ABC Pty Ltd. is a small Australia insurance company operating in Adelaide. It is an Australian resident private company for tax purpose. The accounting profit and loss statement for the year ended 30 June 2018 is as follows:
Income $ $
Fees 1,000,000
Less operation expenses Accounting fees 15,000 Advertising 12,000 Accounting Depreciation (note1) 15,000 Fringe benefits tax paid 15,000 Gifts (note 2) 10,000 Light, power and heating 30,000 Provision for long service leave (note 3) 20,000 Provision for doubtful debts (note 4) 10,000 Provision for unreported claims (note 5) 8,000 Rent 50,000 Repairs (note 6) 20,000 Stationary 5,000 Wages 400,000 (610,000)
Net profit 390,000
Additional Information
1) The Tax Depreciation schedule based on Division 40 ITAA 1997 shows depreciation for the year as $20,000
2) The Gift were as follows:
Royal Melbourne Hospital $5,000
Melbourne Football Club $5,000
3) The long service leave paid in cash during the year was $10,000
4) The bad debts written off during the year were $15,000.
5) The provision for unreported claims was based on an estimate of accidents that had occurred before the end of the financial year but had not yet been reported to the company. The company anticipated making the payments of $8,000 during the months of July and August 2018 in respect of these claims.
6) The repairs of $20,000 consisted of painting the company premises for $5,000 and replacing the old rotting wooden office window frames with new steel window frames for $15,000. The cost of replacing the old wooden office window frames with new wooden window frames would have been $16,000. The new steel window frames had the advantage of not being subject to rotting.
7) On the 30 June 2018, the ABC Pty Ltd also received a dividend of $100,000 (franked to 80%) from Halo Pty Ltd is not a small business entity for tax purposes.
8) The accounting net profit of $ 390,000 included $60,000 of net exempt income.
9) The company has an unabsorbed income loss of $80,000 from the 2016 income year. The company satisfies the continuity of ownership and continuity of business tests.
Required
Calculate the company’s tax liability for the year ended 30 June 2018.
Figures can be rounded to the nearest dollar.
You should briefly explain your treatment of every item in this question
If you fail to explain your inclusion or exclusion of any item, you will lose marks.
Use the following format in answering this question:
Item Explanation Amount
Bad debts Normal risk in carrying on a business - deduction (s25-35 and s8-1, ITAA97) $ XXX