Business case study information

You have been asked to prepare the 2020/2021 individual tax return for Max Muscles ('Max'). Max is the sole director and Managing director of Heavy Weight Pty Ltd that operate 20 gyms located throughout New South Wales. The company's shareholders are Max and his wife Lara who have equal shareholding in the company.

Lara does not work in the company and is employed by another business part time working as a marketing assistant. Her annual salary for the 2020/2021 financial year was $40,000. The couple have two school aged children.

Date of birth for Max is 25^th February 1980 and Lara's date of birth is 7 March 1981.

Max has health insurance for the family and this policy was taken out with HBF on 1 September 2020. The premium paid for up until the end of the year totalled $1,120 after a rebate of $133 was claimed. The policy number is HBF862542 and HBF have notified Max that the benefit code is 30.

1. Employment related information

Max is paid a salary by Heavy Weight Pty Ltd. The payment summary for 2020-2021 issued by the company for Max contained the following details;

Heavy Weight Pty Ltd - ABN 84 111 122 223

Name: Max Muscles

Gross payments: $150,000

Tax Withheld $ 51,295

Max completed his University education 3 years ago and has an outstanding HELP debt of $7,000 as at 30 June 2021.

Heavy Weight Pty Ltd made the following payments during the financial year on behalf of Max;

• Additional superannuation contributions of $5,500 were paid to Max's superannuation account by him from his after tax pay. These contributions are in addition to superannuation paid as per the superannuation guarantee requirements of the company. Max had not provided the super fund with a notice of intent to claim a deduction.Details of the find are CARE Superannuation, account number 1235654, Fund ABN 23 111 144 445 and fund TFN 999 999 610.
• Telephone payments in the amount of $1,500. The phone is held in Max's name and the company paid these phone expenses directly to the telephone company.
• Max did a short small business course through TAFE at a cost of $1,500 and he has been able to apply his learnings and improved his skills in running the business after completing this course.

Max owns a Tesla model S motor vehicle. The car was purchased on 1 July 2020 for $150,000. During the financial year Max travelled 32,000 kms. Max has noted that 85% of this travel is work related, however he has not kept a log book of the kilometres travelled for work purposes.Max has paid for all of the running costs during the year and these are as follows;

Fuel	$2,500
Servicing	$1,200
Registration	$960
Insurance	$1,500
Parking fees	$420

Other costs paid during the year included;

	Men's health fitness magazine subscription	$130.00
	Donation to Cancer Council	$250.00
	Donation to Daniel Morcombe foundation	$300.00
	Membership to Australian Chamber of commerce and industry	$1,200.00
	Preparation and lodgement of 2020 tax return by Hillbilly Accountants	$2,500.00
	Payment for life insurance policy that covers Max's income in the event of illness or death. The premium is deducted from Max's bank account via direct debit each month. Total premium paid for the financial year was $3,300. 60% of this amount relates to life insurance with 40% being for
	replacement of income in the event of a serious illness.	$3,300.00

1. Dividends and investments

Heavy Weight Pty Ltd paid a fully franked dividend of $150,000 on 1 April 2021. This dividend paid by the company to the shareholders was used by Max and Lara to pay down their mortgage that they have on their family home. Interest paid on the home loan during the financial year was $26,000.

Max has a share portfolio (see table below) that he inherited from his grandfather who passed away on 31 July 2020. The shares were transferred from the grandfather's estate to Max on 1 December 2020.

ASX code	Original purchase date	Number of shares	Original purchase price	Market value 31 July 2020
BGA	20 Aug 2011	3,500	$5.06	$6.07
NAB	2 Jan 1985	4,000	$5.50	$24.47
CSL	31 Mar 1995	2,500	$25.64	$282.37

During the financial year Max received fully franked (use 30% tax rate) dividends of $950 on his shares in BGA and NAB. Rather than taking the dividends in the form of cash, Max elected to participate in the dividend reinvestment schemes offered by the companies and acquired an additional 5 shares in BGA, and 4 shares in NAB.

Max sold his shares in CSL on 1 August 2020 for $284.00 each. The brokerage fees in relation to the sale were $250. This amount is inclusive of GST.

1. Rental Property

Max owns a unit on the Gold Coast in Burleigh Heads (2/78 The Esplanade, Burleigh Heads, QLD, 4220) and purchased this unit on 25 January 2021 for $1,450,000.Settlement on the property was on the 24 February 2021. Max's brother moved into the unit immediately after settlement and pays rent of $600 per week (paid in advance) to Max. (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 2005. A quantity surveyor's report that Max was provided with during the purchase of the unit showed that at the time of purchase the construction cost of the unit was $500,000. This report cost Max $450.00.

Max purchased wooden shutter blinds for the windows at a cost of $15,000 and a fridge for $2,500. These items were installed in the unit and ready for use on settlement date. Max 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	$36,000
Conveyancing costs	$2,200
Body corporate fees	$1,600
Insurance	$1,500
Council rates	$1,560
Council water rates	$330
Loan repayments - interest only per month	$2,500
Establishment fees bank loan (25 year loan)	$1,050

1. Additional guidelines 1.Excel template

• Using the excel template provided, prepare a set of work papers to enable you to complete the online quiz and tax return for this assessment. You have been provided with separate sheets within the excel document to complete.
• Each item of the case study needs to be addressed and include detailed explanations about its tax treatment and providing appropriate authority for your decisions by referencing sections of the legislation, case law and/or income tax rulings
• Organise and use your work papers so that your amounts are directly transferable to items on the income tax return. This will assist you in Handitax.
• Tax payable, offsets and levies: Include all levies and offsets considered (Medicare, Medicare levy surcharge, franking credits, tax paid, low income rebate, private health rebate) and be able to explain why they are or are not applicable and reconciled to the tax return calculation. You can use Handitax to complete your calculations for these.