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Comprehensive income tax case study

Case Study One –
Part A
You are currently working as a graduate accountant and are provided with the following information
from a client. The client, Joe, has the following income and expenses for the financial year ended 30
June 2019. Joe is employed as a manager of operations at a local transport company. In addition to
his employment Joe also operates a market stall selling wood carvings on the weekend.
Income
$
• 45,000 Sales of wood carvings from the market stall
• 1,000 An anniversary gift from his employer for Joe’s 10th wedding anniversary
• 5,000 Bonus received from his employer for successful completion of large project
• 125,000 Salary received from his employer (including PAYG Withholding of $22,000)
• 5,000 Interest on Bank Deposits
• 10,000 Joe gambles on the horses and during the year had won $10,000 on betting
• 35,000 Sale of his personal motor vehicle (he brought the vehicle for $15,000)
• 25,000 Sale of shares (he brought the shares 13 months ago for $10,000)
• 1,000 Received Manager of the year award from the Institute of Managers
Expenses
$
• 2,000 Rent on market stall for his business
• 5,000 Purchase of wood for carvings, Joe estimates in cost he has $2,000 in wood
as at 30 June 2019 as stock on hand and advises that as at 1 July 2018 his
wood stock at cost was $3,000.
• 800 Joe purchased steel capped work boots for $500, protective sunglasses for
$220, New jeans for $80 (which he also wears on the weekend)
• 1,500 Bookkeeping fees for the market stall business
• 12,000 Purchase of new carving tools for the market stall business
• 400 Cost of meals and entertainment that his employer did not reimburse
• 200 Train fares for travel to and from work
• 3,200 Rates on family home
• 900 Electricity for family home
• 1,000 Advertising packaging for market stall business
• 1,000 Purchase new table and counter for market stall
Joe does not have any children. Joe does have private health insurance. Joe also advises you that
he had carried forward tax losses from last year of $2,000 relating to his market stall. In addition to
the above Joe advises he does work from home as he attends to emails late night after dinner at least
4 nights a week.
College of Business and Law
Required:
• Determine which Income and Expenses are assessable income or allowable deductions.
Note you will need to cite legislative references, case law and tax rulings as applicable.
Emphasis is on providing substantiation for you reasoning to include as assessable income or
allowable deduction. Also refer to the relevant item number on the 2019 tax return where the
amount would be disclosed, i.e. (interest income is item 10). An Example format is provided
below.
• Assume Joe is a resident for Australian taxation purposes, calculate his tax liability including
any tax offsets and levies.
EXAMPLE FORMAT
Income

Assessable Particulars Legislation, Case law, Rulings,
Reasoning
Item – 2019 Tax
Return
Y/N

Expenses

Deductible Particulars Legislation, Case law, Rulings,
Reasoning
Item – 2019 Tax
Return
Y/N
Part B
During your meeting with Joe, he advises that his employer has offered him a position for 3 years in
Thailand. Joe seeks your advice on residence issues for Australian taxations purposes. In particular
Joe wants to understand impact on any Non Australian assets he owns (Joe currently has overseas
shares valued at $150,000 and a overseas property in Singapore valued at $1.5million). Joe also
wants to understand what tests will be applied to determine his residency.
(Part A 20 marks)
(Part B 5 marks)
Word Count: 1,000 – 2000 words
College of Business and Law
Theory Question
Required:
Discuss the difference between tax evasion and tax minimization. Consider when will the tax office
deny a deduction based on a taxpayer’s subjective purpose or intention in incurring the expenses.
(5 marks)
Word Count: 500 words

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