Activity 1

 A new client indicates they are self-employed, are paid by one company but claim to work as
a contractor. Services are provided from the client’s home office and the client wants to
claim the benefits that accrue from that classification.

What questions would you ask to clarify the client’s employment status? Discuss in 150–180 words.

To clarify the client's employment status whether client is an employee or an independent contractor,
question can ask would be:
Do you have control over the way a task is performed?
No: employee
Yes: independent contractor
Do you supply/maintain your own tools or equipment?
No: employee
Yes: independent contractor
Do you work standard hours?
Yes:employee
No: independent contractor
Are you integrated into the organisation?
Yes: employee
No: independent contractor
Are you paid on task completion rather than receiving wages based on time worked?
No: employee
Yes: independent contractor
Do you incur any loss or receive any profit from the job?
No: employee
Yes: independent contractor
Do you accept responsibility for any defective or remedial work that was your own doing?
No: employee
Yes: independent contractor
Are you free to work for others at the same time?
No: employee
Yes: independent contractor
Do you accept that work lasts for the term of each particular task or contract?
No: employee
Yes: independent contractor
Do you have the right to employ an apprentice or trainee in the execution of contracts?
No: employee
Yes: independent contractor
Do you understand the arrangement with you as a contract for services?
No: employee
Yes: independent contractor
Does your employer deduct tax from you pay?
Yes: employee
No: independent contractor
Do you provide your own public liability and sickness and accident insurance cover?
No: employee
Yes: independent contractor
Do you receive paid holidays or sick leave?
Yes: employee
No: independent contractor
Do you receive superannuation entitlements?
Yes: employee
No: independent contractor
Are you paid at the end of each contract or project?
No: employee
Yes: independent contractor

Activity 2

 One of the approaches the ATO uses to ensure compliance is data matching. What is it and
how does maintaining records assist the taxpayer in complying with the requirements of the
ATO? Discuss in 100–120 words.

Maintaining record or source document should also be kept to validate financial data and for later
reference. Law required some specific source document that need to be retained such as bank
statements, cheque butts, etc. Receipts, revenue documentation and documents confirming
payments are useful as they provide evidence as to validity of transactions. They show the intention
of an organisation to conduct a specific transaction or they provide evidence of the transaction.
The Australian tax system work by self-assessment so the ATO will issue the clients;s assessment
based on their tax retuen. However, because the ATO might review the client;s tax return to confirm
that the information is orrect ans that all assessable income is include, records must be retained and
stored safely.

Activity 3

 From where would you gather current information concerning assessable income and
allowable deductions? Discuss in 100–120 words.

For assessable income: we can gather information from all sources of income including Wages,
Business income, Investments and Interest received from Bank, pension rent, commision a
salesperson receives, dividentds and other income form investments. It can be bank statement, pay
slips, etc.
For allowable deduction: collect all the receipt bill, invoice, source document from the work-related
expense.
Some of the common work-related expenses that are allowable include uniforms, Laundry, business
mobile & telephone costs, subscriptions and union fees.
Self-education expenses are also deductible in certain circumstances where the study is directly
related to either maintaining or improving your current occupational skills or it is likely to increase
your income from your current employment. If the study is to obtain new qualifications in a different
field the expenses will not be allowable.
Activity 4

 Use the retail inventory method to calculate the value of ending inventory for an
organisation which has:

o An opening inventory at cost of $850,000 and a retail value of $2,100,000.

o Purchases for the year totalled at cost $650,000 and the retail value of the purchases
is $1,000,000.

o Sales for the year at retail price totalled $2,650,000.

o Mark-ups of $80,000 and markdowns of $35,000 during the year.

Ending inventory: $236,089

act4-tax for ind.xlsx (9.69 KB)

Activity 5

 What are the responsibilities of the tax agent in regard to identifying and resolving
discrepancies? Discuss in 100–120 words.

