Tutorial-6-Questions-&-Solutions

Tutorial6QuestionsandSolutions19October-23October2009(ProvisionalTax/Goods&ServicesTax)Question1Laurentisaweddingplannerandownsaverysuccessfulweddingplanningbusinesscalled“FabulousWeddings”basedinAuckland.Theservicesheoffersincludefloralarrangements,decoratingthereceptionvenue,catering,andhelpingthebrideselecthergown.Hehasappliedundersection37oftheTaxAdministrationAct1994foranextensiontofilehis2008-2009taxreturnduetothenumberofweddingsLaurentisorganising,andhehasbeengivenuntil31March2010tofurnishit.Laurent’sbalancedateis31May.Laurentprovidesyouwiththefollowinginformation:His2007-2008yeartaxreturnrecordedataxableincomeof$70,000andresidualincometaxliabilityof$17,970.Incomeduringthe2008-2009incomeyear-Withholdingpaymentincomefromwritingarticlesonhowtoplanyourweddingof$4,500(includingwithholdingtaxdeductionsof$1,125)InterestfromtermdepositwithBankOneLtd.$2,500(includingRWTof$975)DividendsfromsharesinKiwiBridalLtd.$6,000(includingimputationcreditsof$1,000andRWTof$980)DividendsfromsharesinUltimateBrideLtd.,anAustraliancompany,of$10,000(includingAustralianfrankingcreditsof$1,000andwithholdingtaxof$2,300)Netprofitfromhisweddingbusinessof$82,500Prizemoneyof$400fromwinningaraffledrawnattheyearlyWeddingExpoRequired:(i)AssumethatLaurent’s2009taxreturnisfiledon31March2010.Calculatehisprovisionaltaxforthe2010incomeyear.Advisehimwhenhisprovisionaltaxinstalmentsaredueandhowmucheachpaymentshouldbe.(ii)IsthereanychancethatLaurentmayhavetopayuseofmoneyinterestinrespectofthe2008-2009incomeyear?Describeingeneraltermswhythatinterestisorisnotpayable.Ifitispayable,describeforwhatperiodorperiodsitwouldbepayable.(Note:youarenotrequiredtoactuallycalculatetheamountofinterestpayable.)Question2Kirstyisaprofessionalhairdresserspecialisingintrainingnewapprenticehairdressers.SheisregisteredforGSTonaninvoicebasiswithatwo-monthreturnperiod.Inthe2monthsofFebruaryandMarch2009Kirstyspentthefollowingsums(allamountsincludedGST,ifany):HairproductsboughtfromHotHeadNZLtd(1)$1,200SpecialhairstraighteningtongsimportedfromUSA$800Anantiquebarber’schair(2)$1,600Petrol,runningexpensesandrepairstoherscooter(3)$580Anewcomputerforkeepingautomatedbusinessaccounts(4)$1,100Purchaseofipod(5)$399Cashpaidtonewapprenticeforcasuallabour$220Bankfeesonbusinessbankaccount$12Newaprontoprotectherclotheswhensheisdyinghair$150Comfortableshoesforstandingallday$150Rentalofsalon(6)$1,800Estimateddepreciationonherscooter$60Repairofscooter(7)$30DuringthesameperiodKirstyearnedthefollowingsums(allamountsincludeGST,ifany):Feesforteachingatnightschool(8)$170TradediscountrefundfromHotHeadNZLtd$420Invoicesissuedforhairdressing(9)$9,100DepartmentofSocialWelfare(10)$1,500Invoicesissuedforhairproductssold(includingmark-upof15%)$1,900Invoiceissuedforhaircareadvicegivenoverphone(11)$70Hairdressingperformedbutnotyetbilled$540Hairproductssoldbutnotyetbilled$710Advancepayment(12)$300Retainerfee(13)$480Interestonbusinessbankaccount$19Notes:(1)Thesesuppliesincluded$90ofhairgelthatKirstytakeshomeforherownpersonaluse.(2)Kirstyboughttheantiquechairforhersalon.Shepurchaseditfromabarberwhoretiredyearsago.Shehaspaida$500depositandwillpaytheremaining$1,100inApril2009.(3)Kirstyusesthescooterforgettingtooandfromworkaswellasforpersonaluse.(4)ThecomputerwaspurchasedonHirePurchaseinJanuary2009for$5,000.UndertheHPagreementKirstyhastomake10monthlypaymentsof$550.(5)Kirstydownloadsmusicfromthenetviahercomputerontoheripodsoshecanplayitforclientsinhersalon.(6)Kirsty’srentis$900permonth.InJanuaryKirstypaid$2,700coveringthe3monthsfromJanuarytoMarch2009.InMarchshepaidanother$900forApril2009.(7)KirstytookherscootertothemechanicinFebruaryandhadbeenquoted$190forrepairs.However,themechanicsfiancéisoneofKirsty’sclientssothemechanicagreedtochargeheronly$30forpartsanddotherepairsforfreeifshewoulddothefiancé’shairforfreefortheweddinginMarch.(8)Kirstyisemployedtoteachbeautytherapyeveningclassesatalocalschool.(9)ThefeeswereinvoicedinFebruaryandMarchbutsofaronly$7,000hasbeenreceived.$900worthwasinvoicedtoaUSmodellingagencythatneededKirstytodothehairfortwoAustralianmodelswhoflewintoNewZealandforaweekendfashionshoot.KirstywastoldinlateMarchthataninvoiceissuedfor$300willnotberecoveredasthatclienthasfledtoAustraliatoavoidbankruptcy.(10)Kirstyispartofthe“WorkReady”schemeunderwhichtheDepartmentofSocialWelfarepaysheragranttoteachunemployedwomenhowtobestpresentthemselvesatjobinterviews.(11)OneofKirsty’sformerclientswhonowlivesinAustralianhadahairdisasterwhileattendingaweddinginFebruary.TheclientsoughtKirsty’sadviceoverthephone,forwhichKirstychargedher.(12)Oneclienthasalwaysbeenlatepayingherbills.Sothistime,whenshemadeanappointmentforApril2009,Kirstyinsistedongettingsomepaymentinadvance.Astheworkhasnotyetbeendone,noinvoicehasbeenissued.(13)Kirstyprovidesadvicetotheup-comingNewZealandMissWorldBeautyPagent.SheispaidaretainerfeetomakesuresheisavailablefortheentireweekofthepagentinApril2009.RequiredPrepareKirsty’sGSTreturnfortheperiodending31March2009.Includeallrelevantsumsandexcludeanyirrelevantitems.Brieflyexplain(usingsectionsor