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QUESTION 3 (please complete both part A and part B) 3 Part A Annie and Brad are partners in the A&B Accounting Practice, located in Hawthorn. The partnership's accounting profit for the year ending 30 June 2020 was $150,000 after the following items were expensed: Interest paid on an advance from Brad $5,000 Salary paid to Annie $21,000 The partnership agreement provides that the partners are share profits and losses equally after allowing for salaries and interest on partners' capital accounts. Required: a) Calculate the net income of the partnership for the year ending 30 June 2020 as defined section 90 of the Income Tax Assessment Act 1936. b) Prepare a statement showing the distribution of the net income of the partnership to each partner for the year ending 30 June 2020. Cite relevant legislation to support of your answer. (3 + 3 = 6 marks) 3 Part B The following information is provided by Jarrod Waite (a resident individual) who works as an employee of a sporting goods business as well as carrying on a business of personal training in partnership with his spouse. training in partnership with his spouse. Income: Net salary from his employer 60,000 (payment summaries show that $12,000 tax has been withheld) Car expense reimbursements from his employer (own car used, based on 4,000km at 40 cents/km) 1,600 Fringe benefits received from employer 8,000 Drawings from partnership of Waite & Waite 2,500 Dividends from US resident company (net of US withholding tax of $15) 85 Expenses: Tax agent fees to lodge his prior year return (paid on 1 December 2019) 350 Payment for 12 months business insurance (on 1 May 2020) 1,200 Travel costs between work and clients' premises 800 Premium on his own life insurance policy 1,000 Other Information: Jarrod sold some BHP shares on 30 May 2020 for $17,000. He had purchased these in May 2000 for $9.900. Brokerage was $100. . He also sold Telstra shares in July 2019 for $7,000. They cost him $11,900 in June 2000. Brokerage costs on sale were $100. The accountant to the partnership of Waite & Waite has advised that Waite's share of net partnership profit is $25,000. Car expense reimbursements from his employer (own car used, based on 4,000km at 40 cents/km) 1,600 Fringe benefits received from employer 8,000 Drawings from partnership of Waite & Waite 2,500 Dividends from US resident company (net of US withholding tax of $15) 85 Expenses: Tax agent fees to lodge his prior year return (paid on 1 December 2019) 350 Payment for 12 months business insurance (on 1 May 2020) 1,200 Travel costs between work and clients' premises 800 Premium on his own life insurance policy 1,000 Other Information: Jarrod sold some BHP shares on 30 May 2020 for $17,000. He had purchased these in May 2000 for $9,900. Brokerage was $100. He also sold Telstra shares in July 2019 for $7,000. They cost him $11,900 in June 2000. Brokerage costs on sale were $100. The accountant to the partnership of Waite & Waite has advised that Waite's share of net partnership profit is $25,000. Required: Calculate Jarrod's taxable income for the year ended 30 June 2020, explaining the taxation treatment of each revenue and expenditure. Justify your answers with reference to case law and ITAA sections where appropriate. Tax rates for Australian resident Individuals 2019/20 Basic income tax Taxable income Tax to lower threshold Marginal tax rate Nil 0 - 18,200 18,201 - 37,000 37,001 90,000 Nil 19c 3,572 32.5c 90,001 - 180,000 20,797 37c 180,001 + 54,096 45c QUESTION 3 (please complete both part A and part B) 3 Part A Annie and Brad are partners in the A&B Accounting Practice, located in Hawthorn. The partnership's accounting profit for the year ending 30 June 2020 was $150,000 after the following items were expensed: Interest paid on an advance from Brad $5,000 Salary paid to Annie $21,000 The partnership agreement provides that the partners are share profits and losses equally after allowing for salaries and interest on partners' capital accounts. Required: a) Calculate the net income of the partnership for the year ending 30 June 2020 as defined section 90 of the Income Tax Assessment Act 1936. b) Prepare a statement showing the distribution of the net income of the partnership to each partner for the year ending 30 June 2020. Cite relevant legislation to support of your answer. (3 + 3 = 6 marks) 3 Part B The following information is provided by Jarrod Waite (a resident individual) who works as an employee of a sporting goods business as well as carrying on a business of personal training in partnership with his spouse. training in partnership with his spouse. Income: Net salary from his employer 60,000 (payment summaries show that $12,000 tax has been withheld) Car expense reimbursements from his employer (own car used, based on 4,000km at 40 cents/km) 1,600 Fringe benefits received from employer 8,000 Drawings from partnership of Waite & Waite 2,500 Dividends from US resident company (net of US withholding tax of $15) 85 Expenses: Tax agent fees to lodge his prior year return (paid on 1 December 2019) 350 Payment for 12 months business insurance (on 1 May 2020) 1,200 Travel costs between work and clients' premises 800 Premium on his own life insurance policy 1,000 Other Information: Jarrod sold some BHP shares on 30 May 2020 for $17,000. He had purchased these in May 2000 for $9.900. Brokerage was $100. . He also sold Telstra shares in July 2019 for $7,000. They cost him $11,900 in June 2000. Brokerage costs on sale were $100. The accountant to the partnership of Waite & Waite has advised that Waite's share of net partnership profit is $25,000. Car expense reimbursements from his employer (own car used, based on 4,000km at 40 cents/km) 1,600 Fringe benefits received from employer 8,000 Drawings from partnership of Waite & Waite 2,500 Dividends from US resident company (net of US withholding tax of $15) 85 Expenses: Tax agent fees to lodge his prior year return (paid on 1 December 2019) 350 Payment for 12 months business insurance (on 1 May 2020) 1,200 Travel costs between work and clients' premises 800 Premium on his own life insurance policy 1,000 Other Information: Jarrod sold some BHP shares on 30 May 2020 for $17,000. He had purchased these in May 2000 for $9,900. Brokerage was $100. He also sold Telstra shares in July 2019 for $7,000. They cost him $11,900 in June 2000. Brokerage costs on sale were $100. The accountant to the partnership of Waite & Waite has advised that Waite's share of net partnership profit is $25,000. Required: Calculate Jarrod's taxable income for the year ended 30 June 2020, explaining the taxation treatment of each revenue and expenditure. Justify your answers with reference to case law and ITAA sections where appropriate. Tax rates for Australian resident Individuals 2019/20 Basic income tax Taxable income Tax to lower threshold Marginal tax rate Nil 0 - 18,200 18,201 - 37,000 37,001 90,000 Nil 19c 3,572 32.5c 90,001 - 180,000 20,797 37c 180,001 + 54,096 45c