Assessment 1B takes into account my ability to establish a reasonably argued position with respect to the tax issues raised in the assignment using the ‘cite, describe, apply’ method.
In using the ‘cite, describe, apply’ method ensure that I:
- Identify all tax issues.
- Cite, describe and apply the most directly relevant law to the tax issues raised on the assignment.
- State a clear and definite conclusion that is consistent with the way I applied the law to the facts.
Assignment Part B is the continuation of Assignment Part A, involving the tax affairs of Hillary Donat. In Assignment Part 1, I was required to calculate her assessable income based on the information provided. For this second part, I should assume that her assessable income is $256,403 and take that as the starting point to deal with the following additional information (which is relevant for the year ending 30 June 2023, the ‘current income year’, unless otherwise stated) to determine Hillary’s taxable income and tax payable including Medicare levy for the year ending 30 June 2023.
1. In the current income year, Hillary purchased the following items for the amounts specified for manufacturing and selling desserts in her shop.
Icing sugar $7,365
Regular sugar $5,169
Packaging items $3,250
Out of these items, milk is the most perishable, so Hillary does not store significant quantities of it. It is much easier to purchase a week’s worth of milk at a time and store it in her refrigerator. While Hillary may not get the best price for milk, she believes that purchasing it this way saves her money in the long run due to less wastage. Hillary estimates that the amounts of these items listed above that was in her shop at the end of the current financial year and previous financial year was $305 and $375 respectively. High inflation has impacted on costs, but all items were purchased from third parties at commercial prices.
2. Having attended business school, Hillary knows that branding is very important for building a successful business in the long-term. Part of building this brand involves wearing Deluxe Desserts embroidered shirts while working in the business. Sometimes she would wear these shirts at social functions where she knew she would meet new people with the aim of increasing public awareness of her business. Hillary is fashion conscious and is very happy to wear these shirts since they are nicely designed and flattering. She has 7 shirts in total (so she could wear a clean one every day) which cost $300 to get made.
3. One day, Hillary noticed that a three-year-old mixing machine was struggling to mix dough. The motor was inspected by a technician who considered it to be worn out, so it was replaced with a new one appropriate to that model of machine at a cost of $450.
4. Other business expenses incurred for the current income year amounted to $50,000. This amount is to be treated as deductible for the purpose of the assignment.
5. Hillary’s PAYG Instalments for 2023 amounted to $40,000. She has private health insurance including hospital cover. Please ignore the private health insurance rebate.
6. Assume that all amounts herein are either exclusive of GST or are free of GST input tax credit entitlements, as appropriate. In other words, the effect of GST should be completely ignored. Similarly, with small business entity concessions.
In my own words and on the basis of the provided information, calculate Hillary’s taxable income and tax payable (including the Medicare levy) for the income year ending 30 June 2023. Justify my answers with reasonably arguable positions citing all relevant law and case law.
Please note the following:
· Do NOT treat this as an accounting exercise. This is a law exercise and marks are awarded for the use of the ‘cite, describe, apply’ approach.
· The numbered points above may contain more than one tax issue. Information provided in one point may be relevant to other points.
2023 Resident Individual tax rates
|Taxable Income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $45,000||19c for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5c for each $1 over $45,000|
|$120,001 -$180,000||$29,467 plus 37c for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45c for each $1 over $180,000|
These rates do not include Medicare levy of 2% of taxable income for individual taxpayers. There is an additional Medicare levy surcharge that is payable if the taxpayer does not have private health insurance with hospital cover and has taxable income above a certain amount. Medicare levy surcharge is not payable by taxpayers who have private health insurance including hospital cover.
It’s that simple.Pay only when you are satisfied.
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