Taxation implications, Taxation

1. Shortly after he retired in November 2009, Paul Martyn decided to set up a coffee retail shop in leased premises close to the Camberwell where he lived.  The main products sold were coffee, tea, machines, tea and drinks. To keep things simple, Paul elected to conduct the business in his own name as a sole proprietor. Because there had been an excess of commercial property at the time, Paul was offered a lease incentive of $19,000 by the landlord when the lease was being negotiated. Paul was obliged to be registered for GST.

2. Paul determined, at the time of the business's commencement, that his gross annual sales would be approximately $170,000 growing by 5 percent per annum for the first five years. At the end of the first financial year of trading he had $28,000 of stock on hand and trade debtors amounting to $5,700.

3.      Although several items of equipment were purchased for the business, most cost less than $1,000 inclusive of GST. The business also purchased fixtures and fittings which were installed in the customer area and manager's office. Computer software was acquired to keep accounting records and prepare BAS documentation. Paul also used his private motor vehicle for business purposes with a 60 percent taxable usage.

4. In January 2010 Paul invited Angela to be a partner in the business. After receiving advice from her accountant, she accepted the offer and the necessary legal documentation was prepared. The partnership commenced on 1  March 2010. It was agreed that profits and losses would be shared on an equal basis. Each partner would receive interest on the capital invested at a rate of 5 percent per annum. They would also receive an agreed salary although Paul's figure would be higher than for Angela reflecting the longer weekly hours he worked in the business. To help finance business expansion, Paul also lent $69,000 to the partnership at a market rate of interest. Legal expenses incurred in regard to the loan amounted to $600. On the advice of the partnership's accountant, the business also contributes $500 per month to superannuation for each partner.

5. Three months after the partnership had commenced, a partnership business asset was sold for a capital loss.

With expansion of the business it was decided to employ Angela's daughter, Georgina, on a part-time basis during peak periods. Georgina served mainly at the counter. For this work she is paid $42 per hour. The business also pays her an allowance for the use of her motor vehicle during work time.

The business provided Angela with an all-expenses paid overseas holiday to New Zealand and Paul with a lap-top computer.

6. Working part-time suits Georgina because it gives her time to devote to her personal training business. In the current financial year she expects to earn assessable income of $6,000. Although Georgina will make a loss this year from the personal training business she is confident that her business will generate profits within 1 or 2 years.

7. After expressions of concern from Paul about the physical access to the business, the landlord, Ces, agreed to replace the existing balcony and access steps with a pre-formed masonry structure. The original access had been made of timber but this had deteriorated over time.  The work cost Ces $14,000.

8. Paul plans is to sell his interest in the partnership to Angela's daughter later in 2012. When Paul moves out of the business he will enter into a restrictive covenant in which he will agree not to establish a similar business within a radius of 50 km of the location of the present business. The partners anticipate that Paul will receive $25,000 in consideration for entering into this agreement.

REQUIRED:

You are required to advise each person ie Paul, Angela, Georgina and Ces of the taxation implications of the above activities.

For each taxpayer you need to identify the issues, what is the relevant legislation, what is the case law, what are the tax rulings and come to a conclusion about each issue.

 

 

 

Posted Date: 2/23/2013 7:56:26 AM | Location : United States







Related Discussions:- Taxation implications, Assignment Help, Ask Question on Taxation implications, Get Answer, Expert's Help, Taxation implications Discussions

Write discussion on Taxation implications
Your posts are moderated
Related Questions
Given the below information, provide the journal entry to recognize tax expense. Assume taxes are paid immediately (with cash). Note: the statutory rate is assumed to be 40%. As

Given the below facts, what is the total income effect for the year for an investor for its equity-method investment? T y pe of Investment: Equity Method

The use by a corporation of the losses it continued in earlier years to compensate taxes on the profits it attains in future years. Individuals can also utilize a tax umbrella so t

Assume that a large copy machine is being purchased by your employer. the cost is 200.000$. the manufacturer claims it has a useful life of 8 years. this machine will lower operati

Ben Grimm is a 40% partner in We Four, LLC a super-heroing organization. (He does most of the heavy lifting. Reed has 40%, he is the brains. Sue has 10%--they never see her doin


Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. What is the maximum amount Donald can contribute to a Roth IRA?

A and B are unrelated individuals. A forms Newco Inc. on January 2 of the current year by transferring property with a basis of $10,000 and a value of $50,000 for all 50 shares of

Kline Company, an accrual basis calendar year corporation, reported $560,000 net income before tax on its financial statements prepared in accordance with GAAP for 2011. Kline's re

Dawn's new car has a FMV of $20,000 and it weighs 3,000 pounds. The county also assessed a property tax on the car. The tax was 2% of its FMV and $10 per hundred weight. The car is