Case Study: Comprehensive Individual Tax Return Michael Zack, a resident taxpayer aged 49, runs a sole trading business selling coffee machines. His business is registered for GST. He also works on a casual basis as a sales person on weekends at Myer. He has a rental property in Gold Coast, Brisbane. Michael is taking care of his wife Susan Zack, who has lost one of her legs 2 years ago as a result of a car accident. Michael is solely taking care of Susan. They have no children. Personal Information Name: Michael Zack TEN: 300 001 000 Date of Birth: 15 July 1974 Address: 3 Dimple Street, Melbourne VIC 3358 Contact: 0456 587 987 (Work: 03 9578 3648) Bank account: BSB 225887 Account 378458 Michael is not covered by a private hospital cover. Spouse: Susan Zack Date of Birth: 30 July 1989 Currently receives disability pension from Centrelink $5,200 for the 2019 tax year. She has no deductions to claim for the 2019 tax year. Income/Expense Information Michael and Susan have a joint term deposit account at CBA. Total interest received from the joint account was $1,500 for the 2019 financial year. Michael has paid $700 to a registered tax agent for preparing his tax return for 2018 tax year. In addition to the above, the following information relates to his employment (Part A), business income/expenses (Part B) and rental receipts/payments (Part C). All expenses have been substantiated unless it states otherwise. Part A: Regarding his employment Employer: Myer Pty Ltd (ABN: 11 235 365 874) Gross wages for the 1st of July 2018 to the 30th of June 2019: $9,800 (PAYG withheld: $400) He also received $800 uniform allowance and $200 reimbursement from Myer for work related items he purchased. Michael received a car from employer as a fringe benefit (showing as reportable in his PAYG summary, valued $60,000 not exempt from FBT) Work related allowable deductions to claim (telephone & stationery) $600 Part B: Regarding his Business During the year, Michael has had the following transactions in relation to sales, purchases, and inventory (trading stock. Michael did not choose Small Business Entity option). All GST exclusive unless states otherwise. Cash received from accounts receivable for credit sales $85,000 Cash paid to accounts payable for purchases of trading stock $43,000 Inventory (trading stock) on 1 July 2018 $7,100 Inventory (trading stock) on 30 June 2019 at cost $8,400 at market selling $8,600 at replacement $8,500 The closing stock values include $5,000 worth stock in transit from overseas paid for and owned but not received until the 15th of July 2019. Michael has taken home a coffee machine from the stock purchased for private use at total value of $1,200 Ledger balances were as follows (GST inclusive) 1 July 2018 30 June 2019 Accounts receivable $17,600 $19,800 Accounts payable $5,280 $5,830 . Additional cash receipts included: (All GST exclusive unless states otherwise) Volume rebates from overseas suppliers $3,500 Insurance recovery from the insurance company due to extensive damage caused by a hailstorm and included Compensation for loss of income $7,900 Repairs carried out on shop caused by storm damage $2,700 Medical costs incurred by Michael form injuries $900 Capital contributed by Michael to expand the business $10,000 . Cash payments included: Cash Drawings by Michael Fines for breach of Australian Customers regulations Net wages to employees PAYG withheld from employees and paid to the ATO . $3,000 $900 $12,000 $2,900 . Net wages to employees PAYG withheld from employees and paid to the ATO Superannuation for employees Superannuation guarantee charge Fringe benefit tax Lease payments on shop fittings and plant equipment PAYG instalments for Michael's personal tax commitments Fee for maintenance of computer systems - Covering the period 1/4/2019 to 30/9/2019 Other tax deductible operating expenses Decline in value (see note 1) $12,000 $2,900 $1,230 $190 $850 $940 $2,500 . . . . $1,680 $9,200 $ ? Other information regarding Michael's Business Note 1) Michael uses plant and equipment in his business as follows. Michael wishes a maximum deduction for 2018/19 tax year. Ignore SBE concession. You must show clearly decline value to claim this year and closing adjustable value balance of the each asset in the word report. Assets Cost ($) Purchase Effective Adjustable Business DIV date life vale usage method (30/6/2018) Diminishing Mobile phone 3,000 1/6/2017 4 years 2,188 60% Value 15,000 1/6/2017 10 years 13,375 100% Prime Cost Office Furniture Laptop Computer Printer 4,000 1/8/2018 3 years 100% 150 1/3/2019 2 years 100% . Part C: Regarding his Rental property Michael purchased a house as a residential investment property on the 1st of July 2018. Purchase price of the property was $300,000 comprised of the following payments. All amounts include GST where applicable. Land and buildings $276,800 Depreciable assets adjustable value on the 1st of July 2018 (See Note 1) Carpets $5,000 Hot water system electric $1,200 Ceiling fans $1,600 Barbecue (fixed) $1,400 Window blinds internal $8,000 Window curtains $6,000 $300,000 The previous owner provided a statement to Michael certifying that the property was constructed and completed on the 1st of January 1990 at a construction cost of $100,000. The