Question

Q1 Zac Harris operates a retail outlet selling kitchen utensils. During the 2017/18 tax year, Zac had the following transactions relating to his employees:

1. Zac paid net wages to his employees totalling $215,000.
2. As at 30 June 2018, there was one week’s worth of wages that remained unpaid amounting to $4,500. Zac made a journal entry accruing this amount as an expense.
3. Zac deducted $74,000 of PAYG tax from his employee’s wages. Of this amount, $9,000 was paid on 5 July 2018.
4. Zac paid a retiring employee $7,000 of annual leave entitlements on termination.
5. Zac paid an employee a redundancy payment of $15,000. The employee had given 7 years’ service to Zac.
6. Zac provided for an increase in annual and long service leave of $8,500.
7. Zac paid travel allowances amounting to $3,400.

Required: Identify which amounts are allowed as deductions for Zac’s business for the 2017/18 tax year.

Q2 (Application of decline in value methods)

On 1 July 2017, Di Lifter commenced business operating a retail nursery. Di chooses to apply her own estimates of effective life to various assets purchased during her first year of trading.

Asset	Cost ($)	Date of Purchase	EffectiveLife (years)	Depreciation Method
Chemical Sprayer	40,000	1 July 17	10	Prime Cost
Temperature Gauge	12,000	1 July 17	6	Diminishing Value
Soil Elevator	37,500	1 Nov 17	15	Prime Cost
Deleafer	10,500	1 Feb 18	7	Diminishing Value

Required:

For each asset, calculate only the deduction for decline in value available to Di for the 2017/18 tax year.

Answer 1

Q1)Wages paid to employees is an allowable deduction under sec 8-1, ITAA 1997
Wages paid to employees is an allowable deduction under sec 8-1, ITAA 1997. Paid also include payable.
Not allowed for deduction
Annual leave entitlements paid to retiring employees is allowed as deductions under section 8-1, ITAA 1997

Under section 8-1, ITAA 1997 redundancy payment to employee is an allowable deduction
Eligible for deduction under section 8-1, ITAA 1997
Permissible as deduction under section 8-1, ITAA 1997

Q2)

• · Chemical Sprayer:Prime Cost method=$40,000*100%/10=$400
• · Temperature Gauge:Diminishing Value method=$12,000*150%/6=$3,000
• · Soll Elevator:Prime Cost method =$37,500*(272/363)*(100%/15)=$1,863.014
• Deleafer:Diminishing value method=10,500*(181/365)*(150%/7)=$1,115.753