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TAXATION LAW & PRACTICE

INSTRUCTIONS

Length:                 Total word length should be approximately 2,500 words.

Marking:              The answer is to be an individual piece of work.   This is not a group assignment.

Due Date:            To be submitted on Friday 5th February 2015.

Referencing:      A student can select any proper method for referencing.  However, the same referencing style must be used throughout the paper.

Plagiarism           Students should familiarize themselves with the university policy on plagiarism. 

Students are required to fully answer the question using legislative reference and case law where required.

Facts

You are an accountant working for Tax Dodge Accounting Services

Your client Mr Mick Wrong is a retired motor mechanic who enjoys playing golf and has a keen interest in importing parts for cars from America.

Mick is married with 3 children.

His wife does not work, however helps Mick with some administrative duties.

His two older children are Dianne (25 years old) and Helen (22 years old). They also do not work and are at home but help Mick with his bookwork.

The youngest child is 15 and is still at school.

Mick advises that with respect to the importation of parts the following facts are provided to Tax Dodge Accounting Services :

  1. He has been selling parts as a hobby for 3 years.
  1. The first year (2013) that Mick imported parts he mainly used these for his own projects and sold some parts to friends and made a net profit of $4000 after expenses. He sold to 3 friends.
  1. For the financial year ended 30 June 2014, Mr Mick provides you with the following information :
  1. He has set up a website call “American Hot Rod Parts”
  1. He regularly sells parts to the public through his home made website and ordering system. He has 2100 clients in 2014 and 3600 clients in 2015
  1. He regularly keeps account of his sales and purchases and how much profit he is making. In fact, he is so organised that he uses an accounting package called MYOB to record everything.
  1. A lot of people know Mick as he is a member of a number of car associations/car clubs and he benefits by making his hobby of selling parts known to the wider community through these forums.
  1. He advertises his hobby through his website and local newspapers.
  1. In 2016 he expanded his advertising to include major newspapers like the Age and Herald Sun.
  1. He has purchased a ute which he uses to deliver the parts to his clients. He purchased this on 1/7/2013 for $2000 and the ute is a V8.
  1. Mr Mick provides you with the following list of income and expenses for the financial year ended 30 June 2015.
    1. Sales $55,000.
    2. Purchases $23000
    3. Petrol $2600
    4. Advertising $3000
    5. Total km travelled for the year is 4622km
    6. Printing and stationary $300
  1. Mr Mick provides you with the following list of income and expenses for the financial year ended 30 June 2016.
    1. Sales $355,000.
    2. Purchases ($83000)
    3. Petrol $2600
    4. Advertising $10000
    5. Postage $5000
    6. Total km travelled for the year is 4122km
    7. Printing and stationary $3000
    8. Donations to Heart Foundation $6000

Apart from the above information Mick advises that the only assessable income he has to declare to the Tax Office is bank interest for the following periods (2013) $9000, (2014) $6400 and (2015) $10,000.

Mick has no other expenses and believes that he does not have to pay tax as he is under the tax free threshold on each year.

Tasks

  1. Mick asks you to briefly provide him with some advice as to whether he may potentially have any tax issues.
  1. Mick also requeststhat you discuss potential tax structures to overcome and reduce any future tax liability. 30 Marks

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