Assessment 3 Case Study Data

Posted: February 18th, 2024

Assessment 3 Case Study Data
Background
Amity Holdings Pty Limited (Amity) is an Australian resident company that was incorporated during 2022. After purchasing several investments including real estate and shares, in 2023 Amity commenced business as a golf equipment wholesaler with both Australian and overseas clients.
Katy Mahon, the Managing Director of Amity, has terminated Kurt Aild, the company’s accountant, as she is concerned that there are several errors in the returns prepared. Katy has provided the following information produced by Kurt:
a) 2023 Income Tax Return
b) Additional notes accompanying the income tax return including franking account
c) June 2023 Business Activity Statement (BAS)
d) Additional notes accompanying the BAS
e) 2023 Fringe Benefits Tax Return
f) Notes and workings accompanying the FBT return
Requirements
Katy has requested that you prepare a statement of advice including:
i) Any necessary corrections to Amity’s Income Tax Return that impacts taxable income, income tax liability or the franking account. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations.
ii) Any necessary corrections to Amity’s Fringe Benefits Tax Return that impacts the taxable value of benefits and fringe benefits tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations.
iii) Any necessary corrections to Amity’s Business Activity Statement that impacts GST on sales, GST on purchases and net GST payable. Each correction should be supported by a
brief explanation and correct referencing from legislation, along with any workings and calculations.
Amity Holdings Pty Ltd 2023 income tax return
Amity Holdings Pty Ltd 2023 income tax return (cont.)

Amity Holdings Pty Ltd 2023 income tax return (cont.)

Amity Holdings Pty Ltd 2023 income tax return (cont.)

Notes and workings accompanying the tax return
E – BAD DEBTS
Provision for doubtful debts (none written off during year) 20000 20000
ITEM 6
INCOME $ $
C – OTHER SALES OF GOODS AND SERVICES
Sales of goods and services to Australian customers 525000
Exported sales of goods and services 65000 590000
H – TOTAL DIVIDENDS
Fully franked dividends received from listed companies 21000
Unfranked dividend from listed companies 2000 23000
R – OTHER GROSS INCOME
Rent from residential investment properties
(includes $5,000 accrued for rent outstanding) 195000 195000
EXPENSES
A – COST OF SALES
Purchases 175000
add: Closing stock (at cost) 37000 212000
D – SUPERANNUATION EXPENSES
Contributions to complying fund 21500
Superannuation Guarantee Charge 1500 23000
H – RENT EXPENSES
Management Fees 16000
Strata Levies 44000
Insurance 14500 74500
Notes and workings accompanying the tax return (cont.)
Y – MOTOR VEHICLE EXPENSES
Running costs 14500
Speeding Fines 500 15000
S – ALL OTHER EXPENSES
Fringe benefits tax paid 22300
Wages 205000
Other employee benefits 16000
Commercial rent – fully serviced business premises 63000 306300
ITEM 7
A – NET CAPITAL GAIN
Amity entered into a contract for the sale of a residential property that was acquired in 2022:
Capital proceeds 820000 less: Purchase price 685000
135000 less: 50% discount 67500 67500
J – FRANKING CREDITS
30% x $21,000 6300
CALCULATION STATEMENT
T1 – TAX ON TAXABLE INCOME 69,300
$231,000 x 30%
(Kurt noted that Amity is not a Base Rate Entity as more than 20% of assessable income is Passive)
D – NON-REFUNDABLE CARRY FORWARD TAX OFFSETS
As per Item 7 J – Franking credits from listed companies 6,300
30% x 21,000
Notes and workings accompanying the tax return
NOTE 1 Amity prepared the following franking account for the year:
DATE DESCRIPTION DR CR BAL
1-Jul Opening Balance 3000
30-Sep Fully franked dividends totalling $21,000 received 6300 9300
21-Nov PAYGI Paid 8500 17800
21-Jan Dividend of $70,000 paid – fully franked 21000 -3200
31-Jan PAYGI Paid 8500 5300
21-Apr PAYGI Paid 8500 13800
28-Jun Dividend of $24,500 paid – unfranked 0 13800
NOTE 2 Rental properties held by Amity had unexpired constructions costs totalling $600,000. All properties were constructed between 2000 and 2010.
NOTE 3 Amity was provided with artwork valued at $11,000 by a client in return for
products provided at no charge. This has not been included in any returns as it is non-cash.
NOTE 4 In 2022, Amity incurred company set-up and initial costs of $15,000.
NOTE 5
PAYGI instalments paid amounts to $33,000 (i.e. 4 instalments of $8,500
each)
Extracts from the June 2023 Business Activity Statement
Notes and workings accompanying the business activity statement
$ $
G1 – TOTAL SALES
Sales of goods and services to Australian customers 192000
Exported sales of goods and services 23000
Rent from residential investment properties 44000 259000
G11 – NON CAPITAL PURCHASES
Trading stock purchases 51000
Superannuation 5300
Management Fees – rental properties 4500
Strata Levies – rental properties 12500
Insurance – rental properties 1600
Car running costs 4600
Commercial rent paid 17800
Purchase of new office furniture 3700 101000
OTHER NOTES
Amity was provided with artwork valued at $11,000 by a client in return for products provided at no charge. This has not been included in any returns as it is non-cash.
Extracts from the 2023 fringe benefits tax return
Notes and workings accompanying the fringe benefits tax return
ITEM 23 $
CAR FRINGE BENEFIT
Running costs 15000
Estimated business use (no logbook kept) 50%
TAXABLE VALUE 7500
EXPENSE PAYMENT BENEFITS
Hospital (medical) costs paid for employee 10000
Furniture purchased for employee 6000
16000
NOTE – CAR BENEFIT
The car originally cost $60,000 including GST and was available for the entire FBT year. No contributions were received from the recipient.

_______________________
Income Tax Return:
Bad debts of $20,000 have been claimed as a deduction, however no bad debts were written off during the year. As per s25-35 of the ITAA 1997, a deduction for bad debts is only available if a debt is written off as bad during the income year. This amount should be added back to taxable income.
Rental income of $195,000 has been included, however $5,000 of accrued rent receivable has also been included. As per s6-5 of the ITAA 1997, accrued income is not included in assessable income until it is derived. The $5,000 of accrued rent should be removed from rental income.
Unfranked dividends of $2,000 have been included as assessable income. As per s44 of the ITAA 1997, unfranked dividends are not included in assessable income for a corporate tax entity. This amount should be removed.
Construction costs of $600,000 relating to rental properties have not been claimed as a deduction. As per s25-110 of the ITAA 1997, unexpired construction costs can be deducted over time. $60,000 (1/10 of costs) should be claimed as a deduction this year.
Fringe Benefits Tax Return:
The car fringe benefit has been calculated using 50% business use without having kept a logbook. As per s5C of the FBTAA 1986, the statutory formula method can only be used if a valid logbook is kept. The taxable value should be recalculated using the operating cost method based on actual expenses.
Business Activity Statement:
GST on rental income of $44,000 has not been included as sales. As per s9-5 of the GST Act, residential rental income is a taxable supply. $4,000 (1/11 of rental income) should be included in GST collected.
Input tax credits of $6,000 relating to the furniture purchased for an employee has not been claimed. As per s11-20 of the GST Act, this purchase relates to a fringe benefit and input tax credits can be claimed.

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