Scenario

You are a graduate tax advisor, employed by Tax Advisors Pty Ltd. Your partner has assigned you the following client file after attending a meeting with the client. Client Background Judy Somerville is employed by Ansett Airways Limited (Ansett) since 2003 as a long-haul flight attendant based in Melbourne, Australia. The nature of Judys position with Ansett sees her flying to international ports where she spends 183 days away from her home base each calendar year. The remaining days of each calendar year are spent in Australia and Judy uses non-flying time to organise the importation of textiles into Australia from Textiles Inc. (a company registered in the USA). Until recently, Judy was the exclusive distributor of textiles to retailers in Australia.

Client File Contents The client file has the following relevant documents:

• Extract of bank statement for selected transactions during the financial year ended 30 June 2020 togetherwith its accompanying notes from Judy (see Annexure A);
• Income statement 2020 from Ansett (see Annexure B);
• Fixed assets register (see Annexure C)
• File note prepared by your partner who had a meeting with Judy (see Annexure D)

Questions:

Required: Judy Somerville has engaged Tax Advisors Pty Ltd to advise her of all her tax issues which will arise from the documents provided in respect of the tax year ending 30 June 2020. Your partner has requested that you: Under Australian Taxation;

- show the calculation of Judys taxable income and tax payable for the tax year ending 30 June 2020.