house was in good condition except that the outside walls required complete repair. Michael recorded the following receipts and payments for the 2018/19 tax year in respect of the rental property: Receipts Rent received (net of agent commission withheld $1,250) by 28 June 2019 Compensation from Rental bond board for tenants who left and $23,750 $23,750 Receipts Rent received (net of agent commission withheld $1,250) by 28 June 2019 Compensation from Rental bond board for tenants who left and did not pay the rent they owed (see note 2) Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2019 Insurance recovery for storm damage to roof $1,300 $3,000 $2,100 $4,500 $23,800 Payments Mortgage repayments to Westpac Bank - principal - interest Loan application fees to Westpac Bank for a 10-year mortgage loan to buy the house - paid on approval of the loan 1 July 2018 Council & Water rates Building Insurance premium Payment to solicitors for lease preparation fees to eject tenants for non-payment of rent Repairs - to paint the outside walls of the house, carried out on 10 July 2018 Construction costs of brick room to store garbage bins and gardening equipment, carried out on 1 May 2019 Garden hose and attachments Travel costs to the rental property for inspections (see Note 3) Pest control costs to eliminate cockroach infestation Payments to the Australian Taxation Office Additional tax on an amended assessment Interest paid on late lodgment $825 $3,400 $850 $150 $375 $1,100 $6,000 $165 $830 $280 $400 $150 Fine for the late lodgement of 2017/18 tax return $760 Other information Note 1) Michael will use the Commissioners estimate of effective life for calculation decline in value which can be found under "Residential Property Operators". Note 2) The rental bond board were only able to pay part of the money owed by the tenants. A further amount of $1050 is outstanding. Michael is attempting to recover this amount by legal means. Note 3) Michael lives in Sydney, he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants. Required 1) Michael wishes to minimise his income tax for 2018/19. Calculate Michael's taxable income for 2018/19. You are required to enter income and deduction details where applicable in the tax return form provided in the excel sheet. Submit all workings of EACH income & deductions of calculations and any tax offsets available Michael in a word format (written report) including relevant section numbers as per ITAA36/ITAA97. 2) In your report, clearly advise whether Michael is eligiable to claim a dependant tax offset (Invalid and invalid carer tax offset). Case Study: Comprehensive Individual Tax Return Michael Zack, a resident taxpayer aged 49, runs a sole trading business selling coffee machines. His business is registered for GST. He also works on a casual basis as a sales person on weekends at Myer. He has a rental property in Gold Coast, Brisbane. Michael is taking care of his wife Susan Zack, who has lost one of her legs 2 years ago as a result of a car accident. Michael is solely taking care of Susan. They have no children. Personal Information Name: Michael Zack TEN: 300 001 000 Date of Birth: 15 July 1974 Address: 3 Dimple Street, Melbourne VIC 3358 Contact: 0456 587 987 (Work: 03 9578 3648) Bank account: BSB 225887 Account 378458 Michael is not covered by a private hospital cover. Spouse: Susan Zack Date of Birth: 30 July 1989 Currently receives disability pension from Centrelink $5,200 for the 2019 tax year. She has no deductions to claim for the 2019 tax year. Income/Expense Information Michael and Susan have a joint term deposit account at CBA. Total interest received from the joint account was $1,500 for the 2019 financial year. Michael has paid $700 to a registered tax agent for preparing his tax return for 2018 tax year. In addition to the above, the following information relates to his employment (Part A), business income/expenses (Part B) and rental receipts/payments (Part C). All expenses have been substantiated unless it states otherwise. Part A: Regarding his employment Employer: Myer Pty Ltd (ABN: 11 235 365 874) Gross wages for the 1st of July 2018 to the 30th of June 2019: $9,800 (PAYG withheld: $400) He also received $800 uniform allowance and $200 reimbursement from Myer for work related items he purchased. Michael received a car from employer as a fringe benefit (showing as reportable in his PAYG summary, valued $60,000 not exempt from FBT) Work related allowable deductions to claim (telephone & stationery) $600 Part B: Regarding his Business During the year, Michael has had the following transactions in relation to sales, purchases, and inventory (trading stock. Michael did not choose Small Business Entity option). All GST exclusive unless states otherwise. Cash received from accounts receivable for credit sales $85,000 Cash paid to accounts payable for purchases of trading stock $43,000 Inventory (trading stock) on 1 July 2018 $7,100 Inventory (trading stock) on 30 June 2019 at cost $8,400 at market selling $8,600 at replacement $8,500 The closing stock values include $5,000 worth stock in transit from overseas paid for and owned but not received until the 15th of July 2019. Michael has taken home a coffee machine from the stock purchased for private use at