Partnership Business For Tax Return: The Two B’s Partnership Income Statement

Partnership Business Operations

The partnership involves doing business with the sole aim of distributing the gain or losses between the parties. The business nature allows smooth and efficient running of operations since the control via decision makings as well as gross liability misfortunes are directly felt by the parties. Most of the operations in a partnership business are mostly guided by a partnership agreements that stipulates each and every approach to events surrounding the business.

Partnership businesses basically involve profits and losses hence tasking the venture to declare tax return. Unlike individual income tax where prescribed tax bracket is outlined hence creating guaranteed tax obligation, in partnership the latter depends on the performance and operation of the business.

Partnership agreement outlines how loss or gain, expenses or benefits, assets or liabilities are to be accounted for to the extent of stipulating respective ratios Pickering(2012.Pg 67). The agreement stands as the constitution and no operations are expected to contravene anything in the agreement. The Two B’s partnership business in question just like any other form of the partnership business is seen to be governed by an agreed document signed by Sally Brown and Mary Brown.

For tax purposes there exist a little bit difference while accounting for a partnership business this is mostly so since most of the operations controls and respective direct impact is felt by the partners thus the operations is to some extent not deemed independent Weichenrieder(2007.Pg 8). A partnership  business is not allowed by the law to pay and report on any tax obligatory on the profits earned instead it tasks individual partners to do so as the portion of their income Chetty(2009.Pg 40)as they file income tax return. The individual parties are obliged to pay the partnership profit share as per the available tax tie brackets in place at the time of reporting.

Likewise for taxation basis we expect partnership profit and losses to be the one subjected to tax, it’s there clear that tax burden depends on the declaration hence flexible in nature thus if the profit is less we expect low capture on tax while when its high the vice versa takes the stand. The worst of all is when losses are suffered there is no tax that is being charged.

ATO further expects the partnership business to be filing annual partnership return defining the income and expenses earned and incurred respectively Abdul-Jabbar(2008.Pg 290).The partnership is also expected to register and account for goods sales tax if any upon making sales turnover of $75000 or above. With all these information in mind, we are now comfortable to compute The Two B’S partnership taxable income and respective individual tax obligations.

Tax Obligations for Partnership Business

Notes Used In the Statements

A: Calculation of Cost of Sales of Good     =Opening Stock=$370000

                                                                                              +

                                                                          =Purchases  = $320000

                            –

Closing Stock valued at cost                              =Closing Stock=$490000

COGS=$370000+$320000-$490000=$200000

 B: The purchase of the motor vehicle, treadmill and exercise bikes since they are entirely used for the business purpose they are supposed to be allowed as the expense but ONLY GST credit should be settled off upon keep of records from the tax payable Halabi(2010.Pg 165).

C: Franking credits on dividend received should like be set off from the tax payable

Franking credits=1/ (0.725/0.275)*10500=1/2.636*10500=3983.3

Mary P partnership frank dividends credit portion=3983.3/2=1991.6

Mary dividend received frank credit=7000*1/2.636=2660

D: Withholding tax on interest should like-wise be set off thus need to sum up 11250+1250=12500 as interest

E: Calculation of GST on Various Items, Evans(2011.Pg 130)

GST=Amount Before Sales Tax*GST rate

1st July 2016=$65000; GST=65000*10%=650

1st January 2017=$115000=115000*10%=11500

GST for motor vehicle=120000*10%=12000

GST on purchase of trade stocks=320000*10%=32000

All these GST costs have to be settled from the income Palil(2011.Pg 200)

F: PAYE for Mary of 9000 to be settled off

G: To calculate Mary tax payable the Australian tax brackets have to be used as shown below;

Calculation of income tax for individuals uses the below tax brackets; Saez, (2012 Pg.40)

0-$18,200        –     Nil

$18,201-$37,000    – 19c for each $1 over $ 18,200

$37,001-$87,000 – $3,572 plus 32.5c for each $1 over $37,000

$87,001-$180,000 – $19,822 plus 37c for each $1 over $87,000

$180,001 and over – $54,232 plus 45c for each $1 over $180,000

H: Medical Levy Charge=Gross revenue*2%

Medical Levy For Mary=2%*640946.5   =12818.93          

J: Mary’s withholding tax portion   =1250/2=625                        

The Two B’s

Partnership Income Statement

For The Year Ended 30th June 2017

                                                                                           $                                                 $

Revenue;

Gross trading receipts                                                                                                   1900000

Capital Gain on Shares                                                                                                      20000

Cash Dividend Received From BHP                                                                                   10500

The Two B’s Partnership Business Agreement

Bank Interest received from China Bank inclusive of WTax (D)                                          12500

Total Revenue                                                                                                                  1943000

Less     Cost of Goods Sold (A)                                                                                         (200000)

Gross Profit                                                                                                                  1743000

Expenses;

Interest paid on loan of funds by Mary                                       10000

Salaries Paid To Employees                                                        250000

Rent and power                                                                           60000

Marys salary                                                                                 40000

Superannuation to staff                                                               85500

Superannuation paid on behalf of Mary                                      25000

Superannuation paid on behalf of Sally                                       25000

Interest on bank overdrafts                                                          18623

Computation of The Two B’s Partnership Taxable Income

Purchase Of BMW Motor Vehicle GST (E)                                     12000

Provision For bad debts                                                                67000