Annexure A Notes to Bank Statement Extract Bank Statement Extract (Annotated and Selected Transactions Only) SAUD Note Credit Date 1 Apr 20 Debit 14,128.00 1 Note Description / Further Information 1. Acquisition of furniture and office equipment Desks and chairs (acquired on 1 July 2019) Partitions (acquired on 20 August 2019) 2 Outstanding debtors as at 30 June 2019 1 Apr 20 2 2,345.00 9,865 4,263 23,000 15 Apr 20 5,203.00 Debts written (more than 12-month-old) 20,000 6 May 20 3 1,920.00 3. 15 May 20 10,000.00 1,920 25,500 12,500 15 May 20 4 629.00 Provision for bad debts equal to 3% of the outstanding debtors Inventory purchase of textile (USD $2,000.00 = AUD $1,920.00) Inventory at start Inventory at end Skin care products purchased due to flight attendant role Salary payment for employee: Tim Rivers Speeding fine incurred whilst travelling from Melbourne Airport to retailer for textile business 4 629 Transaction Norman Harvey Ltd Debit Card Transaction Myer Coles Pty Ltd Invoice 65 Textiles Ansett Airways Ltd Salary Deposit Textiles Inc. Textile Purchase Stillwell Bib Pty Ltd Debit Card Transaction Skin Care Australia Debit Card Transaction Tim Rivers Salary Payment Traffic Infringement Office Speeding Fine Maze Restaurant Debit Card Transaction First Newspapers Advertising Invoice 39221 Institute of Aviation Course Fees Victoria State Bank Interest Charge Woodlands Pty Ltd Serviced Office Rent 15 May 20 5 1.008.00 5. 1,008 17 May 20 6 220.00 6 220 25 May 20 7 450.00 7 Client dinner at Gordon Ramsey's Maze Restaurant 450 21 May 20 8 2,550.00 8. 2,550 10 Jun 20 6,300.00 Advertising contract payment (paid one month in arrears and prepaid up to 30 September 2020) Office rent paid for 1 June 2020 to 31 July 2020 9. 1,500 30 Jun 20 430.00 30 Jun 20 1,500.00 Annexure B Income Statement 2020 for Judy Somerville Income Statement - individual non-business Income Statement for Year Ending 30 June 2020 Payee details Ms Judy Somervile 10 Diamond Avenue Waverley Vic 3150 NOTICE TO PAYEE If this income statement shows an amount in the total tax withheld box you must lodge a tax return. If 20 tax was withheld you may still have to lodge a tax return For more information on whether you have to lodge, or about this payment and how it is taxed, you can refer to TaxPack - phone 13 28 61 between 8.00am and 6.00pm (EST). Monday to Friday, or visit www.ato.gov.au Maatra| 01/07/2019 Day M/ 30/06/2020 Period during which payments were made to Payoo's tax Sle number 564 335 771 TOTAL TAX WITHHELD $ Lumpsum payments Gross payments S 82.252 A $ CDEP payments $ Other income S D$ Reportable fringe benefits amount FBT your 1 April to 31 March E $ Allowances Total $3.321.00 - comprising of - Lamdry: $2,080.00 - Uniform: $1,241.00 Payer details Payer's ABN or withholding payer number 90111222333 Payer's am ANSETT AIRWAYS LIMITED Branch anumber Signature of authorised person DIRECTOR, HUMAN RESOURCES Annexure C Fixed Asset Register Ms Judy Somerville FIXED ASSET REGISTER File Number: 323 121 900 as at 30 June 2019 Asset ID Proceeds Asset Description Computer Printer Furniture 1 2 3 Acquisition Date 1/09/10 1/09/10 1/09/10 Original Cost 4230.00 890.00 3300.00 Private Use % 20% Op. Adj. Method Rate Amount Closing Adj. Disposal Value. Value Date 3384.00 DV 33.30% 935.46 2,448.54 712.00 DV 33.30% 196.82 515.18 3300.00 10% 273.95 3026.05 20% 0% PC - Annexure D File Note File Note Preparer: P. Slade (Partner) Client: Judy Somerville Date/Time: 20 July 2020 Subject: Meeting with client on 20 July 2020 at 10am The purpose of this file note is to document details of discussion with Judy Somerville in relation to her tax affairs for the year ended 30 June 2020. 1. Judy is no longer selling textiles to Australian retailers as the parent company terminated this agreement. Judy advised that despite the termination of the textile agreement, she has paid First Newspapers for advertising up to 30 September 2020. Judy has $12,500 worth of textiles in inventory that she can no longer sell and Textiles Inc. now refuses to allow her to return the stock. 2. Judy rented a small serviced office for her business at the Tullamarine Business Centre where the lease commenced on 1 November 2019 for 12 months. The Tullamarine Business Centre provided a free fit out and two- month free rent valued at $12,000. 3. Judy provided us with an extract of her bank statement with annotations. In particular, Judy advised that she is studying at the Institute of Aviation as she hopes to move into Flight Operational and Airport Planning Management within the airline where she currently works. Judy indicated that her HELP debt has already been exhausted from prior studies. 