Partnership Net Income

Tutorial Number 8

Part 1a. Discuss the impact of GST on the calculations (refer checklist)

According to s 9-75 of the GSTA, the value you receive for a taxable supply is 10/11th of the GST inclusive price. That is the value of the coffee sales to Jac and Sam is $462,000 – ($462,000 x (1/11)) = $420,000. The price, under s 9-75 GSTA, is the sale price inclusive of the 10% GST, i.e. Price = Value + (Value x 10%). As the sale of the coffee beans is not subject to GST under s 38-2 GSTA and Schedule 2, item 5, then this item does not impact on the calculations. The partnership operates on an accrual basis, or non-cash method as it is defined under s 29-5(1) GSTA, therefore, the invoice for coffee beans from CBC Bank Ltd for $5,500 as at 30 June 2014 will be included in the income year ending 30th of June 2014, even though the amount is not yet paid. However, this invoice is irrelevant to GST calculations as it is not subject to GST. The GST collected by Jac and Sam is $42,000 and is considered a tax liability under s 9-40 GSTA.

However, Jac and Sam are eligible to claim input tax credits (s 11-20, GSTA) for the same period for the following expenses as they are deemed creditable acquisitions under s 11-5:

Electricity: $16,600 x (1/11) = $1,500

Rent: $38,500 x (1/11) = $3,500

Telephone: $6,160 x (1/11) = $560

The total GST component is a valid deduction under s 11-25 GSTA. Therefore, Jac and Sam will deduct the total amount of GST paid, $5,560, from the $42,000 received for a total payable amount to the ATO of $36,440.

The following outflows are exempt from GST calculations: The purchases of milk and coffee beans under s 38-2 and s 195-1; bank charges are subject to input taxation under s 40-1 and s 40-5; the bribe to the health official (S 26-53(1) of ITAA97); salaries S 9-20 (2)(a) of GSTA: employee, not carrying on a business, Division 23 of GSTA: cannot register for GST; drawings S 91 of ITAA36: not liable to pay tax and TR2005/7; and...