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Taxation Final Assessment
Question 1: GST Returns
Part A Case study

Ian McDougall is a sole-trader and a registered person who returns GST on an invoice basis using a 6 month taxable period.

A machine purchased two years ago (1st Oct 2010) costing $147,375 GST inclusive, was used for a total of 900 hours during the half year ended 30 November 2012. Of this total, 315 hours (35%) use was in respect of private work. In the taxable period ending 30 November 2012 the following GST inclusive transactions (relating to the machine) took place.

Incurred Date of Inv Inv Paid $
Repairs 10 Oct 2012 20 Oct 2012 31 Oct 2012 2,000
Repairs 25 Nov 2012 30 Nov 2012 08 Jan 2013 615
Power Oct- Dec 2012 31 Jan 2013 15 March 2013 134
Power Oct-Nov 2012 06 Dec 2012 15 Jan 2013 220

The depreciation rate allowed on this machine for income tax purposes was 6.67% straight line.


a. Calculate the period-by-period adjustment(s) required for the period ended 30 November 2012.

(6 marks)

Part B: GST Return

Paula’s Accessories Limited, imports and sells various plastic ware to customers within Auckland. Paula’s Accessories operates out of a factory shop in Kelston, West Auckland and is registered for GST on a payments basis and has a monthly GST filing frequency.

The following receipts were received through Paula’s Accessories bank account in the month of Feb: 2012

 Sales of $31,805, of this $850 were export sales
 $60 as rent for a small room above the warehouse (Paula rents this out to help cover the rent on the factory). The upstairs room floor area is 5% of the whole building. The monthly rent includes the use of utilities.
The following payments were made from Paula’s Accessories bank account during the month of Feb 2012

Purchases 5,976
GST on imports 238
Rent 2,000
Rates 86
Power 239
Wages 10,000
Purchase of a second-hand computer from Trademe 1,500
GST for May 2,875
Accident Compensation Levy 32
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Other Information

 Paula noted from the NZ Herald that one of the companies that she had provided goods to totalling $125 was being removed from the companies register. She wrote this debt off in Feb 2012 as a bad debt.
 Paula’s accountant advised that the total non-deductible entertainment for the year ended 31 Jan 2012 was $175 (ie. 50% of $350). He recommended that an adjustment be made for this in the Feb GST Return.
 Paula Accessories received an amount of $9,584 of sales via their Barter card account.
Note: all figures are GST inclusive unless GST is not applicable.


a. Complete Paula’s GST return for the period ended 28 Feb 2012 using form 101A provided. For any amounts not included in the GST Return, please give reasons for their exclusion.
b. Advise Paula of the amount of GST payable or refundable and the due date for payment.


Question 2: Companies & Imputation Credit Account
Part A]

a. Briefly discuss the significance of the imputation mechanism from the perspective of the company and the shareholders

b. What is an imputation credit account and is it part of the financial statements of the company?

c. Dividends are subject to a deduction of RWT at the rate of 33 cents in the dollar. Due to the change in the tax rates, some dividends may carry imputation credits of only 30% or 28%. What could be the possible reasons for this?


Part B

Eric’s friends Alison, Amber and Brian are shareholders in a movie consultancy company, AAB Limited, which seeks out and provides movie location sites, stunt doubles, costume hire and props to movie production companies. Alison and Amber are shareholder/employees however Brian is not.
The company’s taxable income before interest and dividends, (included below), for the year ending 31 March 2012 was $126,345.


Other transactions for the year were

20 June 2011 Received net interest of $4150 from the BNZ. RWT has been deducted at 33%
28 August 2011 Paid the first instalment of 2012 provisional tax of $11,371
30 August 2011 Received a net dividend from Warner Productions Ltd of $1,785. The dividend was imputed at 25%
5 October 2011 The company declared and paid an interim dividend of $45,650 to the shareholders. The dividends are fully imputed with the maximum imputation credits attached of 30%
20 October 2011 Paid fringe benefit tax of $3120
11 November 2011 Brian purchased a VW convertible from the company. He paid $25,000 for the car and it had a market value of $30,000.
15 January 2012 Paid the second instalment of 2012 provisional tax of $11,371
31 January 2012 Received an income tax refund of $2,110 for the 2008-2009 year following reassessment of the return
20 March 2012 Declared and paid a final dividend of $49,750 . This has been imputed at the same ratio as the interim dividend.
7 May 2012 Paid the third instalment of provisional tax of $11,371


a. Prepare the Imputation Credit Account for the year ending 31 March 2012. The opening balance of the imputation credit account on 1 April 2011 was $3,150 debit and this amount and the imputation penalty tax were paid on 20 June 2012. Show all workings.


