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Rex Connors requires preparation of his 2013 individual income tax return. Rex and his wife, Helen Connors, live in a rented house in Hawthorn, Melbourne. Helen works part-time as a medical receptionist. Both the Connors have been living in Australia for two years, but they travel back to the UK for one month each year to see family. They have no children. Rex works as a cameraman at the Melbourne studios of HSV for a current affairs TV program. In the 2013 financial year Rex was in East Timor for eight months to film an HSV documentary. (Note 1)** While in East Timor he rented a bungalow in Dili, which he used occasionally as a base. When filming around outside Dili, he was accommodated in the film-crew campervan. In the 2013 financial year he travelled back to Australia to see Helen for a total of three months. During Rex’s time back in Australia he runs a small business from his home office. He generates some income from on-line sales of old violins and is not registered for GST. Rex’s financial information for the 2012/2013 income year was as follows:
Salary – HSV cameraman 110,000 (note 1)**
Interest received, Rex & Helen’s joint bank account 12,000
On-line violin sales 40,000
Sign-on amount received from the HSV TV company. 5,000 (note 2)**
Producer expenses 50,000 (note 3)**
Total car payments 66,200 (note 4)
Rex’s Media Association professional fees 1,000
Heating and lighting for the Connors’ house 2,500 (note 5)**
Annual rent for the Connors’ house 15,600 (note 5)
Alarm system bought for house, 1/8/12 20,000 (note 5 & 6)
Computer purchased 15/9/2012 – 70% work use 4,000 (note 6)
Trip to the ‘E-bay Sellers’ conference 5,000 (note 7)**
Reimbursement of taxi fares in Dili 250
Additional notes and other information*:
Rex is unsure if in 2013 he was a resident or non-resident of Australia for tax purposes. Consider all tests.
The HSV TV sign-on fee was to bind Rex to provide his cameraman services for the eight month period in East Timor. Rex organised for HSV to pay the fee directly to his mother in the UK.
Rex plans to write a cooking show. He paid $50,000 in fees to a documentary producer to conduct a feasibility study on the cooking show for DVD release. The producer travelled to the USA to negotiate with film studios and attract investors.
Rex purchased a second-hand car for $60,000 (a Mercedes/2.6 litre) on 1 August 2012. He travelled 12,000kms in his car and his log book showed 50% of travel was for his violin on-line business. Repairs, maintenance and petrol cost $6,200. Rex is unsure about depreciation but estimates the car life is six years. (Rex has asks that you show calculations for all the methods of claiming these costs).
Rex’s home office is 1/5 of the Connor house. Rex asks if time in Australia is a factor.
The alarm system warranty is for 10 years. The computer warranty is 3 years.
Rex travelled to Hawaii for a one day conference, ‘E-bay Sellers’’, but stayed 7 days in total. The conference registration fees were $600. After the conference Rex went sightseeing. The other costs for 7 days were: $3,000 in airfares; $1,400 for an apartment and food.
Helen earned gross income of $12,000 as a medical receptionist; and had bank interest.
The Connors have private health insurance cover.
Part 1. You are the tax advisers for Rex Connors. Write a letter of advice to Rex, which identifies and critically analyses his 2013 tax issues. Clearly indicate your recommended action.
Advise on the treatment of the preceding financial information (a to m). All items must be supported by relevant taxation legislation.
Case law principles should be discussed for items marked with asterisks [**] and legislation cited. If more than one case law applies, then you should contrast them, and apply the principles to the facts of Rex’s issues to determine your recommendation.
Present Rex Connors with a ‘Statement of Taxable Income’ (ie. list items of assessable income and items comprising allowable deductions) for the year ended 30 June 2013 (rounded dollars).
Show calculations for Rex Connors’ tax liability, including any levies or surcharges (rounded dollars). The income tax rates for 2012/13 and 2013/14 are the same.
Part 2. Prepare Rex Connors’ Individual Tax Return 2013 on the prescribed Australian Tax Office (ATO) form, including:
The tax cover sheet details, relevant labels 1 to 10; Total supplement income or loss; and relevant deduction labels (D1 to D9).
Medicare M2; Spouse details and label ‘O’ only; supplementary section income Label 15 C [note net supplementary income is required here]; and relevant labels P2 to P7, P8 and P16.
Ask Rex Connors to sign the ‘Taxpayer’s declaration’ in his tax return; and you should sign the ‘Tax agent’s declaration’. Check all subtotals and totals.
The ATO Individual Income Tax Return must reconcile to Rex’s Statement of Taxable Income.
Marks: 55 points for letter of advice and calculations + 15 points for a correct and complete ATO Individual Income Tax Return = 70 points.) This assignment contributes toward 20% of your final assessment in this unit.
To retrieve an Australian Taxation Office (ATO) copy of an Individual Tax Return 2013, Google: Individual Tax Return 2013.
To retrieve an Australian Taxation Office (ATO) copy instructions for the completion of a Individual Tax Return 2013, Google: Individual Tax Return Instructions 2013.
Completion and submission of all requirements is compulsory.
Limit assignment to 1,500 – 1,800 words, excluding footnotes, statement of taxable income and any other schedules. Assignments exceeding 1,800 words will not be assessed and you will receive zero marks (fail grade). You must indicate your word count on the cover sheet.
Font: Times New Roman
Font size: 11pt
Line spacing: Double spacing
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