For small discrepancies , tax agent need to amend a document or report so that it reflects the correct
information. Sometimes, they might need to cross out an incorrect figures with a single stroke of a
pen and write the correct amount directly above. Other times they might delete the incorrect figure
and replace it with the correct amount. they might need to rectify a discrepancy in electronic data by
cutting or deleting text and re-entering it properly.
Determine if a discrepancy is caused by one-off mistake or a systematic problem which is ongoing. if
a discrepancy appears to be ongoing inform someone who has the experience and authority to
manage the problem. part of their responsibility is to highlight to you clients any areas that are of
concern or that might help them improve their business and their financial management.

Activity 6

 A taxpayer pays $1,800 for six months insurance. The premium is paid on January 31, 20XX.

Using the balance sheet approach prepare the account to reflect this transaction and prepare the
journal entries for the end of the first month.

Prepaid insurance

Date Explanation Debit Credit

31/01/20XX Prepaid insurance 1,800

cash 1,800

For the end of the first month prepare these journals.

General journal

Date Account title and description Debit Credit

28/02/20XX Insurance expense 300

Prepaid expense 300

Expired insurance

Date Explanation Debit Credit

Prepaid insurance

Date Explanation Debit Credit Balance

Activity 7

 1

A client has receipts for $50.00 from donations provided to door to door charity collectors. Can the
client claim a tax deduction for this amount? Discuss in 80–100 words.

Client cannot claim that as a tax deduction because to claim it is a tax deduction the gift must be
made to a Deductible Gift Recipient (DGR). The charity group must have a DGR endorsement, that
means they must be approved by the Tax Office.

 2

Is a taxpayer entitled to a spouse rebate if they have no children? Discuss in 80–100 words.

The Dependent Spouse Offset was abolished from 1 July 2014. This means that we can't claim a
spouse rebate (offset) from the 2015 financial year.
Client only can claim tax offset due to the dependant (invalid and carer) tax offset, which is available
for taxpayers who maintain a dependant who is genuinely unable to work due to invalidity or carer
obligations.

 3

A client wants to claim $300 for work-related expenses and says they might not have spent that
amount but because the client has been told that it does not need to be substantiated they will still
make the claim. What advice would you provide? Discuss in 80–100 words.

If they can not provide evidence for their work-related expense they cannot claim the expense.
To claim a work-related deduction:
-you must have spent the money yourself and weren't reimbursed
-it must be related to your job
-you must have a record to prove it (there are some limited exceptions)
  4

Using the table showing taxable income and the tax payable calculate the tax liability for an
individual whose taxable income in the 2012–13 financial year was $50,000. The Medicare levy is
calculated at 1.5%

Taxable income Tax on this income

0–$18,200 Nil

$18,201–$37,000 19c for each $1 over $18,200

$37,001–$80,000 $3,572 plus 32.5c for each $1 over $37,000

$80,001–$180,000 $17,547 plus 37c for each $1 over $80,000

taxable income: 50000

tax = 3572 + 0.325 x (50000-37000) = 7797
ML = 50000 x 1.5% = 750
total tax = 7797 + 750 = 8547

 5

Describe (80–100 words) what is meant by a tax liability.

A tax liability is the total amount of tax that an entity is legally obligated to pay to an authority as
the result of the occurrence of a taxable event. Tax liability can be calculated by applying the
appropriate tax rate to the taxable event's tax base. Taxable events include, but are not limited to,
annual income, the sale of an asset, a fiscal year-end or an inheritance.

Activity 8

 A new client has approached you and asked for advice on what documentation will be
required for the preparation of their first tax return in Australia. What advice would you
provide and what documents would you indicate that would be needed? Discuss in 150–180
words.

Not everyone needs to lodge a tax return, but if required, it must be lodged on time to avoid
penalties. Tax returns can be lodged online, via email, using the ATO telephone lodgment service if
the taxpayer is eligible or through a registered tax agent. The ATO has established lodgement
requirements for reporting of taxation obligation, and penalties will be applied if the documents are
not submitted by the due date. It is applied when documnets and reports are required to be lodged
with the ATO by a due date and are not received by that due date. This would include documents and
reports such as:
- activity statements
- income tax returns
- Fringe benefit tax (FBT) returns
- pay as you go (PAYG) withholding annual reports
- annual GST returns
- annual GST information reports
- superannuation guarantee levy

Activity 9

 What is moderation of a decision-making process and why is it valuable? Discuss in 120–150

words.

