taxation

Alex McLeod carries on business as a sole trader in Wollongong as a rural mechanic and farm machinery spare parts retailer. He is married and has one dependent child, a daughter aged 12 years, who attends a local school.

Details provided by the taxpayer for the 2015/16 year of income are as follows:

RECEIPTS

$

Sales of spare parts 100,000

Charges for mechanical repair work 45,000

Interest on joint savings account 2,800

Interest on deposit with a United Kingdom

Bank (net of 10% United Kingdom withholding tax) 270

The joint savings account is in the names of the taxpayer and his wife. Interest amounting to $2 800 has been earned on this account.

PAYMENTS

- Business

$

Gross wages (casual employees) 8 000

Light and power 900

Telephone and postage 1 500

Advertising 2 300

Purchase of farm machinery spare parts 44 000

· Purchase of new custom-made toolbox roller cabinet 18 000

Accountancy fees 7 200

Local Government rates on business property 2 700

Insurance on business premises and contents 2 100

Trade journals 300

Sundry business expenses (all tax deductible) 11 500

- Personal

$

School expenses for daughter 1 200

Donation to Australian Red Cross Society 100

Membership subscription - Wollongong Apex Club 100

Medical Expenses (net of Health Fund refunds)

Taxpayer $500

Wife 800

Daughter 650 1 950

(McLeod has family cover in a private health fund, with hospital and ancillary cover. Premiums amounted to $2 400 for the year)

STOCK ON HAND (farm machinery spare parts)

- at 30/6/2015 $16,000

- at 30/6/2016 $14,000

PLANT ON HAND AT 30/6/2015

On 1st October 2015, the Holden Utility motor vehicle was traded in for $10,000 on a new Holden Commodore sedan motor vehicle costing $32,000. The new Commodore sedan has been used 40% for private purposes.

The taxpayer uses the diminishing value method of depreciation and uses the effective life determinations as specified by the Commissioner. All assets were purchased after 10 May 2006. The business has not elected to utilise the small business entity provisions.

Required:

(a) Determine the taxpayer's taxable income for 2015/16; and

(b) Calculate the income tax payable by the taxpayer for 2015/16 year of income.

In providing an answer to these questions you MUST also provide a discussion justifying the inclusion or exclusion of all items. Therefore, your answer will consist of both calculations and a discussion.