Tax305 – ‘The Assessment Answer

 MAS5530

Taxation Law:

Mary Burns and Sally Brown are adult Australian residents. On 1 July 2003 they formed a partnership called ‘The Two B’s’ to run a sports supply business. The partnership supplies clothing and equipment to mining companies in Australia. The business is registered for
GST.
The partnership accounts for the business for the year ending 30 June 2017 disclose the following financial details:
The following receipts and expenses are exclusive of GST unless otherwise stated.

RECEIPTS
Gross trading receipts                                                                                                              1,900,000
Capital gain from sale of shares held in an Australian internet company                    20,000
– see note (ii) below
Cash dividend from BHP                                                                                                         10,500
See note (iii) below
Interest income from Bank of China                                                                                     11,250
See note (iv) below
EXPENSES

Salary to Mary                                                                                                           40,000
Interest on loan of funds by Mary                                                                         10,000
Salaries paid to employees                                                                                      250,000
Rent and power                                                                                                         60,000
Purchase of trading stock (see note (v) below)                                                   320,000
Superannuation to staff                                                                                           85,500
Superannuation paid on behalf of Mary                                                              25,000
Superannuation paid on behalf of Salary                                                            25,000
Purchase of BMW motor vehicle for Mary (see note (vi) below)                   120,000
Purchase of treadmill and exercise bikes (see note (vii) below)                    180,000
Interest on bank overdraft                                                                                     18,623
Provision for long service leave (see note (viii) below)                                    25,984
Provision for bad debts (see note (ix) below)                                                    67,000

(i) The partnership agreement stipulates that Mary and Sally share profits and losses in respect of both income and capital gains and losses on the basis of 50% to Mary and 50% to Sally.

(ii) The partners purchased the Australian internet company shares in January 2004 and sold them on 31 May 2017.
(iii) The dividend was fully franked.
(iv) The Bank of China withheld AUD $1,250 from the gross interest
(v) Trading stock at the beginning of the financial year was $370,000. The trading stock
at the end of the year was valued as:
Market value                            $560,000
Cost                                           $490,000
Replacement value                $546,000

(vi) The car was purchased for use by Mary as she was responsible for sales. The car was purchased on1 January 2015. It was only used 100% for work purposes.
(vii) Various items of equipment were purchased on 1 July 2016 for $65,000 and 1 January 2017 for $115,000. The effective life of the equipment is 4 years. The figures are exclusive of GST. The items are used 100% for business purposes.
(viii) During the year the partnership paid out long service leave to the staff of $13,507.
(ix) During the year the partnership wrote off as bad debts $36,849.

Questions: 

1. Calculate the net partnership income for the partnership for the year ended 30 June 2017.
2. Calculate the tax payable for Mary for the year ended 30 June 2017.