total value of $1,200 Ledger balances were as follows (GST inclusive) 1 July 2018 30 June 2019 Accounts receivable $17,600 $19,800 Accounts payable $5,280 $5,830 . Additional cash receipts included: (All GST exclusive unless states otherwise) Volume rebates from overseas suppliers $3,500 Insurance recovery from the insurance company due to extensive damage caused by a hailstorm and included Compensation for loss of income $7,900 Repairs carried out on shop caused by storm damage $2,700 Medical costs incurred by Michael form injuries $900 Capital contributed by Michael to expand the business $10,000 . Cash payments included: Cash Drawings by Michael Fines for breach of Australian Customers regulations Net wages to employees PAYG withheld from employees and paid to the ATO . $3,000 $900 $12,000 $2,900 . Net wages to employees PAYG withheld from employees and paid to the ATO Superannuation for employees Superannuation guarantee charge Fringe benefit tax Lease payments on shop fittings and plant equipment PAYG instalments for Michael's personal tax commitments Fee for maintenance of computer systems - Covering the period 1/4/2019 to 30/9/2019 Other tax deductible operating expenses Decline in value (see note 1) $12,000 $2,900 $1,230 $190 $850 $940 $2,500 . . . . $1,680 $9,200 $ ? Other information regarding Michael's Business Note 1) Michael uses plant and equipment in his business as follows. Michael wishes a maximum deduction for 2018/19 tax year. Ignore SBE concession. You must show clearly decline value to claim this year and closing adjustable value balance of the each asset in the word report. Assets Cost ($) Purchase Effective Adjustable Business DIV date life vale usage method (30/6/2018) Diminishing Mobile phone 3,000 1/6/2017 4 years 2,188 60% Value 15,000 1/6/2017 10 years 13,375 100% Prime Cost Office Furniture Laptop Computer Printer 4,000 1/8/2018 3 years 100% 150 1/3/2019 2 years 100% . Part C: Regarding his Rental property Michael purchased a house as a residential investment property on the 1st of July 2018. Purchase price of the property was $300,000 comprised of the following payments. All amounts include GST where applicable. Land and buildings $276,800 Depreciable assets adjustable value on the 1st of July 2018 (See Note 1) Carpets $5,000 Hot water system electric $1,200 Ceiling fans $1,600 Barbecue (fixed) $1,400 Window blinds internal $8,000 Window curtains $6,000 $300,000 The previous owner provided a statement to Michael certifying that the property was constructed and completed on the 1st of January 1990 at a construction cost of $100,000. The house was in good condition except that the outside walls required complete repair. Michael recorded the following receipts and payments for the 2018/19 tax year in respect of the rental property: Receipts Rent received (net of agent commission withheld $1,250) by 28 June 2019 Compensation from Rental bond board for tenants who left and $23,750 $23,750 Receipts Rent received (net of agent commission withheld $1,250) by 28 June 2019 Compensation from Rental bond board for tenants who left and did not pay the rent they owed (see note 2) Rent in advance from new tenants on 29 June for the period 1 July to 30 July 2019 Insurance recovery for storm damage to roof $1,300 $3,000 $2,100 $4,500 $23,800 Payments Mortgage repayments to Westpac Bank - principal - interest Loan application fees to Westpac Bank for a 10-year mortgage loan to buy the house - paid on approval of the loan 1 July 2018 Council & Water rates Building Insurance premium Payment to solicitors for lease preparation fees to eject tenants for non-payment of rent Repairs - to paint the outside walls of the house, carried out on 10 July 2018 Construction costs of brick room to store garbage bins and gardening equipment, carried out on 1 May 2019 Garden hose and attachments Travel costs to the rental property for inspections (see Note 3) Pest control costs to eliminate cockroach infestation Payments to the Australian Taxation Office Additional tax on an amended assessment Interest paid on late lodgment $825 $3,400 $850 $150 $375 $1,100 $6,000 $165 $830 $280 $400 $150 Fine for the late lodgement of 2017/18 tax return $760 Other information Note 1) Michael will use the Commissioners estimate of effective life for calculation decline in value which can be found under "Residential Property Operators". Note 2) The rental bond board were only able to pay part of the money owed by the tenants. A further amount of $1050 is outstanding. Michael is attempting to recover this amount by legal means. Note 3) Michael lives in Sydney, he went to Brisbane by aeroplane to inspect the property and meet with the real estate agents and tenants. Required 1) Michael wishes to minimise his income tax for 2018/19. Calculate Michael's taxable income for 2018/19. You are required to enter income and deduction details where applicable in the tax return form provided in the excel sheet. Submit all workings of EACH income & deductions of calculations and any tax offsets available Michael in a word format (written report) including relevant section numbers as per ITAA36/ITAA97. 2) In your report, clearly advise whether Michael is eligiable to claim a dependant tax offset (Invalid and invalid carer tax offset)