Taxation Law

Taxation Law

Question 1: Calculate the deduction that Sally is allowed to claim for the wages paid to Lucy for the year ended 30 June 2012. Explain your answer.

Answer 1)

According to the Australian taxation law, deductions has been termed as those money spend that help you earn the income. On this income, claim is permitted which reduce the cost that paid as income tax. They are not directly deducted from the tax withheld amount while Australian Taxation Office (ATO) merely repay for the expenses (Guide to small business entity concessions, 2012). In the case of the claim by the Sally on the year ended 30 June 2012 is based on the tax bracket.

(Australian Taxation Law, 2012)

Income Statement

For the year ended 30 June 2012

Revenue

 

900,000

Cost of goods sold:

 

 

Opening Inventory cost

10,000

 

less: Ending Inventory

12,000 2,000

Gross profit on sales

(2,000)

898,000

 

 

 

Operating expenses:

 

 

Grace Salary

40,000

 

Lucy Salary

62,000

 

Rent for business

60,000

 

Depreciation

180

 

Total expenses

 

162,180

Taxable income

 

735,820

Tax

 

 

Fixed tax amount

3,572

 

Additional over 37,000

227,117

 

Total tax

 

230,689

Tax deducted income 505,131

Furthermore, according to the Law, claim for the wages that has been given by the permanent employee no matter that person is blood relative or not can be claim for the wages. As Lucy is daughter of Sally, Sally can claim the full amount at the end of the year.

Question 2: Explain whether Sally qualifies as a Small Business Entity (SBE) for the year ended 30 June 2012. Your answer should address every requirement that is required to be satisfied to qualify as an SBE.

Answer 2)

According to the Australian taxation law, in order to qualify as Small Business Entity (SBE), a business should have turnover less than $2 million (2,000,000) aggregated turnover i.e. the annual turnover along with the turnover of the business which is linked with business person.

In order to be eligible for Small Business Entity (SBE) a business has to meet the test turnover for the current year. If the turnover is:

Less than in previous income years $2 million

For current year estimated to be less than $2 million

At the end of current year to be less than $2 million

Turnover - Previous year

As the previous year aggregated turnover should less than $2 million, then you are qualifies as a Small Business Entity (SBE). As Sally turnover has been increasing every year, assuming that previous year turnover is $800,000 while Sally made a net capital gain from her share portfolio of $600,000 at the end of June 2011and the opening value of Sally's trading stock on hand was $10,000. This makes the aggregated turnover for the previous year is 800000+600000+10000 =1,410,000. This is less than $2 million which make Sally business to be qualifies for small business Entity (SBE) (Concessions for small business entities, 2012).

Current year Turnover Estimation

If the current years aggregated turnover i.e. 1st day of the income year is likely to be not more than 2 million dollars then a business is qualify for the small business ...