Mutuality and taxable income

Step 2: Classify expenses

Expenses	Non-deductible expenses	Deductible expenses	Apportionable expenses	Total
Accounting – general			7,000	7,000
Accounting – management of tax affairs		3,000		3,000
Audit			5,000	5,000
Advertising			18,461	18,461
Bank charges			1,927	1,927
Bar expenses:
Cost of goods sold			392,576	392,576
Decline in value (depreciating assets)			13,592	13,592
Maintenance and supplies			29,764	29,764
Bingo expenses			4,533	4,533
Cleaning			45,000	45,000
Club luncheons – catering expenses			13,500	13,500
Club luncheons – entertainer expenses			3,000	3,000
Computer expenses			9,664	9,664
Decline in value (depreciating assets)			121,498	121,498
Directors expenses and honoraria			19,712	19,712
Donations to deductible gift recipients		12,869		12,869
Electricity			82,478	82,478
Insurance			48,192	48,192
Gaming machine expenses:
Gaming machine tax			210,969	210,969
Payments to community organisations			13,786	13,786
Repairs and maintenance			36,438	36,438
Decline in value (depreciating assets)			262,481	262,481
Central monitoring service charges			26,183	26,183
Keno expenses		2,157		2,157
Members magazine	8,000			8,000
Membership cards	2,000			2,000
Payroll tax			9,586	9,586
Printing, stationery and postage			22,544	22,544
Raffle expenses			24,851	24,851
Rates and land taxes		19,688		19,688
Repairs and maintenance			86,563	86,563
Salaries and wages			728,547	728,547
Pay TV			21,665	21,665
Subscription expenses	9,226			9,226
Superannuation		66,499		66,499
TAB expenses		3,661		3,661
Telephone			15,297	15,297
Total	$19,226	$107,874	$2,274,807	$2,401,907

Step 3: Separate the apportionable items

Revenue	Non-assessable	Assessable	Total
Bar sales	595,609	232,086	827,695
Bingo and raffle income	16,908	6,588	23,496
Club luncheons – ticket sales	18,000	4,500	22,500
Poker machine revenue	1,150,099	448,148	1,598,247
Total	$1,780,616	$691,322	$2,471,938

Club luncheons

The club held three special event luncheons during the year (Valentine's Day, Melbourne Cup and Christmas Day). The ticket price to attend each event was $50. The club apportions the revenue from the luncheons on the basis that a total of 450 tickets were sold to the events – 360 tickets to members and 90 tickets to non-members. The non-member percentage to apply using this method is 90/450 = 20%.

Other revenue items

The club regularly attracts members of the public, making it difficult to identify and separate its other revenue items. The club apportions these items using the Waratahs formula as follows:

The percentage of members who attend on a daily basis is 5%, or 250 members on average who attend on a daily basis divided by 5,000 memberships. The total number of visitors for the year was 50,000, which included 43,000 members' guests – that is, visitors signed in by members.

After putting in the figures, the non-member percentage to apply using the Waratahs formula is 28.04%.

(B x 75%) + C = (43,000 x 0.75) + 7,000 = 0.2803571(R x S x T) + A 5,000 x 0.05 x 360) + 50,000 or 28.03571%

Expenses	Non-deductible	Deductible	Total
Accounting – general	5,037	1,963	7,000
Audit	3,598	1,402	5,000
Advertising	13,285	5,176	18,461
Bank charges	1,387	540	1,927
Bar expenses:
Cost of goods sold	282,498	110,078	392,576
Decline in value (depreciating assets)	9,781	3,811	13,592
Maintenance and supplies	21,418	8,346	29,764
Bingo expenses	3,262	1,271	4,533
Cleaning	32,382	12,618	45,000
Club luncheons – catering expenses	10,800	2,700	13,500
Club luncheons – entertainer expenses	2,400	600	3,000
Computer expenses	6,954	2,710	9,664
Decline in value (depreciating assets)	87,430	34,068	121,498
Directors expenses and honoraria	14,185	5,527	19,712
Electricity	59,351	23,127	82,478
Insurance	34,679	13,513	48,192
Gaming machine expenses:
Gaming machine tax	151,813	59,156	210,969
Payments to community organisations*	9,920	3,866	13,786
Repairs and maintenance	26,221	10,217	36,438
Decline in value (depreciating assets)	188,881	73,600	262,481
Central monitoring service charges	18,841	7,342	26,183
Payroll tax	6,898	2,688	9,586
Printing, stationery and postage	16,223	6,321	22,544
Raffle expenses	17,883	6,968	24,851
Repairs and maintenance	62,291	24,272	86,563
Salaries and wages	524,262	204,285	728,547
Pay TV	15,590	6,075	21,665
Telephone	11,008	4,289	15,297
Total	$1,638,278	$636,529	$2,274,807

* These payments are required under a state law. The law requires clubs holding gaming machine licenses to make payments from their gaming machine revenue to community organisations at a rate prescribed by the state. For this year, the club made cash payments that met, but did not exceed, the prescribed rate.

Club luncheons

The club held three special event luncheons during the year (Valentine's Day, Melbourne Cup and Christmas Day). Catering was through the club's contract caterer at a cost of $30 a head. The club apportions the cost of the luncheons on the basis that a total of 450 tickets were sold to the events – 360 tickets to members and 90 tickets to non-members. The percentage to apply using this method is 90/450 = 20%. This percentage would also apply to other costs associated with the club luncheons – that is, the entertainer expenses.

Other expense items

The club regularly attracts members of the public, making it difficult to identify and separate its other expense items. The club apportions its other expense items using the Waratahs formula. The percentage to apply using the Waratahs formula is 28.04% (as calculated in Other revenue items).

Step 4: Calculate the taxable income

Assessable income ($156,362 + $691,322)	$847,684
Less: deductible expenses ($107,874 + $636,529)	$744,403
Taxable income	$103,281

As its taxable income is more than the taxable threshold, the Celadon Club will need to lodge a company tax return.

For information on how to complete the company tax return, including a worked example that uses the figures from Case study 2, see Guide to company tax return for not-for-profit organisations.

Last modified: 04 Dec 2018QC 23099