Provision for Long Service Leave                                                   25984

Purchase Of treadmill and exercise bikes GST (E)                          18000

GST On Purchases of trade stocks (E)                                             32000

Total Expenses                                                                                                                    (649107)

Net Profit before Tax                                                                                                           1093893                                    

This profit is to be shared equally between Mary and Sally in the ratio 1:1

Mary=1093893*50%=546946.5

Sally=1093893*50%=546946.5

Taxable income=Gross income less allowable deductions (expenses relating to the income)

Mary Brown

Statement of Income Tax

For Year End 30th June 2017

                                                                                                                                 $

Revenue;

Dividends received                                                                                                7000

Share of Partnership profit                                                                                 546946.5

Gross Salary from part-time lecturing                                                                 30000

Annual Partnership Return

Salary earned from working at partnership                                                          40000

Gov’t refunds on medical care                                                                               2000

Interest on Bank Deposits                                                                                      5000

Rental Income on Investment                                                                               10000

Gross Income                                                                                                       640946.5

Less Expenses

    Travel expense                                          1200

    Rates On Mentioned Invest                       2000

            Electricity                                            900

    Tax Agent Fee                                            3000

          Interest paid on loan acquire              15000

            Printing Cost of Investment               5000

    Replacement Cost                                       1000

             Bathroom extension cost                  15000

Total Expenses                                                                                                              (43100)

Net Taxable Income                                                                                                     597846.5    

Mary’s Tax Payable;

The taxable income for Mary is $597846.5

Mary’s income lies between brackets;

$180,001 and over – $54,232 plus 45c for each $1 over $180,000

It is over 180000 by=579846.5-180000=417846.5 from this we assume the over to be 417846.5 hence;

45c for each $1

45/100=0.45

The over is=0.45*417846.5=$188030.925

Tax payable on this, $54,232 plus the $188030.925

Total income tax payable for Mary=$54,232.5+$188030.925=$242263.425

Total Net Tax Payable Income Tax plus Medical Surge Levy Siahpush(2009.Pg 290)

Total Tax Payable=818.93+$242263.425=$255082.355

It should be realized that Marys Total Tax Payable should be subjected to the portion of tax credits and withholding charges but only to the 50%/50% ration

Mary’s Tax Payable

For Year End June 2017

Total Tax Payable                                                                             =$255082.355

Less PAYE note F                                                                             = ($9000)

Withhold Tax Portion on Interest                                                   = ($625)

Franked Dividends partners portion                                             = ($1991.7)

Frank dividends Mary received                                                    = ($2660)

 Total Tax Net Offs                                                                        = (14276.7)

The Net Tax Payable                                                                    $240805.655                                    

Mary is therefore expected to file the return of the above tax expected as well as clear the obligation through payment. It’s further assumed that the other portion of rebates and tax credits should be settled by Sally as he files the return Grary (2014.Pg 20).

References

Abdul-Jabbar, H. and Pope, J., 2008. The effects of the self-assessment system on the tax compliance costs of small and medium enterprises in Malaysia. Austl. Tax F., 23, p.289.

Chetty, R., 2009. Is the taxable income elasticity sufficient to calculate deadweight loss? The implications of evasion and avoidance. American Economic Journal: Economic Policy,1(2),pp.31-52.

Evans, M., Peacock, and C., 2011. The GST Treatment of Financial Services in Australia. GST in Australia: Looking Forward from the First Decade, pp.133-160.

Gray, M. and Crofts, P., 2014. Partnerships: Marrying the strengths and resources of diverse interest groups. Social Work/Maatskaplike Werk, 40(3).

Halabi, A.K., Barrett, R. and Dyt, R., 2010. Understanding financial information used to assess small firm performance: An Australian qualitative study. Qualitative Research in Accounting & Management, 7(2), pp.163-179.

Hodge, G.A. and Greve, C. eds., 2005. The challenge of public-private partnerships: Learning from international experience. Edward Elgar Publishing.

Palil, M.R. and Ibrahim, M.A., 2011. The impacts of goods and services tax (GST) on middle income earners in Malaysia. World Review of Business Research, 1(3), pp.192-206.

Pickering, M.E., 2012. Partnership versus public ownership of accounting firms: Exploring relative performance, performance measurement and measurement issues. Australasian Accounting, Business and Finance Journal, 6(3), pp.65-84.

Saez, E., Slemrod, J. and Giertz, S.H., 2012. The elasticity of taxable income with respect to marginal tax rates: A critical review. Journal of economic literature, 50(1), pp.3-50.

Siahpush, M., Wakefield, M.A., Spittal, M.J., Durkin, S.J. and Scollo, M.M., 2009. Taxation reduces social disparities in adult smoking prevalence. American journal of preventive medicine, 36(4), pp.285-291.

SUN, S.M., ZHANG, J.G. and WANG, J.Y., 2008. Study on profit allocation among partners in high quality pork supply chain based on the Shapley Value and ideal point principle [J]. Operations Research and Management Science, 6, p.017.

Weichenrieder, A.J., 2007. Survey on the taxation of small and medium-sized enterprises: draft report on responses to the questionnaire. Organization for Economic Co-operation and Development web site. Retrieved from https://www. oecd. org/dataoecd/52/25/39597756. pdf.