CLWM4100: Taxation Law – Statement of Advice Homework Solution

Taxation Law

Your Task

Your task is to analyse client information outlined in the three different case studies below and present the findings in three Statement of Advice (approximately 2,000 words).

 

You are required to prepare Border Pty Ltd’s taxation return.

• You are required to provide advice and tax calculations to Cynthia and Andreas (directors of Border Pty Ltd) regarding the tax payable by the
• You are required to calculate the capital gains tax for Cynthia and Border Pty Ltd.
• You are required to complete the franking account and tax implications on dividend received by Border Pty Ltd

 

For each question you are expected to:

• identify the facts and issues for each case
• apply the relevant legislation and/or case

Learning Objectives

After completing this Individual Assignment, you will be able to:

• Research information about each question using tax cases and tax
• Determine the main issues and make recommendations for each
• Calculate taxes for an individual, a trust and a company.

 

Assessment Instructions

 

Statement of Advice 1 – Prepare a tax return for an entity (Australian private company) (10 marks for technical and calculation accuracy and relevance and 10 marks for writing style; refer to marking rubric for more guidance.)

 

In your current role, you are responsible for providing taxation services to individual/business clients. You conducted an initial meeting with two (2) clients (Cynthia and Andreas Rafter, both Australian residents) to obtain and document all the relevant information which is required to prepare the relevant tax documentation.

 

Both Andreas and Cynthia are directors of Border Pty Ltd, an Australian resident private company with a corporate tax rate for imputation purposes of 30% for the 2020/21 income year.

 

 

The clients have requested that you evaluate their tax position and provide recommendations relating to income tax liability and the optimum tax treatment.

 

Border Pty Ltd sells coffee machines using accrual basis accounting for tax purposes. Receipts and payment details as at 30 June 2021 are as follows (ignore GST and small business concessions).

 

Receipts Cash received for Sales (note 1)	$278,000
Dividend received (note 2)	$8,720
Payments Purchases of inventory (note 3)	$97,000
Net wages paid to employees	$57,890
PAYG withholding paid to the ATO	$12,780
Superannuation paid (note 4)	$4,987
PAYG instalment paid the ATO (note 5)	$5,210
Fringe benefit tax paid to the ATO	$11,210
Fully franked Dividend paid (note 6)	$30,000
Purchase of motor vehicle (note 7)	$52,000
Other deductible expenses	$26,900
Notes

 

Note 1) All sales during 2021 income year were on credit. Account receivable balances were as follows.

Date		1 July 2020	30 June 2021
Accounts receivable		$17,600	$19,800

 

Note 2) Dividend income received by Border Pty Ltd for the year included:

• On 30/8/2020, a dividend of $3,600 received from Australian Bank Ltd (an Australian resident public company for tax purposes) franked to 60%.
• On 28/2/2021, an unfranked dividend of $5,120 from Lowest Ltd (an Australian resident public company for tax purposes).

 

Note 3) All inventory purchases during 2021 tax year were on credit. Account payable and inventory balances were as follows.

Date	1 July 2020	30 June 2021
Accounts payable	$5,280	$5,830

Get Research Analysis Assignment Here!!

Inventory (trading stock) on 1 July 2020	$7,100
Inventory (trading stock) on 30 June 2021
-     at cost	$8,400
-     at market selling	$8,600
-     at replacement	$8,500

 

Note 4) As per the ledger balances on 30 June 2021, Superannuation payable for June quarter was amounted to $1,727. The payment is due by 28 July 2021.

 

Note 5) As per the ledger balances on 30 June 2021, PAYG instalment liabilities payment and payable information are as follows.

24/8/2020 PAYG instalment paid for June quarter 2020                 $ 860 25/11/2020 PAYG instalment paid for September quarter 2020 $1,450 28/2/2021 PAYG instalment paid for December quarter 2020 $1,450 26/5/2021 PAYG instalment paid for March quarter 2021               $1,450

June quarter 2021 was amounted to $1,450. The payment will be paid on 25 August 2021. Note 6) The fully franked dividend was paid on 25 February 2021.

