Tony Brown is a Bank Clerk and is Married to Betty Brown - Case Study - Accounting & Finance Assignment Help

Assignment Task

Question One
Part A
Tony Brown is a bank clerk and is married to Betty Brown, a history lecturer at an Australian university who specialises in ancient Egyptian history. In July 2017, Tony resigned from his job and started a new delicatessen business. Tony borrowed $700,000 from State bank at an interest rate of 10% per annum. The loan was repayable over 10 years. Tony used $600,000 of the borrowings to purchase the goodwill and equipment of his new business. Tony then lent the remaining $100,000 to Betty at an interest rate of 2%.
Betty used $70,000 of this money to renovate her holiday home and the balance of $30,000 to undertake a comprehensive field study of the pyramids at Giza and a two-week intensive refresher course on Egyptian Pharaohs at the Cairo Museum. Betty plans to use the information gained from her overseas trip to write a text book on the pyramids which she hopes will be published commercially and prescribed as a text book at various universities. If this is the case, it is very likely that Betty will be promoted. Betty has kept a travel diary and all receipts relating to her expenditure.
In the meantime, Tony’s delicatessen business was unsuccessful, and after much deliberation he sold it in January 2021 at a substantial loss. As the sale proceeds were insufficient to discharge the loan Tony continued to pay interest on the borrowings.

Required:
Applying the IRAC principle and citing relevant case law and legislation to support your answer, advise both Tony and Betty as to the deductibility of any of the above expenditure for the purposes of s 8-1 of the Income Tax Assessment Act 1997.


Part B
Melissa Smith is a barrister, not a small business entity, has incurred the following expenditure during the 2020-21 tax year:
$1,000 desk which she uses in her chambers;$4,400 for a computer terminal which is situated on her desk;$3,300 of bookshelves in her chambers and
$44,000 of books and law reports which Melissa bought from another barrister which sits on the bookshelves.

Required:
Calculate the potential deductibility of the above items for Melissa, noting she is not a small business entity. Show all calculations and refer to relevant legislation to support your answer.

Question 2
Part A
Holiday Fun Pty Ltd ran a caravan and leisure resort in coastal Victoria but ran into financial problems and for the year ended 30 June 2020 the company made a tax loss of $80,000. On 1 July 2020 the company decided to change its business completely and closed down the caravan and leisure resort and instead operated a public hotel in the local coastal town.
For the year ended 30 June 2021, Holiday Fun Pty Ltd made a net profit (before any losses were applied) of $140,000.

Required:
Determine Holiday Fun's taxable income for the year ended 30 June 2021, discussing the application of relevant legislation and showing all calculations.

Part B
Caltex Ltd (a public company for tax law purposes with a turnover of 200 million) has an opening franking account surplus of $40 000 at 1 July 2020.
During the 2020-21 income year the company entered into the following transactions:
On 21 July 2020, the company paid its fourth and final PAYG instalment of $30 000 in respect of the 2020 income year.
On 18 August 2020, the company paid a dividend of $98 000 franked to 70 per cent.
On 25 September 2020, the company received a fully franked dividend from Sims Ltd of $12 000.
On 12 October 2020, the company paid its first PAYG instalment for the 2021 income year of $25 000.
On 9 January 2021, the company paid a franked dividend of $112 000, franked to 100 per cent.
On 28 February 2021, the company paid its second PAYG instalment for the 2021 income year of $25 000.
On 14 April 2021, the company received a fully franked dividend from CSR Ltd of $9600.
On 28 April 2021, the company paid its third quarter PAYG instalment for the 2021 income year of $25 000.
On 4 May 2021, the company paid a franked dividend of $212 000, franked to 80 per cent.
Assume a company tax rate of 30 per cent.

Required:
Prepare the franking account of Caltex Pty Ltd for the 2020/21 franking year and advise the company of its liability for franking deficit tax, if any. Show all calculations and cite relevant legislation to support your answer.

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