Answer To: ACC5TAX S2 2018 INDIVIDUAL ASSIGNMENT INSTRUCTIONS Due date and time: 11pm on Monday 27 August 2018...
Anju Lata answered on Aug 25 2020
Case Study: Jim Page 9
ACC5TAX S2 2018 INDIVIDUAL ASSIGNMENT
Case Study: Jim Page
Case Study-Jim Page
Jim Page runs “Page Accounting Services” through a trust. He does not have any registered office location. He either works through his home or through his client’s location. He employs the administrative assistant and intern, without fixing any returns. And even after paying the PAYG installments, Jim needs to lodge his annual tax return towards his annual expected tax liabilities. During the year 2018-19 Jim earned $350,000 in his clients’ fees. But currently he collected only 3,00,000. The taxable sum of money would count 350,000 into the records because, the 50,000 is just left to be given him but is is a part of his earnings.
He must also fulfill certain legal obligations towards the people, he has employed in his firm according to their employment contract. Their contract of employment must be written, abiding to the federal laws, providing them correct wages. Though, Jim has been providing his employees with appropriate wages, but the terms and conditions of the employment are not discussed and written on the paper. The internship must also be done after written documentation of the Organisation. Jim has hired the intern, without any proper legal documentation and deciding the duration of completion of the course. The intern wholly performs the operations of data entry only. He does not take part in the discussions about the business decisions. According to the Fair Work Australia, there are certain guidelines for the unpaid workers and the internships given to the students. The unpaid work is considered safe only if it is a vocational placement and a genuine work experience, under the Fair Work Act,2009. Jim has hired the intern just for office assistance.
The business of Page Accounting Services is fully dependent on word of mouth referrals and does not involve any advertisements, tenders and maintaining the website. All the activities that are performed in terms of the transactions and the bills must be legally valid and should be done on the paper, with receipts. The tenders and the paper receipts help the business to get valid authenticity however it is not important for nay business to follow the path of websites opening and the advertising to get the business.
The relationship between the ABC and Jim Page does not have a commercial basis. Jim works through the client ABC, and the BAC regards him as his employee, offering him space for doing his work there in the company. The association between the ABC and the Page Accounting Services has to be formal and clear in terms and conditions. The two companies must be clear in their guidelines and working terms. Jim should not use the client’s space in an informal way to do the business. It may have serious consequences if in future he claims any occupancy or running expenses for using the space regularly. This may have conflicting situation because, Jim is not a permanently enrolled employee in the Company ABC.
The services provided by Jim to the ABC Company range from general Accounting services which involves preparation and lodgment of statements for monthly activities, managing the accounts and providing accounting services to the ABC whenever required. The services delivered by Mr. Jim and his Company must also have legal basis.
After his recovery he entered into informal agreement with the manufacturer of the photography equipment. The income he incurred out of that profession also needs to be added to the earnings of that financial year. When he is showing the income incurred in the business as taxable, then his agreement must also be formal with some registration. The registrations can be done by consultation of Australian Securities and investment Commission (ASIC). However, it not compulsory in Australian Federal System to follow the written agreements only. The contract of business can be written or verbal, anything. The written agreements provide more certainty to the two parties engaged in the business and helps to reduce the risks of controversy. The business guidelines, terms and conditions can be more clear of they are written on a paper. It provides the parties a proof about what was mutually agreed between both of them, and nobody can deny the authenticity of a written agreement. It gives a peace of mind and eliminates the contradictory thoughts over the contract. Moreover the formal written contracts have a government seal on them, which makes them publically and legally binding (Lauren, 2018). So, it is better to make the agreement formal instead of keeping it informal.
Jim operates his business from home location, so may claim the occupancy expenses and running expenses for his firm. The occupancy expenses may be mortgage interest, council rates, and house insurance. The running expenses involve the lighting, cooling, cleaning, electricity expenses and depreciation of the office equipments and the furniture. When a person works from a location that is not his own dedicated job place, he may claim for the running expenses like mortgage expenses but not the occupancy expenses.
For registering and running the business in a legal way Jim needs to register his Office for a proper Australian Company Number (ACN), Australian Business Number (ABN), Goods and Service Tax (GST), a Tax File Number (TFN), and PAYG holding. To register for the ABN is not compulsory but it is required for filing the returns and the GST. Mr. Jim is a sole owner of the Company, so he will get an individual Tax File Number for his Company.
In addition, The Australian Companies also need to register for the Payroll Taxes, if they pay the salaries to their employees. This tax is collected by the territory and state government over the wages payed. It is necessary to pay the Payroll tax if the total Australian wage bill is less than the maximum threshold value decided by the territory and state governments.
