Darwin Pest Control Pty. Ltd. is an Australian resident private company for tax purposes and carries on the business of termite eradication. It is registered for GST.

William Lee, the accountant has prepared the income statement for the year ended 30 June 2018 based on the relevant accounting standards:

Additional Information

(1) Unless otherwise stated the figures are GST exclusive. They do not include GST.

(2) On 30 November 2017, the company received a cash dividend of $100,000 (fully

franked). This dividend is not recorded in the above Income Statement.

(3) On 31 August 2017, the company also received a cash dividend of $85,000 from a US company. Withholding tax of $15,000 had been withheld in the US. Australia has a double tax agreement with the US. This dividend is not recorded in the above Income Statement.

(4) The accounting depreciation of $755,000 is based on the directors estimating the effective life of all assets being 5 years. William advises you that for taxation purposes the following information is applicable:

Darwin Pest Control Pty Ltds final records show that on 1 July 2017 the opening balance of the list of depreciating assets was $600. The directors decided to sell all of the spray equipment and old trucks during the previous financial year. During the year ended 30 June 2018 the company purchased the following assets to replace what had been sold in the previous year.

o New spray equipment at a cost of $626,750 (GST inclusive) on 1 July 2017. The estimated life is 5 years.

o A new computer system with specialized software at a cost of $39,900 (GST inclusive) on 1 July 2017. The estimated life is 4 years.

o Twenty new trucks with special housing for the spray equipment purchased on 1 July 2017 for a total cost $1,573,288. The estimated life given the kilometres they will travel in the trucks is 6 years. (GST inclusive)

o A new BMW Seven Series for the managing director at a cost of $245,000. This was purchased on 1 July 2017. The car has an effective life of 8 years. The FBT paid by the company has been included in the accounting figures as shown above. (GST inclusive)

o The company spent $1,684,000 on building a new factory and warehouse. This price includes all of the construction costs. The new building was occupied for the first time on 1 July 2017.

(5) The provision for unreported claims is based on the companys estimate of remedial work that it would be required to perform under warranties.

(6) The repairs of $430,000 consisted of painting the company premises for $40,000 and replacing the old roof of the factory with new steel panels for $240,000. The new roof was an improvement on the old roof that had a number of holes in it. The company also spent $150,000 on new signs on the building and near the entrance to the building with the company name and details about the services provided by the company. The new signs replaced old signs that had been damaged in a cyclone. The old signs had been there for 8 years.

(7) Wages of $7,400,000 include $40,000 paid for marketing services provided by a directors daughter. The Commissioner considers that $20,000 is a reasonable amount for the services provided.

(8) Darwin Pest Control Pty Ltd has carried out a stock take and values its closing trading stock at the following amounts:

Cost: $933,567 Market value: $985,278

Stock at the beginning of the income year was: $1,630,000

William has not included the opening and closing stock figures in calculating the net profit of $775,492.

(9) Darwin Pest Control Pty Ltd purchased the goodwill of a rival business in Katherine. It did not purchase the plant and equipment.

(10) The actual value of the bad debts written off during the year was $35,000. They engaged a debt collection agency to collect the bad debts.

(11) The company paid a total of $445,000 in PAYG Installments during the financial year.

(12) The company has advised that it wishes to pay the minimum amount of tax and wants to claim the maximum deductions allowable by law.

REQUIRED

Calculate Darwin Pest Control Pty Ltd.s taxable income and tax liability for the year ended 30 June 2018.

Fees $13,011,492 Less: Operating expenses: Advertising Accounting depreciation (note 4) Fringe benefits tax Provision for unreported claims (note 5) Provision for bad debts (note 10) Repairs (note 6) Wages and Salaries (note 7) Purchase of trading stock (note 8) Superannuation for employees 1,100,000755,00045,000150,000143,000430,0007,400,000920,000893,000 Cost of buying the goodwill of a business (note 9) 400,000 12,236,000 Net profit (Accounting) $775,492 Fees $13,011,492 Less: Operating expenses: Advertising Accounting depreciation (note 4) Fringe benefits tax Provision for unreported claims (note 5) Provision for bad debts (note 10) Repairs (note 6) Wages and Salaries (note 7) Purchase of trading stock (note 8) Superannuation for employees 1,100,000755,00045,000150,000143,000430,0007,400,000920,000893,000 Cost of buying the goodwill of a business (note 9) 400,000 12,236,000 Net profit (Accounting) $775,492