QUESTION

Ace Couriers Pty. Ltd. is an Australian resident private company for tax purposes and carries on the business of parcel delivery throughout Australia. It is registered for GST.

Amanda, the accountant has prepared the Income Statement for the year ended 30 June 2017 based on the financial accounting standards:

Fees $4,489,700

Advertising 350,000 Accounting depreciation (note 4) 35,000 Fringe benefits tax 15,000 Provision for motor vehicle accident claims (note 5) 50,000 Provision for long service leave (note 5) 40,000 Repairs (note 6) 30,000 Wages (note 7) 405,000 Purchase of trading stock (note 8) 45,000 Payment for a new business (note 9) 100,000 1,070,000

Less: Operating expenses:

Net profit $3,419,700

Additional Information

(1) Unless otherwise stated the figures are GST exclusive.

(2) On 30 November 2016, the company received a cash dividend of $240,000 (franked to

80%). This dividend is not recorded in the above Income Statement.

(3) On 31 August 2016, the company also received a cash dividend of $160,000 from a Singapore company. Withholding tax of $20,000 had been withheld in Singapore. This dividend is not recorded in the above Profit and Loss Statement.

(4) The accounting depreciation of $35,000 is based on the directors estimating the effective life of all assets being 10 years. Amanda advises you that for taxation purposes the following information is applicable:

Ace Couriers Pty Ltds final records show that on 1 July 2016 the opening balance of the low value and low cost pool of assets was $80,000. During the year ended 30 June 2017 the company purchased a number of low value assets for $17,080 at various times during the year which Amanda wishes to be pooled.

During the year the company also purchased the following assets:

o New motor vehicle servicing equipment at a cost of $17,750 (GST inclusive) on

1 July 2016. The estimated life is 6 years.

o A new i-Pad at a cost of $990 (GST inclusive) on 1 July 2016. The estimated life is 3 years.

o The old delivery van was traded in for $8,768 on 1 July 2011. The written down value of the van at that date was $9,710. A new VW delivery van was purchased on the same day for $74,232 (the amount payable after deducting the trade in value). The amount paid was GST inclusive. The estimated life, given the kilometers they will travel in the van, is 5 years.

(5) The provision for motor vehicle accident claims was based on the companys estimate of anticipated costs (based on statistical experience) of the number of accidents involving its drivers and the amount to be paid to the insurance company as contribution towards the repair costs. The provision for long service leave is an estimate but the actual cost for the year was $25,000.

(6) The repairs of $30,000 consisted of painting the company premises for $10,000 and replacing the old rotting wooden office window frames with new steel window frames for $20,000. The painting was to the west wall which got the afternoon sun and had not been painted for seven years. The existing paint was peeling and needed to be done before the timber also started to rot. The cost of replacing the old wooden office window frames with new wooden window frames would have been $21,000. The new steel window frames had the advantage of not being subject to rotting but had the disadvantage, unlike the old wooden frames, of being subject to rust. The new steel window frames were installed on 1 July 2016 and have an estimated life of 25 years.

(7) Wages of $405,000 include $50,000 paid for marketing services provided by a directors daughter. The Commissioner considers that $20,000 is a reasonable amount for the services provided.

(8) Ace Couriers Pty Ltd has carried out a stock take and values its closing trading stock at the following amounts:

Cost $33,567

Market value $35,278

Stock at the beginning of the income year was: $230,000

Amanda has not included the opening and closing stock figures in calculating the net profit of $3,419,700.

(9) Ace Couriers Pty Ltd purchased the goodwill from a competitor for $500,000 and the purchase price is paid over five years in exchange for five annual payments of $100,000. The date of the purchase was 1 July 2016.

(10) The company paid a total of $955,000 in PAYG Installments during the financial year.

(11) The company owns the building that it operates from and it purchased the building on 1

July 2016. The building and land cost $2,456,657. The building was five years old when purchased and the cost of the actual building was $1,200,000. This cost has been confirmed by the builder. Amanda has not included the building in the financial accounts and is unsure how to treat this expense for taxation purposes.

(12) The company has advised that it wishes to pay the minimum amount of tax and wants to claim the maximum deductions allowable.

REQUIRED

Calculate Ace Couriers Pty Ltds taxable income and tax liability for the year ended 30

June 2017.