Financial Accounts And Tax Payable Of Charcoal Foods Pty Ltd

Company Information

The financial statement of Charcoal Foods Pty Ltd is provided in order to calculate the profit for the purpose of tax it is necessary to add back expenses that are not allowed in tax. The section 8-1 of the Income Tax Assessment Act states that the expenses that are incurred for generating taxable income is allowed as deduction. Therefore, provision for wastage of food is not allowed as deduction (Saad 2014). The section 26-5 of the Income Tax Assessment Act 1997 provides that the amount paid as penalty under an Australian law or foreign law or ordered by Court cannot be deducted from income for the purpose of tax. Therefore, the penalty amount should be added back with the accounting profit for calculating the accounting profit for the purpose of tax. The section 26-35 of the Income Tax Assessment Act 1997 provides that the taxpayer is not allowed to deduct an amount that is paid or incurred in relation to related parties. The meaning of related party includes relatives (James et al. 2015). The definition of relatives includes grandparents and grandchildren’s. Therefore, the amount paid to Brad is not allowed as deduction for the purpose of tax. The section 25-25 of the Income Tax Assessment Act 1997 provides that a taxpayer is allowed to deduct expenses that is incurred for borrowing. It is necessary that the amount borrowed should be used for producing assessable income. The deductions related to borrowing expenses is spread over the tenure of loan. The bank charges is included within the meaning of borrowing expenses. Therefore, in this case the borrowing expenses should be distributed over the period of loan of 10 years. The section 25-10(1) of the Income Tax Assessment Act 1997 provides that the expenditure that is incurred for repair of depreciating assets that is allowed as deduction. It is necessary that the assets should be used for producing assessable income (Tran-Nam et al. 2014). The expenses that are of capital nature should not be allowed as deduction. The section 25-35 of the Income Tax Assessment Act 1997 provides that the taxpayer is allowed to deduct bad debt provided the amount was included in the assessable income. In this case, it is assumed that sales figure provided in the income statement includes credit sales. Therefore, this expenditure should be allowed as deduction. The income from dividend is an ordinary income so it is included in the assessable income of the taxpayer. The franking credits and tax withheld is allowed as deduction from the taxable income.  The subdivision 328-D of the Income Tax Assessment Act 1997 provides the details relating to Capital allowances for small business entity. It is provided that the small business entity is allowed to calculate depreciation in a simpler method. The assets that have cost less than $20000 they are written off immediately. The assets that have cost of $20000 or more is depreciated at 15% in the first year. In the subsequent years the depreciation on the assets are calculated at 30%. In this case, as the company is a small business entity so simple method for calculating depreciation is applied. The fringe benefit is paid on the taxable value of the benefit provided by the employer to the employees (Braithwaite 2017). The employer is allowed to claim deduction for the cost of providing the benefit and the fringe benefit tax paid. The subdivision 328E deals with the trading stock for small business entity. If it is estimated that the trading stock value has not changed by more than $5000 then it is not necessary to account for the change in the value of stock. The company is a small business as the turnover is less than $10 million so a small business tax rate of 27.5% will be applied. 

Table 1: Income tax payable

(Source: created by Author)

Table 2: Depreciation

(Source: created by Author)

Reference

Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Brown, C., Handley, J. and O’Day, J., 2015. The dividend substitution hypothesis: Australian evidence. Abacus, 51(1), pp.37-62.

James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), p.280.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.

Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, p.137.

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