Question

Question 4: 10 marks, 10% of the subject. Use complete sentences. In your work as an accountant you advise a client, Avon Pty. Ltd. (Avon), on various matters. Avon entered into a $500,000 one year contract in June 2016 with Central Queensland University (a registered Research Service Provider) to undertake research and development for Avon. The contract was to run from July 2016 to June 2017. Avon wants your advice about tax offsets and how this expense could be treated by the ATO in the 2016-17 tax year.

Answer 1

IF Avon Company aggregated turnover in year one is $1.5 million - Less than $20 million aggregated turnover -

Company entitled to a 43.5% refundable tax offset

Eligible R&D $500,000 X 43.5% refundable tax offset = $217,500

Company entitled to refundable tax offset of $217,500

Assessable income $1.5 million

Less total expenses $1.5 million

Adjusted assessable income $0.0 million

Add back R&D expenses $0.5 million

Taxable income $500,000

Tax liability at 28.5% company tax rate* = $142,500

AVON COMPANY BENEFIT

Company’s refundable tax offset reduces tax liability to $0

The remaining refundable tax offset $75,000 ($217,500 -$142,500) COULD BE paid to the company by the ATO in the year 2016-17tax year.