ACC00132-2014-2 Taxation Major Assignment
Your client John comes to see you in July 2014 asking to prepare his income tax return for
the year ended 30 June 2014. His shoebox of receipts, invoices and other paperwork
reveals the following information;
John purchased a house on 26 August 1987 for a cost of $170,000 and also incurred legal
costs of $1,500 and stamp duty of $4,400 in relation to the purchase. John lived in the
house as his main residence until 31 July 2003, at which time he moved interstate for
work. The market value of the house at this time was $230,000.
From 1 August 2003 until 30 April 2014 the house was rented out to different tenants, the
last of whom damaged the home. The following costs were incurred in May 2014 to rectify
the damage to the house;
$
Replacing carpet on lounge room floor 800
Repairing holes in walls of 2 bedrooms 1,200
Repainting the entire inside of the house 3,000
Professional cleaning of the whole house 700
Replace bathroom vanity and basin 1,500
After this work was completed John decided to sell the house because he no longer
wanted to deal with irresponsible tenants. He sold the house on 15 June 2014 for
$300,000 less commission of $2,200.
John also sold on 15 June 2014 his 550 shares in Commonwealth Bank for $44,000. Of
these shares, 500 were originally acquired in September 1991 at a cost of $5.40 per
share. The remainder were acquired in a 1 for 10 bonus share offer in October 2000,
which were issued from the company’s share capital account.
In addition to the above transactions, John had the following income and expenses for the
year ended 30 June 2014;
Income $
Salary (occupation – sales representative) 54,000
Entertainment allowance 3,000
Rental income from the house mentioned above 16,200
Reimbursement of water rates for this property (by tenant) 320
Franked dividends from Commonwealth Bank shares 2,106
Family Tax benefit (for his 4 year old son) 5,200
Cash received from deceased grandmother’s estate 15,000
(Continued on next page)
Expenditure $
Meals incurred when entertaining clients in his job as a sales
representative for his employer 1,800
Purchase of work clothing and shoes 380
Child care costs (approved care for his 4 year old son) 4,800
Purchase of a mobile phone 1 October 2013 (used 80% for work purposes) 750
Monthly call costs on his mobile phone (above) 600
Train tickets for travelling to and from work 150
Rates on the rental property 1,200
Insurance on the rental property 850
Income protection insurance 650
Life insurance 180
Legal fees in relation to sale of rental property 1,100
Tax Agent fees (including $700 advice regarding sale of rental property) 1,000
Brokerage costs in relation to sale of shares in Commonwealth Bank 250
Medical expenses for himself and his son (including $1,200 hospital costs,
$900 doctor visits, $1,800 dental work, $720 remedial massage
costs not prescribed by doctor, $800 prescription sunglasses) 5,420
Amounts refunded by health fund and Medicare $1,500
John’s PAYG Payment Summary shows PAYG withholdings for the year 9,097
REQUIRED:
1. Discuss the tax implications of the sale of rental property, including any exemptions
available and the deductibility of the costs to rectify damage. Calculate the
assessable gain, if any.
2. Discuss the tax implications of the sale of the Commonwealth Bank shares.
Calculate the assessable gain, if any.
3. Discuss the assessability and deductibility of all the other items listed in the
information.
4. Calculate John’s taxable income for the year ended 30 June 2014.
5. Calculate the tax payable/(refundable) for John for the year ended 30 June 2014,
including all additional levies and tax offsets.
NOTE:
You must support your discussion and interpretation with reference to legislation, cases or
rulings.
