Question:Question 1

(Source: Past exam paper, adapted.)

Sue-Ann Brown owns a bookstore in Brisbane that specialises in selling first editions and

collector's items. Sue-Ann's bookstore qualifies as a small business entity for Income Tax

purposes. Sue-Ann runs the bookstore from her home. The business occupies the ground

floor, which is 50% of the floor space of the property. You may ignore GST in answering this

question. During Sue-Ann's 2018-2019 income year, the following transactions took place:

The value of her closing trading stock as at 30 June 2018 was $280,000.

The value of her closing trading stock as at 30 June 2019 is:

o Cost price $273,000

o Market selling value $295,000

o Replacement value $300,000

Sales revenue for the year totalled $238,500.

On 1 June 2019, she gifted a first edition book to the State Library of Queensland for

their Anzac collection. The cost price of the book was $3,500, its replacement value

was $3,800 and market value was $8,000. The State Library is a deductible gift

recipient.

She purchased new stock that cost her $189,000.

The value of Sue-Ann's small business asset pool as at 1 July 2018 was $28,000.

On 1 October 2018, Sue-Ann purchased a computer for $1,200. She used it from that

date to surf the Internet to find stock for the bookstore (60% of the time) and to keep

in contact with her friends on Facebook (40% of the time). The effective useful life of

the asset is 3 years.

Tutorial 6 | Question

2

On 1 February 2019, Sue-Ann purchased a printer for $250. She used the printer

exclusively in her bookstore from that date. The effective useful life of the asset is 3

years.

On 1 March 2019, Sue-Ann purchased a car that costs her $35,000. She only uses the

car for business purposes. During the income year, she used a logbook, recording her

business kilometres as 4,580. She elects not to use Div 28. She also incurred the

following running expenses related to the car:

o Fuel $510

o Registration $320

o Driver's licence valid for 5 years $167

o Driver training so that she could obtain a drivers licence since

she had never learned how to drive $1450

Sue-Ann employed casual staff to help her man the bookstore over weekends. The

wages that she paid them totalled $16,000.

Her general business expenses were as follows:

o Stationary and printing expenses $580

o Advertising fees $800

On 1 June 2019, Sue-Ann paid $2,500 for insurance premiums to cover her stock

against fire and theft for the period 1 July 2019 to 30 June 2020. The payment that she

made was $2,500.

Sue-Ann's Brisbane City Council statements for her property revealed the following

expenses:

o Council rates for the year $1,500

o Water charges $1,000

o Sewage and refuse removal $300

Sue-Ann had not yet paid off her home loan and she incurred interest of $35,000.

Her electricity provider charged her $2,000 for electricity during the income year.

This tutorial question requires you to return to Tutorial 6 and the question about Sue-Ann Brown.

Assume Sue-Ann is registered for GST. Also assume that all amounts in the question include GST

when applicable. Assume Sue-Ann only purchases her stock items from GST registered enterprises.

On that basis:

YOU ARE REQUIRED TO:

a. Calculate Sue-Ann's taxable income for the 2018-2019 income year. Show all calculations

and provide clear explanations for your answers. Your answer should reference relevant

sections of the Income Tax Assessment Acts, relevant case law or rulings from the Australian

Taxation Office. (12 marks)

b. Calculate Sue-Ann's GST payable or refundable for the 2018-2019 income year. Show all

calculations, provide reasons for your answers. (12 marks)