Taxation Final Assessment
Question 1: GST Returns
Part A Case study
a) Ian McDougall uses the machine for private work for 35% for the half year ended 30th Nov 2012.
So, he can claim 75% of depreciation as only 75% has been used for business purpose
GST Inclusive cost 147375
GST rate on or after 1st october 2010 15%
so, GST exclusive cost =147375/115*100

Cost Purchase of machine excluding GST on 1st Oct 2010 1,28,152
Depreciation rate for Income tax purpose is given as 6.67% p.a. straight line method
So, Depreciation for the period 1st June to November 2012 =128152.67%*1/2
4274 $

Note: Expenditure incurred for repairs and power for machine can be claimed as a deduction through business accounts. Moreover anything other than repairs or maintenance is capital expenditure and cannot be claimed as deduction, but normal depreciation can be claimed for such expenditure.
Expense Inv Paid Amt ($) Treatment
Repairs 31-Oct-12 2,000 To be claimed as revenue expenditure
Repairs 08-Jan-13 615 To be claimed as revenue expenditure
Power 15-Mar-13 134 To be claimed as revenue expenditure
Power 15-Jan-13 220 To be claimed as revenue expenditure
Can I please see the calculations for this. Please keep in mind the date of the invoices.
But I need to see the adjustments here as well please.


Part B: GST Return

Paula’s GST return for the period ended 28 Feb 2012 using form 101A provided.

Amt (In $)
Sales and Income 31865
Zero-rated supplies 850
Net GST Sales and Income 31015
Total GST Collected On sales and income 4045 (31015/115*15)
Adjustments, if any 16 (125*4045/31015)
Total GST Collected for the period 4029

Total Purchases and expenses (Note-2) 18301
Total GST Collected on Purchases and services 1846
Credit adjustments to make 18
Total GST Credit for purchases and expenses 1828

Total GST Payable (a-b) 2201

1. Paula Accessories limited is registered for GST on payment basis. In this basis, GST is taxable on the amounts received or paid in the taxable period

Note-2: -Calculation of Total Purchases and expenses
Purchases 5,976
Rent 2,000 adjustment needs to be made first
Rates 86
Power 239
Wages 10000
GST Inclusive on expenses
Total Expenses Why have you done the amounts twice? Not sure what your reasoning is?
Rent 2,000
Rates 86
Power 239
Wages 10000

GST charged there on =12325/115*15
Total GST on purchases and services =238+1608
Please re-do this Part, you’re doubling up expenses I’m not sure why? Plus the adjustment needs to be made as well on the rent, please do this.

Amount of GST Payable = $ 2201
Due dates for your GST returns and payments fall on the 28th day of the month (or the next business day)

Question 2: Companies & Imputation Credit Account
Part A
Significance of the imputation mechanism from the perspective of the company -If a company have imputation credits of amount in its ICA return more than the amount allocated to shareholders then such amount cannot be claimed as a tax refund but such credits can be used to pay off certain tax liabilities it has or can be carried forward but cannot be claimed as refund. Due to imputation mechanism these excess credit do not lapse and companies can use them as specified above.

Significance of the imputation mechanism from the perspective of the shareholders – Due to presence of Imputation, double taxation can be avoided. If company pays tax on profits, then such tax can be passed on in the form of credits to shareholders when company pays dividends to them. So, in this manner, imputation credits offset the amount of tax that the resident shareholders would otherwise be liable to pay on those dividends.

Imputation Credit Account (ICA) is a memorandum account prepared by companies to keep record of imputation credits it has, the credits or debits in the account. This account is required by companies to file an appropriate imputation return.

No, it is not a part of the financial statements of the company.

The amount of tax paid by the company on profits and passed on to shareholders in the form of credits is called imputation credit. Due to change in tax rates, the rate of tax on profits to be paid by the company may be 30% or 28%, and the company can pass on only that amount of credit which it has paid. So, it may be 28% or 30% but deduction of RWT on dividends is at the rate of 33 cents in the dollar This could be the possible reason for it.


Part B
Imputation Credit Account for the year ending 31 March 2012
Date Debit Amount (In $) Credit Amount (In $)
Apr 01, 2011 Opening Balance 3150√
June 20, 2011 RWT deducted on Interest received 2044
Aug 28, 2011 First Instalment of provisional tax 11371√
Aug 30, 2011 RWT deducted on dividend received 595
Oct 5, 2011 Interim dividend paid by the company 13695√
Jan 15, 2012 Second Instalment of provisional tax 11371√
Jan 31, 2012 Income tax refund for 2008-2009 year 2110√
Mar 20, 2012 Final dividend paid by the company 14925√
May 7, 2012 Third Instalment of provisional tax 11371
Closing Balance 2872
36752 36752


Once errors are corrected, you’ll note that they actual have to pay back to the IRD as they have overpaid in credits and RWT to shareholders, more than they had
1 Fringe benefit tax of $ 3120 will not appear in Imputation credit account
2 Credit is available for provisional tax paid


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