LAW6300.TutorialPaper.No.5.2.2016.SuggestedAnswers

LAW6300.TutorialPaper.No.5.2.2016.SuggestedAnswers - EDITH...

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EDITH COWAN UNIVERSITY PRINCIPLES OF TAXATION LAW – LAW6300 TUTORIAL PAPER NO. 5 – Suggested Answers 2/2016 QUESTION 1 Tom has come to you to prepare his income tax return for the year ended 30 June 2016. A. Tom provides you with the following information: (1) He is a furniture retailer who specialises in selling chairs. (2) For the financial year ended 30 June 2016: (i) he had opening stock valued at $2 million; (ii) he purchased chairs for $10 million (exclusive of GST); (iii) his closing stock at the end of that financial year was valued at $5 million; and (iv) he sold furniture worth $10 million (exclusive of GST) all of which amount he has received. (3) The amount of $10 million received from the sale of furniture does not include an amount of $400,000 (exclusive of GST) which he had invoiced customers for the sale of chairs on 12 January 2016. However, only $375,000 of this (which is not part of the $10 million) has been received by 30 June 2016 even though the chairs have been delivered and there was no dispute. (4) With the consent of the ATO the cash basis of accounting applies to Tom. B. Tom also provides you with the following information: (5) On 1 December 1995, he purchased a residential house in Mt Lawley in Perth, Western Australia, for $200,000 while he was living in his residential home in Sydney, New South Wales (NSW). 1
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He purchased his home in Sydney on 1 July 1993 for $450,000 and has lived there since that date as his main residence. He purchased the house in Mt Lawley with the intention of moving to Western Australia to live when he retires from his business in NSW. The house in Mt Lawley was rented out from 1 December 1995 to 30 November 2005. An atrium was constructed in the Mt Lawley house on 1 June 1996 for $85,000.
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