Australian Taxation

Ralph and his wife, Bibiana, carry on business in partnership. The partnership engages in two activities: music production and trading in musical instruments. The partnership agreement provides that Ralph is entitled to an annual salary of $15,000 and any residue is to be shared in the proportion of 70% to Ralph and 30% to Bibiana.

Apart from her capital investment in the business, Bibiana lent a total of $5,000 to the business for use in music production and in May of the current tax year, the business paid her $500 interest on this amount. During the current tax year, Ralph and Bibiana were each paid $1,000 interest on their capital investment in the business.

The business earned $50,150 on its music production and paid out $7,500 in recording expenses. The musical instruments trading produced an income of $120,300 and expenses attributable to this aspect of the business totalled $108,500. Musical instruments on hand at the beginning of the current tax year was $2,000 and at the end of the current tax year was $4,000.

The partnership also received 90% franked dividends of $3,500. The business has taken out an insurance policy on Ralphs life and premiums amounting to $4,000 in the current tax year were paid out of the bank account of the business.

Additional information: Ralphs personal records disclose: proceeds from selling homemade yogurt to friends: $600 income earned as orchestral pianist: $47,000 parking fees incurred while travelling to concert for live performance: $50 stage costumes: $1,700 concert tickets for music events which he attended to learn and keep up with the latest trends: $150 mobile phone expenses (40% for liaising with conductor of orchestra; 10% for selling homemade yogurt; 50% for chatting with friends and relatives): $700

fitness expenses so that he would look his best on stage: $200 cost of attending award nights or social events: $80

Required: (a) Prepare a statement of net partnership income for the current tax year. (b) Calculate the distribution of net partnership income for the current tax year. (c) Prepare a statement of tax liability for Ralph for the current tax year.

*current tax year: 1 July 2020-30 June 2021

d) Provide a brief explanation ONLY for receipts and expenditures that are EXCLUDED during the preparation of the statement of tax liability in part (c) i.e. totally non-assessable income and totally denied deductions. You are NOT required to explain partially non-assessable income and partially denied deductions due to apportionment rule. Support your answer with relevant Australian income tax legislation, case law OR rulings.