Reference no: EM131040469

Alex McLeod carries on business as a sole trader in Wollongong as a rural mechanic and farm machinery spare parts retailer.  He is married and has one dependent child, a daughter aged 12 years, who attends a local school.

Details provided by the taxpayer for the 2015/16 year of income are as follows:

RECEIPTS

                                                                              $

Sales of spare parts                                               100,000

Charges for mechanical repair work                        45,000

Interest on joint savings account                             2,800

Interest on deposit with a United Kingdom                                

Bank (net of 10% United Kingdom withholding tax)   270

The joint savings account is in the names of the taxpayer and his wife.  Interest amounting to $2 800 has been earned on this account.

PAYMENTS

- Business

                                                                                               $

Gross wages (casual employees)                                         8 000

Light and power                                                                 900

Telephone and postage                                                      1 500

Advertising                                                                        2 300

Purchase of farm machinery spare parts                             44 000

Purchase of new custom-made toolbox roller cabinet           18 000

Accountancy fees                                                              7 200

Local Government rates on business property                      2 700

Insurance on business premises and contents                      2 100

Trade journals                                                                   300

Sundry business expenses (all tax deductible)                    11 500

- Personal

                                                                                         $

 School expenses for daughter                                            1 200

 Donation to Australian Red Cross Society                            100

 Membership subscription - Wollongong Apex Club                100

 Medical Expenses (net of Health Fund refunds)

                                         Taxpayer          $500

                                         Wife                   800

                                        Daughter             650                1 950

(McLeod has family cover in a private health fund, with hospital and ancillary cover. Premiums amounted to $2 400 for the year)

STOCK ON HAND (farm machinery spare parts)

- at 30/6/2015                           $16,000

- at 30/6/2016                           $14,000

PLANT ON HAND AT 30/6/2015

On 1st October 2015, the Holden Utility motor vehicle was traded in for $10,000 on a new Holden Commodore sedan motor vehicle costing $32,000.  The new Commodore sedan has been used 40% for private purposes.

The taxpayer uses the diminishing value method of depreciation and uses the effective life determinations as specified by the Commissioner.  All assets were purchased after 10 May 2006.  The business has not elected to utilise the small business entity provisions.

Required:

(a) Determine the taxpayer's taxable income for 2015/16; and

(b) Calculate the income tax payable by the taxpayer for 2015/16 year of income. 

In providing an answer to these questions you MUST also provide a discussion justifying the inclusion or exclusion of all items.  Therefore, your answer will consist of both calculations and a discussion.  The final answer must be submitted online in one (1) Word document via Moodle.  You may find it useful to set out your calculations using tables or columns within this document for easy readability.