Receipts

Cash received for Sales (note 1) $278,000

Dividend received (note 2) $8,720

Payments

Purchases of inventory (note 3) $97,000

Net wages paid to employees $57,890

PAYG withholding paid to the ATO $12,780

Superannuation paid (note 4) $4,987

PAYG instalment paid the ATO (note 5) $5,210

Fringe benefit tax paid to the ATO $11,210

Income tax refund (note 6) $30,000

Purchase of motor vehicle (note 7) $52,000

Other deductible expenses $26,900

Notes

Note 1) All sales during 2022 income year were on credit. Account receivable balances were as follows.

Date 1 July 2021 30 June 2022

Accounts receivable $17,600 $19,800

Note 2) Dividend income received by Smart Solutions Pty Ltd for the year included:

On 30/8/2021, a dividend of $3,600 received from Australian Bank Ltd (an Australian resident public company for tax purposes) franked to 60%.

On 28/2/2022, an unfranked dividend of $5,120 from Lowest Ltd (an Australian resident public company for tax purposes).

Note 3) All inventory purchases during 2022 tax year were on credit. Account payable and inventory balances were as follows

Date 1 July 2021 30 June 2022

Accounts payable $5,280 $5,830

Inventory (trading stock) on 1 July 2021 $7,100

Inventory (trading stock) on 30 June 2022

at cost $8,400

at market selling $8,600

at replacement $8,500

Note 4) As per the ledger balances on 30 June 2022, Superannuation payable for June quarter was amounted to $1,727. The payment is due by 28 July 2022.

Note 5) As per the ledger balances on 30 June 2022, PAYG instalment liabilities payment and payable information are as follows.

24/8/2021 PAYG instalment paid for June quarter 2021 $ 860

25/11/2021 PAYG instalment paid for September quarter 2021 $1,450

28/2/2022 PAYG instalment paid for December quarter 2021 $1,450

26/5/2022 PAYG instalment paid for March quarter 2022 $1,450

June quarter 2022 was amounted to $1,450. The payment will be paid on 25 August 2022.

Note 6) The tax refund was paid on 25 February 2022.

Note 7) The motor vehicle (Toyota Hatchback) was used to deliver coffee machines. Both directors wish to use the taxation effective life to depreciate the machine. Required 1) John wishes to minimise the income tax for 2021/22. Calculate Smart

Statement of Advice 2 Advice on company franking account and distributions . Julia and John seeking your advice regarding Smart Solutions Pty Ltds franking account. (Please note: use all figures/information provided from above to construct the franking account for 2021/22. Opening balance is provided below).

Required

1) 1 July 2021, the balance in Smart Solutions Pty Ltds franking account was $18,721. Construct Smart Solutions Pty Ltds franking account for the 2021/22 financial year. You also need to calculate the franking account balance as at 30 June 2022.

2) Smart Solutions Pty Ltd wishes to pay a final fully franked dividend of $40,000 on 30 June 2022. However, Julia and John are concerned about the franking account to go into deficit. Calculate and advise the maximum frankable distribution amounts that Smart Solutions Pty Ltd can pay as fully franked dividend. What are the tax consequences if Smart Solutions Pty Ltd goes ahead and pays $40,000 fully franked dividend on 30 June 2022?

3) Assuming Smart Solutions Pty Ltd paid $40,000 fully franked dividend on 30 June 2022 (only dividend paid for the year), comment on the tax treatment of the dividend to the following four (4) shareholders:

Julia and John Smart receive a dividend of $15,000 each. They are Australian residents at Page 4 Kaplan Business School Assessment Outline the highest marginal tax rate. $5,000 to Justin Smart, the son of Julia and John, who has been studying in London for three years and is a foreign resident.

$5,000 to Leaf Pty Ltd, an Australian private company with a 30% company income tax rate.

Advise how each of the above four shareholders of Smart Solutions Pty Ltd would be taxed on the distribution received in 2021/22.