Luxwood is a resident private company established in 2011 to manufacture quality furniture that is sold to retailers under several brand names and directly to the public. In respect of each task, the requirement is that you:

• Identify the issue/issues raised
• Identify and discuss the relevant provisions of the legislation, case law, ATO rulings and determinations of Australia.
• Advise the company what amounts are assessable or deductible for each Task.

Note: Disregard GST and Small Business Entity related matters You will not receive marks for discussing these.No need to consider GST

Task 1

Luxwood operates a customer loyalty programme as follows:Under a LuxRewards Card system, each year, on the anniversary of the issue of each customers card, the store grants a non-refundable credit to each customers account according to a sliding scale based on aggregate purchases for the previous 12 months period. The credit is 2% up to $5,000, 3% for the next $5,000 and 4% thereafter. There is no limit. The credit may only be used to reduce the amount payable for LuxRewards Card credit purchases. For example: Customer A commenced his credit card account a few years ago on 1 February so he is entitled to a credit on the anniversary of that date each year, based on his actual purchases for the previous 12 months. Therefore, at balance date, 30 June, an accrual is made based on the actual sales since 1 February although the actual credit cannot be accurately calculated and neither will it arise until the following financial year.

At 30 June 2020 Luxwood estimates that for the period up to that date its liability in respect of these credits is $220,000. In addition, it has already credited $245,000 during the year ended 30/6/20. The store estimates that, on average, 10% of these credits will lapse.