Task two- Case study
Question 1: Prepare an income tax return form for the following taxpayer
Your client David Lucas (Role played by your assessor), is a single taxpayer. David is a bank manager and has approached to you to prepare his 2017-2018 income tax return. Before the scheduled appointment with you, some relevant income and expense information has been provided as follows,
â€¢ Salary: $55 630; Allowances $230; Reportable fringe benefits$4000. Employerâ€™s ABN: 12 345 678 910 PAYG tax paid $10 560
â€¢ Unit trust distribution was $2264, which had franking credit of $ 113. There was also a gross capital gain of $260 that was fully discountable.
â€¢ David earned a $47 interest from an overseas bank account but he only received $40 after they subtracted a foreign tax credit of $7.
â€¢ Other income: bank interest $84; fully franked dividends $240; unfranked dividends $50.
â€¢ He received refunds of $450 from Medicare and his health insurer over the year.
â€¢ David owns an investment property that earned $13 240 rent. The expenses were: interest $10700, agent commission $910, repairs $128, rates $930 and advertising $45. When he bought it three years ago, the building itself cost $ 212 000 and at the end of last year the appliances had a WDV of $ 1285 in the low value pool.
â€¢ During the year David drove his 2.5 â€“litre car 85 km on work- related travel. He also spent $320 on union fees, $42 on laundering his grey trousers, $400 on Internet access (half of which related to his work), $45 on a text book, $80 on donations to the Red Cross and $2380 on hospital/doctorsâ€™ bills. Private health insurance cost $1230 and he did not receive any upfront Government contribution for his health insurance premium
Not all the required documents are provided by your client, therefore, you are required to make an appointment with your client (your assessor) to gather all the required information and then prepare for the income tax return for him.
From the ATO website (www.ato.gov.au) you can download the Tax return for individuals 2018 form in Portable Document Format (PDF) NAT 2541. Based on the information above, you need to submit a soft copy of the tax return completing all relevant details for the 2017-18 year, specifically pages 27 inclusive.
In place of the front page, attach the cover sheet and show all workings, calculate the taxpayerâ€™s taxable income and tax payable/refundable for the financial year ended 30 June 2018ã€‚
Australian tax is levied annually on the taxable income of a taxpayer. Taxable income is calculated on the basis of assessable income less allowable deductions. Once taxable income is worked out, tax on taxable income, tax offsets, Medicare levy and tax credits need to be included to calculate the tax payable. The actual tax liability is worked out when the annual income tax return is assessed. The PAYG instalments for the year are credited against your assessed tax to determine whether there is a tax payment or a refund.
In order to calculate the tax payments for individuals, you may find the following information to be useful,
1. Individual tax rates for residents for the period for 2017-18 can be found from https://www.ato.gov.au/Rates/Individual-income-tax-rates/
2. Medicare Levy Surcharge https://www.ato.gov.au/individuals/medicare-levy/
3. Capital gains tax https://www.ato.gov.au/general/capital-gains-tax/
4. Fringe Benefits tax (FBT) https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/
5. Offsets and Rebates
To complete the task, you are to take the role of a tax agent and need to schedule two sessions with your client (assessor) either by phone or in person to complete the enquiry session and the result explanation session. Each session should be approximately 10mins in duration.
For the enquiry session, you need to:
describe the key sources of information and data required to calculate taxable income. Ask for any further information you need, for example, insurance company details, employerâ€™s ABN;
Explain your key responsibilities under the Tax Agent Services Act (TASA) and Tax Agent Services Regulations (TASR) as a tax agent to your customers; describe the procedures relating to the preparation of tax documentation for individual taxpayers.
For the result explanation session, it should be done after you complete all the calculations and filing. During this session, you need to:
explain the rules and principles of Australian tax law and main concepts included in this case, e.g. Low-income benefits, franking credit, car expense.
administrative aspects of the taxes identified above including documentation, tax collection and withholding mechanisms, assessments, obligations, rulings, penalties and audits
outline the key accounting principles and practices relevant to the preparation of tax documentation for individual taxpayers.
After preparing your tax return and before lodgement, you will need to seek the tax agent specialist (i.e., Role played by your assessor) advice and confirmation.
Question 2 Tax audit â€“ Role Play and Response Letter
ATO reviewing your client Danielâ€™s 201X income tax return and the refund will not be issued until the finalisation of this audit.
Your client has claimed that the National Affordability Scheme refundable tax offset in the correct label T11. For an individual taxpayer, it should be claimed 13B. ATO may process his return, but documents and information for national affordability scheme refundable tax offsets must be provided by Daniel.
Now Daniel approached to you for seeking advice on the audit.
What need to do
a) Make an inquiry to ATO officer to obtain the information about the tax audit and be able to advise the client for documentation (Role Play with the Assessor)
b) Respond by drafting a response letter before the due date. Please insert the following text in the subject field: Attention XXX for XXX Audit. This will ensure quick allocation and fast processing of the information.
What happens next
If the information your client provide supports the claims, tax refund will be released without adjustments.
If the information does not support the claims or the client does not respond, ATO will adjust the claims and issue a notice of assessment. In those circumstances, an administrative penalty may be applicable.
For more information
If you have any concerns, you can telephone ATO on 0292114958 between 10am and 5pm, Monday to Friday, and ask for ATO officer Amelia (Role played by your assessor).
While preparing the response, it is not necessary to create and provide the documents in detail, but you must create a documentsâ€™ list to support the claim. In order to complete the task, you may find the following link to be useful: