Australian Tax

QUESTION

Mary Burns and Sally Brown are adult Australian residents. On 1 July 2003 they formed a partnership called The Two Bs to run a sports supply business. The partnership supplies clothing and equipment to mining companies in Australia. The business is registered for GST.

The partnership accounts for the business for the year ending 30 June 2017 disclose the following financial details:

The following receipts and expenses are exclusive of GST unless otherwise stated.

RECEIPTS

Gross trading receipts 1,900,000 Capital gain from sale of shares held in an Australian internet company 20,000 see note (ii) below Cash dividend from BHP 10,500 See note (iii) below Interest income from Bank of China 11,250 See note (iv) below

EXPENSES

Salary to Mary 40,000 Interest on loan of funds by Mary 10,000 Salaries paid to employees 250,000 Rent and power 60,000 Purchase of trading stock (see note (v) below) 320,000 Superannuation to staff 85,500 Superannuation paid on behalf of Mary 25,000 Superannuation paid on behalf of Sally 25,000 Purchase of BMW motor vehicle for Mary (see note (vi) below) 120,000 Purchase of treadmill and exercise bikes (see note (vii) below) 180,000 Interest on bank overdraft 18,623 Provision for long service leave (see note (viii) below) 25,984 Provision for bad debts (see note (ix) below) 67,000

Notes - additional information in respect of the partnership.

(i) The partnership agreement stipulates that Mary and Sally share profits and losses in respect of both income and capital gains and losses on the basis of 50% to Mary and 50% to Sally.

(ii) The partners purchased the Australian internet company shares in January 2004 and sold them on 31 May 2017.

(iii) The dividend was fully franked.

(iv) The Bank of China withheld AUD $1,250 from the gross interest

(v) Trading stock at the beginning of the financial year was $370,000. The trading stock at the end of the year was valued as: Market value $560,000 Cost $490,000 Replacement value $546,000

(vi) The car was purchased for use by Mary as she was responsible for sales. The car was purchased on1 January 2015. It was only used 100% for work purposes.

(vii) Various items of equipment were purchased on 1 July 2016 for $65,000 and 1 January 2017 for $115,000. The effective life for the equipment is 4 years. The figures are exclusive of GST. The items are used 100% for business purposes.

(viii) During the year the partnership paid out long service leave to staff of $13,507.

(ix) During the year the partnership wrote off as bad debts $36,849.

REQUIRED:

1. Calculate the net partnership income for the partnership for the year ended 30 June 2017.

2. Calculate the tax payable for Mary for the year ended 30 June 2017.

Additional information for Mary:

INCOME

7,000 Dividends received from an Australian resident company fully franked 30,000 Gross salary received from part-time lecturing at the University ($9,000 in PAYG W) 2,000 Refunds from Government Medicare System for medical expenses 5,000 Interest on Bank Deposits 10,000 Rental income from an investment property

PAYMENTS

1,200 Train fares for travel to and from work 2,200 Rates on family home 900 Electricity for family home 3,000 Tax agents fees for preparing tax return for Mary 5,000 Gross medical expenses for Mary. 2,000 Rates paid on abovementioned investment property 15,000 Interest paid on loan to acquire the investment property 5,000 Cost of painting the investment property immediately after purchasing the property 1,000 Cost of replacing roof tiles on the investment property after the roof was damaged in a severe storm in February 2017 15,000 Cost of extending the bathroom in the investment property 5,000 Maintaining Marys father Bill, who is a permanent resident of Australia and who earned $2,282 adjusted taxable income during the 2016-2017 income year.

Mary has Private Hospital Insurance with HCF