Taxation Law Rocket Science Pain Management Clinics

Question: Discuss about theTaxation Lawfor Rocket Science Pain Management Clinics. Answer: Taxation of Rocket Science Pain Management Clinics Calculation of the Taxable Income According to section 8-1 (1) of the IAAT 1997, any revenue received and payments made out of the ordinary business operations should be assessed or deductible for tax purposes (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2016). The receipts of Rocket Science Pain Management Clinics include fees of $ 820,000 from cash patients, fees of $ 1,075,000 from health funds, an amount of $ 46,800, which was the money, received from the sale of burn lotions, and workers compensation receipts amounting to $ 67,000. The clinics expenses, on the other hand, included staff salaries (net of PAYG withholding) amounting to $ 640,000, the PAYG withholding forwarded to the ATO amounting to $ 295,000. The clinic also had PAYG installments of $ 165,000; superannuation guarantees Levy of $ 84,000 and entertainment for special customers at sports venues amounting to $ 2,000. Besides, Rocket Science Pain Management Clinics incurred an amount of $ 11,000 for linen, which comprised of towels, bed sheets, and pillow slips with a useful life of fewer than twelve months. Besides, he paid laundry expenses of $ 6,000, aromatherapy oils and candles of $ 58,000, artworks of $ 8,000, rent amounting to $ 286,000, and other expenses amounting to $ 63,000. All these are deductible expenses except the PAYG withholding forwarded to the ATO and the PAYG installments (Murphy, Higgins, and Lightner, 2010, pp.601-602). Rocket Science Pain Management Clinics had beginning creditors of $ 1,000 and closing creditors of $ 500. Wiley, therefore, made a payment of $ 500 to the creditors, which should be included in the deductible expenses. The amount of $ 700 used for the family household should not be included in the deductible expenses since it was not incurred out of the ordinary business operation. Lastly, Wiley had a tax loss of $ 3,800 for the previous income year, which should be offset in this financial years taxable income, and he accepted a bike as a payment from a client at a market value of $ 250. These should be included in the deductible expenses and the assessable income respectively (Shan, 2011, pp.177-188). Below is the computation of the taxable income of Rocket Science Pain Management Clinics. Rocket Science Pain Management Clinic Taxable income As at 2015/ 2016 Details Amount ($) Receipts Bike as payment by client $ 250.00 Fees from cash patients $ 820,000.00 Fees from health funds $ 1,075,000.00 Sale of burn lotions- cash received ($ 46,800-$ 4,000) $ 42,800.00 Workers' compensation receipts $ 67,000.00 Total receipts $ 2,005,050.00 Less: Expenses PAYG withholding forwarded to ATO $ 295,000.00 PAYG installments $ 165,000.00 Superannuation guarantee levy $ 84,000.00 Staff salaries (Net of PAYG Withholding) $ 640,000.00 Linen (Towels, Bed sheets, Pillow ships)(Effective life is less than 12 months) $ 11,000.00 Laundry expenses (External services) $ 6,000.00 Aromatherapy oils and candles ($ 58,000-$ 3,000) $ 55,000.00 Rent (includes $ 32,000 paid up to 31 July 2016) $ 286,000.00 Other expenses (all deductible) $ 63,000.00 Payment of creditors ($ 1,000-$ 500) $ 500.00 Depreciation of clinic beds $ 9,000.00 Depreciation of desktop PC $ 1,2000.60 Depreciation of laptop PC $ 499.95 Depreciation of office furniture $ 2,100 Depreciation of clinic furniture $ 2,250 Depreciation of low value pool $ 2,550.00 Total expenses $ 1,633,900.55 Net income $ 371,149.45 Tax loss $ 3,800 Taxable income $ 367,349.45 Calculation of depreciation of ten clinic beds Calculation of depreciation of ten desktop PC Calculation of depreciation of one laptop PC Calculation of depreciation of office furniture (each piece $ 1,000) Calculation of depreciation of clinic furniture (each piece $ 1,000) Calculation of depreciation of low-value pool Details Amount Opening balance $ 6,000 Add: adjusting value of low cost assets that is less than $ 1,000( laptop PC (80% $ 1,000) $ 800 Total $ 6,800 Depreciation ( $ 6,800 0.375) $ 2,550 Add: cost of low cost assets that is less than $ 1,000 $ 0 Depreciation ($ 0 0.375) $ 0 Total depreciation $ 2,550 Calculation of Closing Balance of Clinics Low-Value Pool When determining the ending balance of the low-value pool, one first computes the accumulated depreciation in this case for one year and then deducts from the cost of the asset to find the net book value (Bateman, and Kingston, 2007, p.135). In this part, the low-value pool had a cost of $ 6,000 and its calculated accumulated depreciation amounted to $ 2,550. Its closing balance would, therefore, be $ 3,450 as seen in the equations below. References Bateman, H. and Kingston, G., 2007. Superannuation and personal income tax reform.Austin. Tax F.,22, p.135. Retrieved on 26 January 2017. Murphy, K.E., Higgins, M. and Lightner, T., 2010. Concepts in Federal Taxation.Issues in Accounting Education,25(3), pp.601-602. Retrieved on 26 January 2017 Shan, H., 2011. The effect of capital gains taxation on home sales: Evidence from the Taxpayer Relief Act of 1997.Journal of Public Economics,95(1), pp.177-188. Retrieved on 26 January 2017. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. Oxford University Press. Retrieved on 26 January 2017.