Top Shelf Services Pty Ltd is a resident private company (which is not a base rate entity) and is owned by David and Wendy Taylor equally (resident shareholders). The following information has been extracted from its financial records for the tax year ended 30 June 2022. $

Net operating profit 1,600,000

Fully franked dividend 70,000

60% franked dividend received from a resident public company 20,000

Additional information:

Net operating profit is calculated according to the taxation law.

For 2021/2022 tax year, Top Shelf Services Pty Ltd paid instalments of tax under PAYG system as follows:

July 2021: $55,000

October 2021: $60,000

February 2022: $75,000

April 2022: $65,000

Top Shelf Services Pty Ltd paid a 75% franked dividend of $7,000 on 1 February 2022 and a 50% franked dividend of $15,000 on 1 June 2022 to its shareholders (David and Wendy). As at 1 July 2021, Top Shelf Services Pty Ltd had a franking surplus of $15,000 in its franking account.

During the 2022 tax year, Top Shelf Services Pty Ltd lent $60,000 to David. The loan has not been repaid by David, nor has a loan agreement on commercial terms been drafted in relation to the $60,000 lent to David. Top Shelf Services Pty Ltd had a distributable surplus of $50,000 as at 30 June 2022.

David is the director of Top Shelf Services Pty Ltd. He was offered a salary of $250,000 plus the following fringe benefits during 2021/2022 FBT year:

- On 1 August 2021 he received a low interest loan of $240,000 from the company at an interest rate of 1.5%. On the same day, he used $80,000 to purchase shares in the public companies. The shares are ordinary shares on which dividends will be paid. The remaining $160,000 was used to finance the construction of a second bathroom to his Chatswood residence. During the FBT year, David paid all interest amounts owing on the loan as and when they became due but does not repay any of the principal sum.

- Top Shelf Services Pty Ltd decided to write-off the loan($240,000) which was provided to David and to forgive the debt as at 31 March 2022.

Required:

Please show all working citing relevant authorities.

a) Calculate the taxable income of Top Shelf Services Pty Ltd for the year ended 30 June 2022. (3 Marks)

b) Calculate Top Shelf Services Pty Ltds tax payable (refundable) for the year ended 30 June 2022. (3 Marks)

c) Prepare the franking account for Top Shelf Services Pty Ltd for the year ended 30 June 2022. Any taxes excluded from the franking account must be explained. (4 Marks)

d) Advise the appropriate loan treatment under Division 7A applied on Top Shelf Services Pty Ltds loan of $60,000 to David.

e) Advise and calculate Top Shelf Services Pty Ltds FBT liability arising from the provision of the benefits provided to David.

f) Calculate Davids taxable income and reportable fringe benefit amount for the 2021/2022.