In this essay, we will calculate Kay Lee’s personal tax liability for the year ended 30 June 2023. Kay owns and operates a restaurant named ‘The Fried Noodle Bar’ as a sole trader. We will analyze her assessable income, allowable deductions, depreciation, tax loss, private health insurance, PAYG instalments, and investment property to determine her taxable income. We will then apply the relevant marginal tax rates and Medicare levy to calculate her final tax liability.
Kay’s assessable income consists of various receipts, including the sale of food and drinks in her restaurant, interest on bank deposits, exempt income from a PhD scholarship, private health fund refunds, inheritance, rent from an investment property, refund from the ATO, net capital gain from shares, and lottery win. These receipts total $372,000.
Kay’s allowable deductions comprise payments such as rent on her restaurant, body corporate fees on her investment property, part-time employee salaries, superannuation contributions for employees, interest on borrowing for the investment property, insurance and fees for the investment property, fees paid to a registered Tax Agent, and personal superannuation contribution. These deductions total $159,500.
Kay has acquired new cooking equipment for her restaurant with an estimated life of 10 years. Since the depreciation deduction hasn’t been included in the figures, we need to calculate it. The opening depreciation pool balance for the Small Business Entity (SBE) pool was $25,000. With the new asset added, the pool balance becomes $30,000. The depreciation expense can be calculated using the diminishing value method over the asset’s effective life.
Kay has a carry forward tax loss of $25,000 from an earlier income year due to the impact of COVID-19 on her business. This tax loss can be utilized to offset her taxable income for the current year.
Kay and her family are members of a private health fund with private hospital insurance. While this doesn’t directly impact her taxable income, it does contribute to her overall financial situation.
Kay has paid $25,000 in PAYG Instalments during the financial year. This amount is an estimate of her expected tax liability and will be accounted for when calculating her final tax liability.
Kay’s investment property was purchased new on 1 July 2022 for a total cost of $550,000. Since it’s part of a hotel complex, the construction cost of $355,000 is considered for tax purposes. This property generates rental income, but also incurs various deductible expenses such as interest, body corporate fees, insurance, and land tax.
To calculate Kay’s taxable income, we subtract her allowable deductions, depreciation expense, and tax loss from her assessable income. This will provide us with the final taxable income figure.
Using the taxable income, we apply the relevant marginal tax rates to calculate the income tax payable. Additionally, the Medicare levy is applied to the taxable income to determine the final tax liability.
In conclusion, by carefully considering Kay Lee’s assessable income, allowable deductions, depreciation, tax loss, private health insurance, PAYG instalments, and investment property details, we can accurately calculate her personal tax liability for the year ended 30 June 2023. This calculation provides a comprehensive understanding of her financial obligations as a sole trader operating her restaurant business and holding investment properties.
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