According to Australian Legislation, he needs to pay PAYG installments to the income tax department for employing the people for his business if he has the business income of more than $4000. He has paid the PAYG installment of $82,784 during the year.
In his tax return he can claim a number of expenses in form of tax deductions. It will reduce the taxable income for Mr.Jim.
The income liable to be imposed tax or Assessable Income- Deductions in Tax= The taxable income. The costs incurred by the person in running the business can be used as claims for deductions, if they are related to the business earnings in a direct way. The claims can be deducted if the business is home based, has running expenses, has depreciating assets. Here in this case Mr. Jim had a depreciation on office equipments of about $6365. While filing the claims and applying for them, Mr. Jim needs to keep the business records of the expenses incurred for the last financial year and must ensure that the records are available with him and are written in clear readable English language.
After his recovery, he joined the work that was operable through the home based office, so he can claim the deductions for the part of home used for the business, the costs incurred in maintaining and utilizing the home based area for the office. When the person sells his home, he is given the tax for capital gains. However the person must have correct records available with him to get all the deductions. The tax deductions for home based expenses upon the offices belong to the section TR 93/30.
Jim Page’s Tax Liability
Running Expense= Cleaning+ Office Supply + Heating
Deduction= Staff Wages+ Depreciations+ Annual PAYG amount paid+ Running Expense)
Taxable income= Assessable income- Deductions
=(350,000+2500)-(Staff Wages+ Depreciations+ Annual PAYG amount paid+ Running Expense)
=352500-(55000+6365+2,48,352+ 5635)
=352500-315352
=$37,148
As his taxable income falls in the slab $37,001-$90,000, he needs to pay $3572 + 32.5c for every $1 upon $37,000, paying the overall tax of 9.6% to 23%. He can apply his records of illness and health insurance paid by him. It will help him deduct certain amount over the total paid money. The staff wages of $55,000 will also be deducted out of the total money earned. The running expenses of cleaning, office supplies, heating and depreciation on office equipments can be claimed by him from the income tax department.
The earnings of $2500 by Jim from the photography will also be added to the total assessable income of the financial year. The health insurances are exempted from the income tax slab so, the insurance premium that Mr. Jim received from the insurer, will not be added to his assessable income. However the installment of health insurance that Mr. Jim would have paid during the year would be deducted from the taxable income. The services of health insurance are tax free, so the claims or tax deductions cannot be redeemed out of the medical insurances. Moreover, in Australian taxation system we cannot deduct the health insurance without itemizing them.
Conclusion
In Australia, the taxes are administered and collected by the Australian Taxation Office (ATO), and sometimes the revenue offices of state government. The Businesses and the companies can save their money by paying the appropriate amount of tax on time and by submitting for the returns, if they are eligible for that. The case study of Jim has most of the relationships verbal and does not involve proper legal pathway so, being a Chartered Accountant, he must do all the business transactions in a legal and authentic manner to prevent the probable risks and potential fears of falling in any condition that is risky. The Australian Taxation has legal clauses for every kind of business performed.
Mr. Jim must perform all the business related activities abiding to the laws and regulations of Australian Legislation. He must use his own space for performing all the business related activities and must have a registered place for the business. The wages given by Jim to his two employees must be according to the appropriate market value and the present wages of the industry. The intern must be enrolled for the internship through a valid documentation procedure and his services must not be used just on verbal assistance. Moreover, the internship must be provided as a job experience for the concerned subject in which the student has earned the degree, and not for the office assistance only. They may offer voluntary help to the organisation but the agreement here is purely informal between Mr. Jim and the intern. The interns are entitled to minimum wage and national employment standards, and a registered agreement (Fair work Ombudsman, 2018).The relationship between the Photography equipments manufacturer and Jim, is also purely informal. Jim must be engaged into the formal agreements with all the official relations around him.
Mr. Jim must perform all his business activities in a legal manner, abiding to the rules and regulations of the Australian Taxation Laws to prevent any future risks.
References
Lauren,L.(2018). What is informal business contract. Retrieved from https://smallbusiness.chron.com/informal-business-contract-60859.html
Australian Internship (2018). Fair work Australia. Retrieved from https://www.internships.com.au/about-us/fair-work-australia/
Fair work Ombudsman (2018). Unpaid work. Retrieved from https://www.fairwork.gov.au/pay/unpaid-work
Australian Government (2018). Register for taxes. Retrieved from https://www.business.gov.au/registrations/register-for-taxes
Deloitte (2018). Taxation and investment in Australia. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-australiaguide-2018.pdf