Preparation of Work Papers - Calculation of Taxable Income - Income Tax Payable - Purple Rain Pty Ltd Case Study - Accounting and Finance Assignment Help

Assignment Task:

ASSIGNMENT INSTRUCTIONS:

EMPLOYMENT:

Your client (use your own name as the client name) is the sole director of Purple Rain Pty Ltd. The business employs five staff members, including your client who holds the position of managing director. Purple Rain analyses financial information and provides investment advice to registered clients.

Purple Rain also paid $94 a month for your client’s mobile phone account and additional superannuation contributions of $5,200 under a salary sacrifice arrangement. This amount is in addition to superannuation guarantee requirements. The phone payments related to a fixed monthly contract in the employee’s name and payments were made directly to the phone company by the employer.

Your client owns a BMW X5. They purchased the car on 1 June 2018 for $99,000. The car travelled 36,500 km during the year and your client has indicated that about 70% is work-related but they have not kept a logbook. Your client pays for all the running costs for the vehicle. During the year these costs include:

DIVIDENDS AND INVESTMENTS:

Purple Rain Pty Ltd is a large company with two (2) shareholders, your client and their spouse. Your client owns 40% of the issued shares in the company. The shareholders were paid a lump sum of $140,000 in April. They explained that the company had been very successful over the last couple of years and had accumulated significant cash reserves. They described this payment as a fully franked dividend. The proceeds were used to reduce the line of credit that was taken out to purchase the home in which they live. Interest paid on the home loan for the year was $36,000.

The client also has a portfolio of shares that were inherited from their father. The father passed away on July 15, 2018. On finalisation of the estate, the following shares were transferred to your client and the client received notification that all the shares had been transferred on 1 December 2018.

The taxpayer sold the BHP and MYR Shares on 5 January 2019 to raise the deposit for the property purchase discussed below. The BHP Shares sold for $26.54 each and the MYR Shares for $1.31 each. The brokerage fee was based on a percentage of the sale proceeds for each parcel of shares and amounted to $120 for the BHP Shares and $45 for the MYR Shares. These amounts include GST where appropriate.

REQUIRED:

1. Using the EXCEL template provided, prepare a set of work papers – separate sheets within your EXCEL document as indicated. Include detailed explanations about whether each item is assessable income or gives rise to an allowable deduction. Show all workings, explain why you have treated items as you have, and provide appropriate authority for your decisions by referencing sections of the legislation, case law and/or income tax rulings. Your work papers need to be completed so that they can be reviewed by your supervisor and relied upon in the event of any future audit. They should also be reconciled and cross-referenced to reporting labels on the income tax return.

2. The TEMPLATE includes separate sheets for:

• Salary & Wages Income
• Other Income (e.g., interest and dividends)
• Capital Gains
• Rental Property
• Deductions
• Tax calculation
• Letter of advice

3. Tax Payable, Offsets, & Levies: Include all levies and offsets considered (Medicare, Medicare surcharge, franking credits, tax paid, low-income rebate, private health rebate) and explain why they are or are not applicable and reconcile to the tax return calculation).

4. Organise your work papers so that amounts are directly transferrable to items on the Income Tax Return and provide cross-references to the tax return label where the amount is reported. Make sure that all calculation steps are visible in your work papers to ensure your full work is markable and marked.

5. Depreciation calculations can be done using Handitax with the total transferred back to the rental property section of your work papers for reconciliation purposes.

6. Use Handitax to prepare the income tax return, including any relevant schedules, for the year ended 30 June 2019. Use your own name, and the Dummy TFN from the client set up sheet. All other details are to come from the assignment instructions.

7. Write a professional letter of advice to your client summarising their tax situation and explaining the important aspects of the items that are included in their tax return and those that have been disregarded. You should include advice to the client about potential improvements to their record-keeping and other information that is relevant for future tax planning. It is recommended that you seek help from Student Learning Support to ensure that you have used professional language and your letter is error-free. Your letter should be about 2 pages long – comprehensive but concise. If it is too long your client won’t bother reading it (and it will NOT be marked). It should be written in the language and pitched at a level your client will understand. It should not be too technical; your client is unlikely to be interested in which sections of the legislation form the basis of your decisions. Do you need to provide your client with any instructions?

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