Jahi Jani is a 43-year-old chauffeur who is employed by Joyous Journeys Pty Ltd in Melbourne. Jahi engages your services for the preparation of his company’s 2019/20 tax return.

On 4 September 2020 Jahi sends you the email below:

From: Jahi Jani
Sent: Monday , 7 Sept 2020, 10:12 am
To: Tax Accountant
Subject: Tax return 2019/20 –Joyous Journeys Pty Ltd

Dear Tax Accounting Team,

Please prepare my company’s tax return.

You see, I intend to lodge my own personal tax return on my.gov.au.

I already know how to use taxcalc.com.au and should have a reasonable approximation of my tax liability. In addition, the Commissioner of Taxation issues me a Notice of Assessment, so my tax liability will be confirmed when I receive that.

Below, I provide relevant details that should be of assistance to you in the preparation of my company’s tax return for the 2020 income year.

Company Tax Return

1. Business expenses

My company which has its own bank account paid for the following business costs.

• Motor vehicle Duty on grandpa’s limousine                        $2,500
• Registration                                                                            $1,000
• Insurance                                                                                 $2,000
• Services                                                                                    $1,200
• Car washes                                                                            $500
• Petrol                                                                                       $5000
• Professional Cleaning of Limousine                                      $800
• Council parking fines                                                              $500
• Dry Cleaning Uniform                                                             $500
• Chauffeur Suit, including                                                        $1000
  • 5 shirts, 3 pairs of pants, shoes, 2 ties, and a chauffeur cap.

                      

6. Chauffeur salary and Super

Joyous Journeys gave me a salary at market rate and paid me $27,000. The company also paid superannuation into my nominated Superannuation account which was one I had established with my previous employer. The company was careful only to pay $25,000 (so they didn’t go over the cap). The only fringe benefits I received from the company are my wages and super - I didn’t realize there was so much more advantage to be taken from using salary sacrificing, so we will need to deal with that next financial year.

7. Limousine repairs and subsequent insurance payout

The company limousine needed to be repaired because unfortunately it was involved in a minor accident. It was considered by the assessors as my fault and the insurance company didn’t cover the cost. It was only one panel that needed fixing the dent, and the bumper bar that was replaced to return it to its original condition, but the cost was enormous, as Joyous Journeys had to pay $5.000.

However, on March 21 the limo was written off in an accident caused by a Council Truck when a client and I had stopped at a coffee house. I promptly received $60,000 compensation from the insurance company, so it's just as well I had insured it at market value.

8. Purchase of new limousine

I used the $60,000 from the insurance company as a deposit to purchase a brand new luxury Mercedes Benz C200 for $110,000 (including stamp duty). I borrowed $50,000 from JNZ Financial Services on 1 April 2020 over a 5-year loan and associated bank fees were $900. The interest-only for 3 months (April – June 2029) was $1,000. The registration was $1000 and insurance $2500

9. Taxable income and tax liability of my company

Based on the above information, what would be the taxable income and the tax liability of the business?

That should be all you need for your deliberations. I look forward to hearing back from you about my company’s completed income tax return.

Thank you very much.

Kind regards,

Jahi Joni

Director, Joyous Journeys Pty Ltd

Required

1. Prepare a report (1,200 words) to put into Jahi’s file which you can use as background in discussion with the Partner, and subsequently when you need to provide further advice to Jahi.

Format of your report. You must:

• address the 9 main issues raised using the same numbering system/headings listed above in Jahi’s email.
• adopt a report style approach using 3 headings, and apportion the column width similarly
• do not provide 3 equal-width columns - the issue is only a small number words, the amount only has numbers in it, no words, but the Law is the substantive column which is why it is the widest column.

Issue

Law that applies, including Reasons (& Common Law/Tax Ruling)

Amount ($) Effect on taxable income/tax liability