4. Judy borrowed $70,000 from the Victorian State Bank in early 2020 for her business at an interest rate of 7.35% per annum as a revolving line of credit secured over her own personal home. Since drawing the loan proceeds, Judy has used $10,000 as a deposit for a BMW which she intended to use for her business. Other Notes Judy is a sole trader and her accountancy fees for the 2019/20 financial year are $5,500 Annexure A Notes to Bank Statement Extract Bank Statement Extract (Annotated and Selected Transactions Only) SAUD Note Credit Date 1 Apr 20 Debit 14,128.00 1 Note Description / Further Information 1. Acquisition of furniture and office equipment Desks and chairs (acquired on 1 July 2019) Partitions (acquired on 20 August 2019) 2 Outstanding debtors as at 30 June 2019 1 Apr 20 2 2,345.00 9,865 4,263 23,000 15 Apr 20 5,203.00 Debts written (more than 12-month-old) 20,000 6 May 20 3 1,920.00 3. 15 May 20 10,000.00 1,920 25,500 12,500 15 May 20 4 629.00 Provision for bad debts equal to 3% of the outstanding debtors Inventory purchase of textile (USD $2,000.00 = AUD $1,920.00) Inventory at start Inventory at end Skin care products purchased due to flight attendant role Salary payment for employee: Tim Rivers Speeding fine incurred whilst travelling from Melbourne Airport to retailer for textile business 4 629 Transaction Norman Harvey Ltd Debit Card Transaction Myer Coles Pty Ltd Invoice 65 Textiles Ansett Airways Ltd Salary Deposit Textiles Inc. Textile Purchase Stillwell Bib Pty Ltd Debit Card Transaction Skin Care Australia Debit Card Transaction Tim Rivers Salary Payment Traffic Infringement Office Speeding Fine Maze Restaurant Debit Card Transaction First Newspapers Advertising Invoice 39221 Institute of Aviation Course Fees Victoria State Bank Interest Charge Woodlands Pty Ltd Serviced Office Rent 15 May 20 5 1.008.00 5. 1,008 17 May 20 6 220.00 6 220 25 May 20 7 450.00 7 Client dinner at Gordon Ramsey's Maze Restaurant 450 21 May 20 8 2,550.00 8. 2,550 10 Jun 20 6,300.00 Advertising contract payment (paid one month in arrears and prepaid up to 30 September 2020) Office rent paid for 1 June 2020 to 31 July 2020 9. 1,500 30 Jun 20 430.00 30 Jun 20 1,500.00 Annexure B Income Statement 2020 for Judy Somerville Income Statement - individual non-business Income Statement for Year Ending 30 June 2020 Payee details Ms Judy Somervile 10 Diamond Avenue Waverley Vic 3150 NOTICE TO PAYEE If this income statement shows an amount in the total tax withheld box you must lodge a tax return. If 20 tax was withheld you may still have to lodge a tax return For more information on whether you have to lodge, or about this payment and how it is taxed, you can refer to TaxPack - phone 13 28 61 between 8.00am and 6.00pm (EST). Monday to Friday, or visit www.ato.gov.au Maatra| 01/07/2019 Day M/ 30/06/2020 Period during which payments were made to Payoo's tax Sle number 564 335 771 TOTAL TAX WITHHELD $ Lumpsum payments Gross payments S 82.252 A $ CDEP payments $ Other income S D$ Reportable fringe benefits amount FBT your 1 April to 31 March E $ Allowances Total $3.321.00 - comprising of - Lamdry: $2,080.00 - Uniform: $1,241.00 Payer details Payer's ABN or withholding payer number 90111222333 Payer's am ANSETT AIRWAYS LIMITED Branch anumber Signature of authorised person DIRECTOR, HUMAN RESOURCES Annexure C Fixed Asset Register Ms Judy Somerville FIXED ASSET REGISTER File Number: 323 121 900 as at 30 June 2019 Asset ID Proceeds Asset Description Computer Printer Furniture 1 2 3 Acquisition Date 1/09/10 1/09/10 1/09/10 Original Cost 4230.00 890.00 3300.00 Private Use % 20% Op. Adj. Method Rate Amount Closing Adj. Disposal Value. Value Date 3384.00 DV 33.30% 935.46 2,448.54 712.00 DV 33.30% 196.82 515.18 3300.00 10% 273.95 3026.05 20% 0% PC - Annexure D File Note File Note Preparer: P. Slade (Partner) Client: Judy Somerville Date/Time: 20 July 2020 Subject: Meeting with client on 20 July 2020 at 10am The purpose of this file note is to document details of discussion with Judy Somerville in relation to her tax affairs for the year ended 30 June 2020. 1. Judy is no longer selling textiles to Australian retailers as the parent company terminated this agreement. Judy advised that despite the termination of the textile agreement, she has paid First Newspapers for advertising up to 30 September 2020. Judy has $12,500 worth of textiles in inventory that she can no longer sell and Textiles Inc. now refuses to allow her to return the stock. 2. Judy rented a small serviced office for her business at the Tullamarine Business Centre where the lease commenced on 1 November 2019 for 12 months. The Tullamarine Business Centre provided a free fit out and two- month free rent valued at $12,000. 3. Judy provided us with an extract of her bank statement with annotations. In particular, Judy advised that she is studying at the Institute of Aviation as she hopes to move into Flight Operational and Airport Planning Management within the airline where she currently works. Judy indicated that her HELP debt has already been exhausted from prior studies. 4. Judy borrowed $70,000 from the Victorian State Bank in early 2020 for her business at an interest rate of 7.35% per annum as a revolving line of credit secured over her own personal home. Since drawing the loan proceeds, Judy has used $10,000 as a deposit for a BMW which she intended to use for her business. Other Notes Judy is a sole trader and her accountancy fees for the 2019/20 financial year are $5,500