ACC30005 Case Study Individual and Partnership Tax Returns

Business Overview 

Peter and Leanne Webb, aged 54 and 52 respectively, own an electrical appliances retail  business in partnership called “Webb Electrics,” which operates in Hawthorn, Victoria. The  business has operated from these premises for 5 years. The Webb’s decided to expand their  business and have recently opened a new store on the 1 April 2021, in Croydon. 

Each year the Webb’s go overseas to a “Electrical Retailers conference,” to become aware of  the latest developments in electrical appliances. During the 2020-21 financial year the  conference was held in Auckland, New Zealand, where the Webb’s were fortunate to sign a  franchise agreement to distribute “Bosch” a new range of electrical equipment. The cost of the  franchise included a “sign on” payment of $30,000 plus a payment of 5 ½ % of sales revenue  on this merchandise.  

While Peter and Leanne own the shop in Hawthorn they decided to lease the premises in  Croydon. One of the reasons for doing this was because of the offer of a lease incentive by  way of a twelve-month rent-free period and a free fit out, valued at $40,000. 

In November 2020, the Webb’s became aware that a developer had sought approval to  redevelop the Croydon site as it was suitable for their business expansion. Consequently, the Webb’s spent $10,000 in legal costs in successfully opposing the development.  

The Webb’s also jointly own a rental property in Wantirna, which yielded a rental of $54,000  during 2020-21 and the expenses claimed including, repairs and maintenance came to  $12,000 for the year. 

Peter independently also provides private on-line consultancy advice to clients with regards to  common electrical appliances and derived $8,000 from this activity incurring expenses of  $1500 and further, Peter derived $4,000 of bank interest and received dividends of $12,000  (including $5,142 franking credits) during the 2020-21 tax year. Peter had no other deductions  for the year and the Webb’s do not have any children. 

 Results of the Business Operations of Webb Electrics for the year ended 30/6/21:  Cash receipts $ Sales to Customers 1,600,000 Sales Bonus 15,000 

Cash expenditure $ Purchase of Stock 500,400 Salaries 300,000 Set up costs 15,500 Rental payments 140,000 Telephone 3 700 Electricity 2,850 Overseas travel expenses 17,750 

Franchise: Cost   Royalty  

30,000 20,000 

Car expenses (Running costs) 26,600 Legal costs 9,380 Advertising 12,500 GST 30,000 Furniture 28,500 Entertainment 9,800 Gas 3,300 Miscellaneous 1,750

Note: All amounts include Australian GST where applicable. 

Notes: 

$ 

(i) Outstanding creditors 30/06/21 15,500 Outstanding debtors 30/06/21 90,000 

At the year ending 30/6/21 a provision for doubtful debts has been raised equal to 1.8% of  sales. Also, during the year $16,550 of outstanding debts were written off as bad.  

(ii) Opening stock: 

Cost 490,500 +Purchases 500,400 -closing stock at cost 420,000 

Closing stock values: 30/6/21 

Cost 420,000 Replacement Cost 540,000 Market Selling Value 580,000 

At the end of the year a stocktake reveals that some of the stock is obsolete.  Consequently, a write down of stock (at cost of $15,000) has been made to $7,000.  

(iii) Office Furniture: 

Opening adjusted value 25,000 

Acquisition of furniture during 2020/21: Cost Acquis date Desks and Chairs 2,000 01/07/20 Computers 18,000 15/07/20 Partitions 8,500 9/07/20 

(iv) Car Expenses related to the following vehicles: Cost Acquis date Hyundai Tucson 24,500 21/09/17 Toyota Delivery van 36,000 10/7/16 Ford Falcon* 55,000 02/11/16 BMW * 75,000 04/12/16 

* The two cars are used by Peter and Leanne Webb and it is estimated that they are used  55% for Business. 

During the year on 1/3/21, the engine in the Delivery van broke down. As a result, a new  engine was put in the van at a cost of $5,800. The engine was a more powerful engine  modified to run on gas.  

(v) Set- Up Costs - New Premises in Croydon: 

Stock removal and relocation 4,500 Staff Training 6,000 Special cabinets and office set up 5,000 

(vi) Salaries: 

General Staff 160,000 Wages – Peter 70,000  – Leanne 70,000

(vii) Overseas Travel  

Airfare 9,000 Accommodation 6,000 Fare Registration 500 Meals and incidentals 2,250 

(viii) Entertainment 

Christmas Parties-staff 1,800 Clients 8,000 

(ix) Sales Bonus 

The sales bonus of $15,000 was received from the Electrical Retailers Association for “Web Electrics” achieving the highest sales for their products in the June Quarter. 

(x) Legal Costs 

Redevelopment Action 7,500 General 880 Lease Agreement 1,000 

REQUIRED: 

You have been approached by Peter and Leanne Webb in your capacity as their tax agent.  They have asked you to prepare the necessary documentation (including the Partnership  tax return and Peter’s individual tax return) to meet the tax compliance obligations for  “Webb Electrics,” for the income year ending 30 June 2021. 

Prepare a letter of advice/report which identifies all relevant tax issues, critically analyses and applies the taxation treatment to the issues, i.e., you will need to argue and support your  view and consider differing views (if applicable), and finally, indicate your recommended action  based on your better view, i.e., your conclusion (apply the IRAC principle where  appropriate). You must ensure that your analysis used to determine your recommended  action is fully supported with relevant authority, for example, tax legislation and case  law. Note that the assignment will require you to undertake your own research, since it will  cover some areas which will not be dealt with explicitly in class. The referencing convention  required for this assignment is Australian Guide to Legal Citation 4 -see canvas under  Assessment Information Module. 

In addition, you will be required to satisfactorily complete the Partnership tax return for  Webb Electrics and Individual Tax return for Peter Webb using XeroTax by transferring  the relevant information from your analysis and letter of advice to the tax return. You will also  be required to complete and submit a group contract (See Appendix A below). 

The letter/report must not exceed 2,500 words, excluding footnotes, the reference list and  Partnership and Individual tax returns. Assignments exceeding 2,750 words (10%) will not be  assessed and you will receive zero marks (fail grade). You must indicate your word count on  the cover sheet.