Ideally this figure of 1751653.9 Australian Dollars is the taxable income for Timber Floors Pty. Ltd that is to be subjected to a corporate tax rate of 27.5% since its taxable income is less than the 10million turnover base value (Devi, 2018.Pg .2210.)
It is likewise prudent to understand that there are a lot of tax aspects that has to be written off from the tax that will be calculating so as to avoid double taxation or tax cascading. These items are the withholding tax on dividend from US this is because the amount captured as income includes the tax part. The other one is GST now that we have calculated GST by subjecting the amount twice in the transaction. Pay As You Go is another factor to be considered since this is tax at source deducted from the wages and salaries hence the need to settle it off. Finally is by deducting imputation credit of the dividend declared on the tax payable amount as a sign of capturing the net effect of dividends.
Timber Floors Pty Ltd.’s
For The Year End 30th June 2018
Taxing the taxable profit at 30%=1751653.9*30%= 525496.17
Less Imputation tax credit 34285.7
Less GST payable/paid for the year transactions (note1) 239351.7
Less Withholding Tax on Dividends received from US 20000.0
Less Tax at Source PAYG 255,000.0
Total Tax Offsets (548637.4)
Total Tax Liability/Refund (23141.23)
Timber Floors Pty Ltd.’s tax liability has indeed been minimized to the extent of claiming of refund of 23141.23 Australian Dollars hence is eligible to claim for this refund or rather use the credit to set off future tax liabilities. Therefore Timber Ltd is now tasked to declare and file a tax return declaring the refund for compliance purposes of the tax man.
Note 1;This note is on the Goods Sales Tax, ideally Australia charges GST at a rate of 10% hence tax credit has to be factored in and especially on the difference of input verse output so as to net effect tax paid in it to solve the issue of tax cascade.
Now that we are told everything is GST inclusive we need to factor all the items that form part;
GST Output GST Input
Sales fee=$3,089,725*10% =308972.5
Advertising Fees =100000*10%=10000
Repair =30000*10%=3000
Purchase of trade stocks =120000*10%=12000
Competition restraint payment =100000*10%=10000
Marketing Fees paid to directors daughter =20000*10=2000
GST on purchase of new spray =170750*10/110=15522.72
GST On New I-pad =990*10/110=90
GST On Others Assets Bought =170,080*10=17008
Total Output=$308972.5 Total Output-Input=69620.8
GST Payable or paid=GST Output-GST Input=308972.5-69620.8=$239351.7 this was paid 1as GST.
Cost of Goods Sold=Opening Stock +Purchases-Closing Stock
Cost of sales=180000+120000-133567=$166433
The purchase cost of inventory is not captured as expense because it forms part of cost of sales expense
There is the expense incurred on the long service welfare provision in this year since we are told it is nil hence cannot account for accumulated provision for that year. Similarly to provision on the unreported claim in this year of income, we are not told of the reported claim expense cannot account for this accumulated because it will be accounting for it twice since it had already been accounted for in the previous year.
Wages =1400000
Less (marketing fee) 22000 -what was recommended by the commissioner of tax is what
1378000 we are going to base as marketing expense.
Fringe benefit tax of 15000 is not allowed to form part of the expense because it is a tax on itself
Depreciation opening balance 18000
Accumulated depreciation 150000
Depreciation for the year for the old item 132000
For the new items we need first to factor the cost less GST
New Spray Equipment=170750/1.1=155227.27
I-pad=$990/1.1=900
New Truck=173,232/1.1=157483.6
Other Assets Cost=$170,080,now that all these assets are now at cost we can comfortably subject it to tax as it is now’
New Spray is said to have life of 8year hence annually depreciation to be charged is=155227.27/8=19403.4
For i-pad depreciation to be charged with that year =900/3=330
For other assets=170,080/4=42520,
Total Depreciation chargeable=42520+330+19403.4+132000=194253
NB; for the new truck there is depreciation charge within year 2017-2018 because it was bought outside that year of reporting. Similarly GST of =173,232*10/110=15748.4 is not going to be considered part of GST since it is not part of that period.
Franked and Unranked Dividend Received
Franked dividend=80%*100000=80000
Unfranked dividend=20%*100000=20000,
Imputation Tax Credit franked=80000*30/70=34285.7 i.e. at corporate tax
Therefore to get the total dividend declared hence chargeable as an expense in the profit or loss account we are to sum up all these dividends component McClure(2018,Pg.500)=
Dividends declared=Franked dividend+Unfranked dividend +Imputation Franked Tax credit
Dividend Declared=80000+20000+34285.7=134285.7
Timber Ltd tax analysis is treated as one of a small company entity that is make revenue of less than 10million a year hence the tax application done is similar to that one small business entities to the extent of enjoying the 27.5% corporate tax rate.I likewise wish to state that the statements and notes done comply with Australian Tax Office regulation as well as ITAA1997 Act.
References;
Devi, M.N., Salim, A.S.A. and Pheng, L.K., 2018. The Impact of Firm Characteristics on Corporate Tax Aggressiveness: A Study on Malaysian Public Listed Companies. Advanced Science Letters, 24(4), pp.2208-2212.
McClure, R., Lanis, R., Wells, P. and Govendir, B., 2018. The impact of dividend imputation on corporate tax avoidance: The case of shareholder value. Journal of Corporate Finance, 48, pp.492-514.
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