Decision making involves gathering and analysing relevant information from the client, observing any
legal requirements and properly applying any relevant knowledge. Effective decision making has its
basis in effective preparation and due process. Unless both aspects are employed well it is unlikely
that the decision made will be sound.
Decision making for a tax agent can be a complicated, multi-faced and complex tax bound in
regulation, laws and guideline. Furthermore, as decisions about an individual's tax return can have a
serious impact if the judgement made and the conclusion reached were not in accordance with the
relevant requirements, care must be exercised before a decision is reached. Consequently it is
important tax agent have policies and procedures to support and moderate decisions to ensure
sound and consistent decision making.

Activity 10

 1

Tax agents have a responsibility to ensure that their clients’ returns are prepared within the
established timelines. What role do timelines have in satisfying client expectations and how would
you develop a timeline to fulfil your obligations? Discuss in 120–150 words.

A timeline is a way of displaying a list of events in chronological order, sometimes described as a

project artifact. The role of timelines is to help you provide the services in time to satisfy client
expectations.
A timetable lists the time at which certain events such as the lodgment of the income tax returns are
to occur. These dates need to be identified and recorded because they involve lead times that must be
taken in o consideration so that lodgment by the due dates is possible. It is often useful to combine a
timetable with a timeline on thich is illustrated the due dates and an estimate of the lead time
involved. The lead time dates indicate the start date of the work involved in the preparation od the
lodgment requirement. A pla will help coordiante uor effort and give a clear direction of what we
should be doing, when and why. It describe a target that need to be reached and the timeline by
which task need to be achieved.

 2

When preparing a client’s tax return they informed you that they had taken an overseas trip for
business purposes and on the basis of it being a legitimate expense the costs were included as a
deduction. When the client came to review and sign the tax return photographs of the trip were
shown to you that showed the client and the family sightseeing in Europe. What would you do at this
point? Discuss in 120–150 words.
If the client came to review and sign the tax return photographs of the trip were shown to you that
showed the client and the family sightseeing in Europe, then the tax return is not possible and the
client gave the incorrect information to save his money, so the tax return shouldn't be processed at
this point.

Activity 11

 One of the principles for the code of professional conduct for agents, states:

‘You must take reasonable care in ascertaining a client’s state of affairs, to the extent that
ascertaining the state of those affairs is relevant to a statement you are making or an activity you are
undertaking on behalf of the client.’

 1

Describe (150–180 words) what this means to you in terms of explaining the impact of taxation on
the individual.

This means in terms of explaining the impact of taxation on the individual, that if a client wants to
return some taxes paid by him, you need to help him in this procedure ascertaining a client’s state of
affairs.

 2

Who is likely to be held responsible if a tax agent wilfully included false information, of which the
client had no knowledge, in a tax return? Discuss in 150–180 words.

If a tax agent wilfully included false information, of which the client had no knowledge, in a tax
return, the tax agent is likely to be held responsible for that.

 3

An individual who is not an existing client approaches you in early November stating that the income
tax return for the financial year has not been prepared or lodged. The individual is aware that tax
agents can lodge later than the October 31 deadline so requests that you prepare and lodge the tax
return to avoid penalties. What advice do you give this individual? Discuss in 100–120 words.

then we can advice him to lodge the tax return next year, because the deadline has already past.

Activity 12

 Describe (150–180 words) four expectations the ATO has of taxpayers.

the ATO expects that the taxpayer and their agent to work cooperatively with them and that they
should:
- be truthful and honest in their dealings with the ATO officers
- tell the ATO officers as soon as possible anything that may delay the review oe audit
-provide complete, accurate and timely responses to requests for information
-allow the ATO officers to make copies of, or take extracts from, records and documents
-provides the ATO officers with reasonable facilities and assistance; for example, a desk and a chair in
a work area with adequate lighting and access to office equipment such as a photocopier.

