Income Taxation Assessment

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Income Taxation Assessment
Read through the requirements below, and then complete all parts of the assessment. Save your work as an EXCEL (.xlsx) file and click on the Assessment Submission link within this course. Upload your completed assessment to your tutor for marking.

What you need to do before you start?
· Revise taxation material for:

o Calculating Tax – Worked Example – Sam’s Trucking Ltd

o Income Tax Return Preparation for IR10/IR4

o Company Taxation – Imputation Credit Accounts/IR4J

o FBT – Motor Vehicles, Loans, FBT on Goods

Highly Recommend:basic Microsoft Excel skills is required for this assessment; you will be expected to use basic formulas as it will also assist with future submission (if required). Without these formulas, tutors are unable to provide detailed feedback to your calculations.

Chloe’s Model Trains

Chloe Winston operates a small company that buy, restores and sells model trains. She has given the latest financial statements for her business activities during the past year.

Your job will be completing the end of year returns for the year ended 31 March 20X3.

Required

  1. Read all the information covered in the ‘Chloe’s Model Trains’ tab.
  2. Using the Income Statement and Additional information sections you are required to complete the Tax Calculation Sheet for Chloe’s Model Trains.
  3. Refer back to the Income Statementand the Tax Calculation Sheet to complete extracts of the IR10 andfill in the IR4.
  4. Complete the tax calculation AND provisional tax extract of the IR4.
  5. Complete the shareholder information for Chloe and state the amount of income you will enter in the IR3 to declare on Chloe’s Tax Return.
  6. Using the additional transaction on the ‘ICA’ tab, prepare the workings to the ICA for Chloe’s Model Trains. Then fill in the imputation credit return.
  7. Using the additional Information on the ‘FBT’ tab, complete the FBT workings (showing all explanations and calculations) and the what would appear for the Inland Revenue Remember: Chloe is files on an annual basis and she is on the single rate FBT Rate of 49.25%.

The correct answer and explanation is:

To assist you in completing this assessment, I will guide you through each requirement. Here’s how you can systematically approach the task. Once you’ve gathered all necessary financial and additional information, you can proceed to complete the assessment in Excel. Below is an explanation and breakdown for each requirement:

Step-by-Step Guidance

1. Review Information in ‘Chloe’s Model Trains’ Tab

  • Familiarize yourself with the financial statements and additional information provided.
  • Identify revenue, expenses, and other relevant tax data such as deductible/non-deductible items.

2. Tax Calculation Sheet

  • Use the Income Statement to calculate taxable income:
    • Adjust the net profit by adding back non-deductible expenses (e.g., entertainment costs, fines).
    • Deduct non-taxable income (e.g., capital gains).
    • Account for any tax losses carried forward.
  • Apply the corporate tax rate to determine the tax liability.
  • Show all calculations clearly using formulas in Excel.

3. Extracts of IR10 and IR4

  • Use data from the Income Statement and Tax Calculation Sheet to populate:
    • IR10: Summarize income, expenses, assets, liabilities, and equity.
    • IR4: Include taxable income, deductions, and tax payable.
  • Ensure accuracy in transferring values and applying adjustments.

4. Provisional Tax

  • Calculate the provisional tax based on the prior year’s tax liability or current year’s estimate.
  • Show workings for each installment due.
  • Record the provisional tax paid in the IR4 extract.

5. Shareholder Information

  • Calculate the shareholder’s income (e.g., dividends declared or shareholder salary).
  • Determine the amount to be reported in Chloe’s IR3.
  • Ensure consistency with company tax figures.

6. Imputation Credit Account (ICA)

  • Start with the opening balance of the ICA.
  • Adjust for:
    • Tax paid.
    • Credits attached to dividends distributed.
    • Refunds or any other transactions affecting the ICA.
  • Complete the ICA return based on these workings.

7. FBT Workings

  • Identify benefits subject to FBT (e.g., motor vehicles, loans, goods).
  • Calculate the FBT payable using the single rate of 49.25%:
    • Include the gross-up formula for cash and non-cash benefits.
  • Provide detailed explanations of calculations and assumptions.
  • Record the FBT liability in the FBT return.

Excel Spreadsheet Setup

Your spreadsheet should include the following tabs:

  1. Income Statement: Copy and adjust Chloe’s financial data for tax purposes.
  2. Tax Calculation: Detailed workings for taxable income and tax liability.
  3. IR10 Extract: Summarized financial details.
  4. IR4 Extract: Tax and provisional tax calculations.
  5. Shareholder Info: Chloe’s personal income and tax details.
  6. ICA Workings: Adjustments and return summary.
  7. FBT Workings: Calculations and Inland Revenue summary.

Explanation

The 300-word explanation should summarize:

  • Adjustments made to the income statement for tax purposes.
  • Key figures reported in the IR10 and IR4.
  • The calculation method for taxable income, provisional tax, and FBT.
  • How shareholder income was determined.
  • The purpose of the ICA and how it tracks tax credits.
  • Compliance with tax laws and use of Excel formulas for accuracy.

Would you like me to create a draft Excel structure or provide a detailed explanation template for your written summary?

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