Business case study information You have been asked to prepare the 2020/2021 individual tax return for Bronte Carr. Bronte is the sole managing director of the business Mindfulness Pty Ltd that operates 20 retail outlets located throughout Victoria selling scented candles and oil diffusers. The company's shareholders are Bronte and her husband Will. Bronte and Will both have equal shareholding in the business. Will does not work in the company and is employed by another business full time as a CEO of an IT business. His annual salary for the 2020/2021 financial year was $750,000. The couple have two school aged children Milly and Angus. Date of birth for Bronte is 29th March 1985 and Will's date of birth is 16th April 1980. Bronte has health insurance for the family and this policy was taken out with BUPA on 1 October 2020. The premium paid for up until the end of the year totalled $1,450 after a rebate of $120 was claimed. The policy number is BUP862599 and BUPA have notified Bronte that the benefit code is 30. Employment related information Bronte is paid a salary by Mindfulness Pty Ltd. The payment summary for 2020-2021 issued by the company for Bronte contained the following details; Mindfulness Pty Ltd - ABN Name: Gross payments: Tax Withheld 98 111 122 223 Bronte Carr $110,000 $ 26,500 Bronte completed her University education 4 years ago and has an outstanding HELP debt of $3,000 as at 30 June 2021. Mindfulness Pty Ltd made the following payments during the financial year on behalf of Bronte; Additional superannuation contributions of $2,000 were paid to Bronte's superannuation account by her from her after tax pay. These contributions are in addition to superannuation paid as per the superannuation guarantee requirements of the company. Bronte had not provided her super fund with a notice of intent to claim a deduction. Details of the fund are Host Plus, account number 1235346, Fund ABN 23 111 144 445 and fund TFN 999999716 Telephone payments in the amount of $1,600. The phone is held in Bronte's name and 70% of the expense relates to phone calls made relating to Mindfulness Pty Ltd. Bronte did a short course through Class Bento on making soy candles at a cost of $750. Bronte is now making some of her own candles for the business and selling these to customers as a result of taking this course. Bronte owns a Mazda CX5 motor vehicle. The car was purchased on 1 July 2020 for $38,000. During the financial year Bronte travelled 25,000 kms. Bronte has noted that 70% of her travel is work related, however she has not kept a log book of the kilometres travelled for work purposes. Bronte has paid for all of the running costs during the year and these are as follows; Fuel Servicing $1,690 $1,200 Registration $960 Insurance $1,500 Parking fees $330 Other costs paid during the year included; Gardening Australia magazine subscription $150.00 Donation to Red Cross $350.00 Donation to a Go Fund Me to cover expenses for parents of a lost child Membership to Small Business Association of Australia $200.00 $97.00 Preparation and lodgement of 2020 tax return by MPA Accountants $1,650.00 Books related to running a small business and candle making $250.00 Books related to running a small business and candle making Payment for life insurance policy that covers Bronte's income in the event of illness or death. The premium is deducted from Bronte's bank account via direct debit each month. Total premium paid for the financial year was $3,000. 75% of this amount relates to life insurance with 25% being for replacement of income in the event of a serious illness. $250.00 $3,000.00 Dividends and investments Mindfulness Pty Ltd paid a fully franked dividend of $30,000 on 1 April 2021. This dividend paid by the company to the two shareholders was used by Bronte and Will to pay down their mortgage that they have on their family home. Interest paid on their home loan during the financial year was $12,000. Bronte has a share portfolio (see table below) that she inherited from her auntie who passed away on 31 August 2020. The shares were transferred from the auntie's estate to Bronte on 1 January 2021. ASX code Original purchase date Number of shares ADH 20 May 2012 1,900 NAB 2 Mar 1985 2,000 CBA WOW 31 May 1997 2,500 29 Aug 2008 1,500 Original purchase price Market value 31 August 2020 $2.53 $5.07 $2.90 $24.47 $10.50 $90.10 $15.54 $32.60 During the financial year Bronte received fully franked (use 30% tax rate) dividends totalling $1,500 being $650 on her shares in NAB and $850 on her shares in CBA. Rather than taking the dividends in the form of cash, Bronte elected to participate in the dividend reinvestment schemes offered by the companies and acquired an additional 16 shares in NAB, and 9 shares in CBA. Bronte also received $300 in dividends from WOW that were paid to her as a cash dividend. Bronte sold her shares in ADH on 1 October 2020 for $2.57 each. The brokerage fees in relation to the sale were $110. This amount is inclusive of GST. Rental Property Bronte owns a unit on the Gold Coast in Southport (9/20 Little Norman Street, Southport, QLD, 4215) and purchased this unit on 10 March 2021 for $360,000. Settlement on the property was on the 7 April 2021. Bronte's niece moved into the unit immediately after settlement and pays rent of $370 per week (paid in advance) to Bronte. (Hint: you need to research the issues around renting properties to relatives and include your findings in your workpapers and letter of advice). The building was constructed in 1990. A quantity surveyor's report that Bronte was provided with during the purchase of the unit showed that at the time of purchase the construction cost of the unit was $100,000. This report cost Bronte $350. Bronte purchased new roller blinds for the windows at a cost of $3,000 and a washing machine for $529. These items were installed in the unit and ready for use on settlement date. Bronte does not elect to use a low value pool for depreciating assets and chooses to use the diminishing value method for depreciation where applicable at a rate of 18.75% Other costs that were incurred in relation to the property before 30 June 2021 are as follows; Stamp duty on purchase of property Conveyancing costs Insurance Body corporate fees Council rates Council water rates Loan repayments - interest only per month Establishment fees bank loan (25 year loan) $12,285 $1,500 $545 $1,500 $1,200 $230 $1,000 $595