Activity 13

 A client for whom you have prepared the current tax return approaches you for advice and
support for an audit covering the last five returns. You were not involved in the preparation
of the previous four. The client has the written notice from the ATO regarding the audit.
What advice will you provide and what support will you give? Discuss in 180–220 words.

Tax agent will advice taxpayer either to ask the previous specialist or to provide additional detailed
information about that four returns and only then you can support him in processing his tax returns.
Audit is made if any inaccuracies in income, deductions or entitlement are discovered which provides
evidence that the tax payer has not fulfilled their obligations.
When the taxpayer receives the notification letter, they would normally contact their tax agent to
review relevant records, tax returns and activities statement in preparation for the initial interview.
When conducting the review or audit the ATO will provide the taxpayer with all reasonable assistance
and explanations to clarify their meaning, allow the taxpayer to choose someone to act on their
behalf or to attend interviews with them. Penalties that the ATO might apply can be significantly
reduced by explaining to the auditor before the audit and in one case where this was done the
taxpayer was fined $600 while the maximum fine which could have been applied was $10,000.

Summative assessment 1

Question 1

 Describe (80–100 words) the distinction between legislative requirements and professional
standards.

Most tax agent had been subject to a self-regulation system through their membership of
professional associations, the original legislation governing tax agents did not recognise the role of
professional associations.
The legislated code established the professional and ethical standards required of tax agent and BAS
agent, whether or not agents are members of a professional association. Under the TASA, BAS agents
are regulated in the same way as tax agents, but are only able to provide a limited range of services.
Legislative requirements for a BAS agents is qualification (at least cert IV financial services) and
experience (at least 1,400 hour experience in 3 years). Code of professional conduct has 14 principle
for agents, organised into 5 categories: honesty and integrity, independence, confidentially,
competence, other responsibilities.

Question 2

 What part of the legislation provides details of how much income tax must be paid and what
does it state? Discuss in 100–120 words.

Income Tax Assessment legislation indicates that:

-All income from all source worldwide derived by an Australian resident taxpayer is included in the
taxpayer's assessable income
- Income derived by a non-resident taxpayer from Australian sources is included in the assessable
income
- Income of a non-resident taxpayer's capital gains in respect of certain assets might give rise to
assessable income.

Question 3

 Describe some of the potential consequences of failing to submit an income tax return on
time. Discuss in 80–100 words.

-penalties:
A failure to lodge on time (FTL) penalty is an administrative penalty that may be applied where you
are required to lodge a return, statement, notice or other document by a particular day and you fail
to do so. An FTL penalty may be applied on documents that are lodged late, or on documents that
are overdue.
Not lodging a document on time (failure to lodge) gets a penalty unit ($170) for every 28 day period
it remains un-lodged, up to five periods. The total fine is capped at five penalty units no matter how
long the document has been outstanding. And this penalty is doubled for 'medium' sized businesses
and multiplied by five for large businesses.

Question 4

 How do tax offsets differ from tax deductions and why are they used? Discuss in 120–150
words.

Deduction or offset, Both will reduce your tax in different ways.

Tax offsets reduce the amount of tax payable, they are deducted directly from tax payable, and they
are mostly available to individual taxpayers.
A deduction, unlike an offset, is not a direct cut in tax owed, only reduce the total assessable income
dollar for dollar and therefore reduce the tax payable by the marginal tax rate that the taxpayer is
paying.
As an example if a tax payer had an allowable deduction of $100 and their marginal rate was 30%
they would get a reduction on their tax of $30. If it was a tax offset of $100 they would get a
reduction in tax of $100.
That’s because a deduction is a gain against income you’ve received, not tax that you owe. What it
does is reduce your overall taxable income. Only indirectly then does a tax deduction reduce your tax
liability.
tax offsets are used to:
- introduce fairness in the way people in different circumstances are taxed
- encourage people to do some things the government would like them to do, for example, to
encourage people take out private health cover to reduce pressure on the public health system,
government offering a refundable tax offset.

