machinery (note 3 10,000 Increase in leave provision (note 4 22,000 Bad debts written off (note 5 18,000 Superannuation 92,000 Wages (note 6 900,000 Tax related expenditure (note 7 205,000 Other expenses (all deductible 435,000 NET PROFIT 48,500 Note 1 - Operating Income Gross Fees 1,746,000 Fully franked dividends 70,000 Exempt Income 22,000 Foreign Interest (net of $9,500 foreign tax 30,500 1,868,500 Note 2 - Decline in value allowed (excluding balancing adjustments at tax rates amounted to $155,000. Note 3 - The adjustable value at the date of sale was $30,000. The machinery was sold for $35,000. Note 4 - Actual leave payments amount to $47,000. Note 5 - The bad debts written off all related to amounts included as assessable income in the 2010/11 tax year. Note 6 - The ATO considers the salary of $70,000 paid to the Managing Director s spouse to be excessive ($27,000 is considerable reasonable. Note 7 - Tax related expenditure Tax agents fee 7,500 Payroll tax 27,500 Land tax 12,000 PAYG Instalments 37,000 Goods and services tax 100,000 Fringe Benefits Tax 20,000 Franking Deficit Tax (<10% of credits 1, ,000 Page 6

7 Note 8 - Prior year losses. The company has the same ownership as it did since 2005/06. During 2011/12 the company expanded and moved into the retail market starting up a factory outlet retail shops around Sydney their clothing line. The company has incurred tax losses over the past few years that they have yet to be recouped including: 2009/10 $19, /11 $ 4, /12 $ 2,500 REQUIRED: For the year ended 30 June 2013: (a (b Prepare a statement reconciling accounting profit to taxable income (11 marks. Calculate the balance of the company's income tax liability (5 marks. Page 7

8 Question 6 Company Franking Accounts (6 marks The following data relates to Blacksmith Ltd, a resident company for the year ended 30 June The data is to be referred to in answering the multiple choice questions. 30 June 12 Credit Balance 3, July 12 PAYG Instalment 7, Aug 12 Received fully franked dividend 20, Oct 12 PAYG Instalment 5,900 1 Dec 12 Refund of 2009/10 company tax 10, Jan 13 Paid 80% franked dividend 14, Feb 13 Received dividend from Nigeria ($6000 tax withheld 34, Apr 13 Paid unfranked dividend 7, Jun 13 Paid fully franked dividend 21,000 (i What franking account entry is required for 29 July 2012? a $3,000 debit b $7,000 debit c $3,000 credit d $7,000 credit e no entry required (ii What franking account entry is required for 20 August 2012? a $20,300 debit b $8,700 debit c $20,300 credit d $8,700 credit e no entry required (iii What franking account entry is required for 15 January 2013? a $11,200 debit b $4,800 debit c $11,200 credit d $4,800 credit e $14,000 debit f $14,000 credit g no entry required Page 8

9 (iv What franking account entry is required for 19 February 2013? a $6,000 debit b $17,143 credit c $6,000 credit d $14,571 credit e $34,000 debit f $34,000 credit g no entry required (v What franking account entry is required for 15 April 2013? a $3,000 debit b $2,400 debit c $3,000 credit d $2,400 credit e $7,000 debit f $7,000 credit g no entry required (vi Calculate the over franking tax arising from the dividend paid on 28 June 2013? a $9,000 b $2,700 c $1,800 d $540 e none of the above Page 9

10 Question 7 Primary Producers (15 marks Bill Smith, a resident primary producer, had the following receipts and payments during the year ended 30 June 2013: RECEIPTS $ Sale of sheep (6,700 head (note 1 263,000 Wool Sales (note 2 62,000 Capital 50,000 Insurance Recovery (note 3 10,000 Agistment income 20,000 PAYMENTS Purchase of sheep (1,600 head (note 1 41,500 Connection of telephone line 7,500 Shearing expenses (note 2 21,500 General plant purchased 1/10/12 (effective life 10 years 10,000 Water pump purchased 31/12/12 (effective life 8 years 6,000 Electric fence to protect land from animal pests purchased 1/2/13 (effective life 25 years 4,000 Drawings 20,000 Other expenses all deductible 100,000 Note 1 Details of sheep trading during the year were: Opening stock was 2,100 head valued at $24,800 Purchases were 1,600 head costing $41,500 There were 5,750 head of natural increase Deaths were 600 head Rations were 50 head, 23 of which were taken by Bill Bill chooses to use the prescribed rate for natural increase and average cost for valuing stock and rations. Page 10

11 Note 2 Details of wool trading during the year were August 2012 clip $ June nd clip (due to flooding $ Gross sales 37,000 29,000 Less Commissions and selling cost 2,500 1,500 Net Receipts 34,500 27,500 Shearing expenses 6,500 15,000 Note 3 The insurance recovery relates to 350 sheep that were lost in floods. Note 4 The decline in value deduction for assets held as at 1 July 2012 was $12,500. Note 5 During the 2010/11 year Bill was forced to sell 25,000 sheep due to drought and made a profit on the sale of $115,000. He elected to spread the profit in that year and over the next four years. Required: For the year ended 30 June 2013: (a Prepare the livestock trading account for Bill Smith (5 marks. (b Calculate the taxable income for Bill Smith using any available elections to minimise taxable income (10 marks. Page 11

12 Question 8 Partnerships (15 marks Max and Robert had formed a partnership in 2006 to run a cake making, small business entity in Parramatta. The first few years were very successful, however for the year ended 30 June 2012, the partnership incurred a small loss of $7,000. Due to this Robert had a tax loss carried forward of $1,000 from last year. The partnership agreement states that profits and losses are to be divided 40% and 60% (Max and Robert respectively after adjusting for partners interest on capital, interest on drawings and partners salaries. The following receipts and payments were recorded during the year ended 30 June 2013: RECEIPTS: $ Sales 415,000 Bank interest 50 Loan from partner Robert 9,000 Dividends received from BLD Ltd (fully franked 7,000 Exempt income 500 PAYMENTS: Purchase of baking materials 195,000 Lease of manufacturing equipment 34,000 Salaries Employees 29,000 Robert 40,000 Max 32,000 Drawings Max 16,000 Robert 15,000 Superannuation Employees 7,000 Max 4,000 Robert 5,000 Interest on Capital Robert 750 Max 550 Interest paid to Robert on money lent to partnership 450 Rent on factory paid to Max (market value 13,000 Lease cost on delivery van 9,500 Other deductions (including DIV 38,500 Notes: Stock as at 1/7/12 was $4,300. Stock at 30/6/13 was $7,800. Cakes given away to family and friends for private parties estimated at $2,000. Interest on drawings is paid at 10%. REQUIRED: a Calculate the partnership net income or loss for tax purposes for the year ended 30 June 2013 (6 marks. b Prepare a partnership distribution statement for the year ended 30 June 2013 (4 marks. c Calculate the taxable income of Max and Robert for year ended 30 June Max had $10,000 of deductible expenses relating to the rented property (5 marks. END OF EXAMINATION Page 12