Question 5

 Why is maintaining records an integral part of satisfying income tax obligations? Discuss in
120–150 words.
Maintaining adequate records is an essential part of satisfying taxation obligations. When taxpayers
seek taxation deductions the ATO uses the adage that absence of evidence is evidence of absence. In
other word unless there is the documentation to prove that a transaction has occurred it is deemed
not to have happened. the claim for a deduction would be denied. The primary basis of evidence for
taxation purpose are the source documents that a business creates or a taxpayer receives. They must
be accurate because they provide evidence as to the validity of transaction. Under taxation law,
individuals must maintain records that show and explain all transactions which are relevant in
determining the taxpayer's taxation liabilities or deductions.

Question 6

 Where would you find the current tax tables and descriptions of fees and charges? Discuss in
80–100 words.

The ATO provides tax table on its websites for organisations to calculate their PAYG obligation.
WE can find all the information about tax table, description of fees and charge on website:
atotaxrates.info or www.ato.gov.au

Question 7

 What is the Medicare Levy Surcharge (MLS) and who is required to pay it? Discuss in 120–
150 words.

the medicare Levy Surcharge (MLS) is levied on Australian taxpayers who do not have private
hospital cover and who earn above a certain income. The aim of the surcharge is to encourage
individuals to take out private hospital cover, and where possible, to use the private system to reduce
the demand on the public Medicare system. It is in addition to the medicare levy paid by most
Australian taxpayer.
This applies unless you are exempt from paying the Medicare levy and your dependents are also
exempt or have an appropriate level of private cover.
The base income threshold is $90,000 for singles and $180,000 for families. However, you do not
have to pay the MLS if your family income exceeds the threshold but your own income for MLS
purposes was $20,896 or less.
Private patient hospital cover is provided by registered health insurers for hospital treatment
provided in an Australian hospital or day hospital. You must arrange and pay for your cover directly
with the insurer.
For singles, an appropriate level of cover must have an excess of $500 or less. Couples or families
must have an excess of $1,000 or less

Question 8

 What is a deduction and what generally determines whether or not a deduction is

allowable? Discuss in 150–180 words.

A deduction is an amount that a taxpayer can deduct from their assessable income to provide a
figure for their taxable income. Taxpayers are usually able to claim deductions for work-related
expense incurred while performing their job as an employee.
When a taxpayer spends money on something that helps them earn income, they are usually entitle
to claim that cost as tax deduction. Tax deductions reduce the amount of income on which the tax
payer has to pay tax.
What is an allowable tax deduction for one taxpayer might not be for another because income is
earned in different ways. Whether a cost is an allowable deduction or not it depends on the
taxpayer's individual circumstance. for example, a taxpayer works in a clothing store and decides to
join a gym. The requirement to be fit would not be considered as a requirement of the position, so
gym fees would be considered to be a private expense, not related to earn an income. But if taxpayer
is a personal trainer, that would be treated different with regard to allowable deduction. As keeping
fit is likely to be considered an essential part of earning an income, as the gym fees would be a
deductible expense.

Question 9

 Describe the key features of organisational policy and procedures relating to the preparation
of tax documentation for individual taxpayers. Discuss in 120–150 words.

-integrity: can be defined as dedicated adherence to high ethical and moral principles. Financial
sector employees often deal with sensitive information and are expected to act with integrity to
ensure that the sector is not brought into disrepute and damage the public's confidence in the
financial sector. If a conflict of interest arises between their personal interest and their duties to the
client, they must act in favour of the client. Conflicts of interest arise when it is possible that an agent
could be influenced by a personal interest when carrying out their duties. they are not uncommon
and a conflict itself is not necessarily unethical or wrong.
-privacy:
all client have a right to privacy. This is a legal right, meaning keeping client's personal and sensitive
information confidential. When collecting personal information, the client must be told why it is
being collected, how it is recorded, how it will be used, where it will be stored, how they can access it
and who else can access it. All record must be kept safe and protected against unauthorised access.
This information cannot be shared with anyone except the person/s it relates to.