Note 7) The motor vehicle was used to deliver coffee machines. Andreas wishes to use the taxation effective life to depreciate the machine.

 

Required

 

• Andreas wishes to minimise the income tax for 2020/21. Calculate Border Pty Ltd’s net tax liability in respect of the income that it derived in the tax year 2020-2021.

 

• Advise assessability of receipts and deductibility of payments with explanations (Sales, Dividend income, Trading Stock, PAYG withholding, PAYG instalment, Superannuation guarantee, fringe benefit tax, Dividend paid and motor vehicle purchase). Include section numbers and/or cases in your explanations.

 

 

 

Statement of Advice 2 – Advice on company franking account and distributions (10 marks for technical and calculation accuracy; refer to marking rubric for more guidance)

 

Cynthia and Andreas seeking your advice regarding Border Pty Ltd’s franking account. (Please note: use all figures/information provided from Statement of Advice 1 above to construct the franking account for 2020/21. Opening balance is provided below).

 

Required

• 1 July 2020, the balance in Border Pty Ltd’s franking account was $7,158. Construct Border Pty Ltd’s franking account for the 2020/21 financial year. You also need to calculate the franking account balance as at 30 June 2021.

 

• Border Pty Ltd wishes to pay a final fully franked dividend of $40,000 on 30 June 2021. However, Andreas and Cynthia are concerned about the franking account to go into deficit. Calculate and advise the maximum frankable distribution amounts that Border Pty Ltd can pay as fully franked dividend. What are the tax consequences if Border Pty Ltd goes ahead and pays $40,000 fully franked dividend on 30 June 2021?

 

• Assuming Border Pty Ltd paid $40,000 fully franked dividend on 30 June 2022 (only dividend paid for the year), comment on the tax treatment of the dividend to the following four (4) shareholders:
  • Cynthia & Andreas Rafter receive a dividend of $15,000 They are Australian residents at the highest marginal tax rate.

• $5,000 to Justin Rafter, the son of Cynthia & Andreas, who has been studying in London for three years and is a foreign resident.
• $5,000 to Leaf Pty Ltd, an Australian private company with a 30% company income tax

 

Advise how each of the above four shareholders of Border Pty Ltd would be taxed on the distribution received in 2021/22.

 

 

Statement of Advice 3 – Advice on net capital gains (10 marks for technical and calculation accuracy; refer to marking rubric for more guidance.)

 

Since 1997 Andreas and Cynthia have invested in various Australian shares. Cynthia acquired the shares in her own name whereas Andreas had his company Border Pty Ltd acquire his share portfolio. On 20 August 2021 both Cynthia and Andreas made a decision to dispose of their Australian shares and the proceeds and purchase prices information are as follows.

 

Cynthia’s share portfolio

Shares	Purchase date	Costs	Proceeds
Mega Mining Ltd	1 April 1997	$8,000	$12,400
Global Media Ltd	10 June 2000	$15,000	$90,000
Watson Tel Ltd	17 May 2013	$34,000	$33,500
Qantas Ltd	8 January 2021	$17,900	$21,000

 

Border Pty Ltd share portfolio

Shares	Purchase date	Costs	Proceeds
Xero Ltd	28 March 2018	$45,000	$62,000
Qantas Ltd	26 June 2021	$21,600	$28,800

 

Other information

Cynthia has a capital loss of $600 carried forward from sale of painting during 2018.

 

Required

 

• Advise both Cynthia and Andreas on the CGT consequences of their share

 

• Calculate net capital gains for the 2021/22 tax year. You must provide all methods available for her and choose the best method to minimise Lucy’s net capital

 

 

Important Study Information

 

Academic Integrity Policy

 

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What is academic integrity and misconduct? What are the penalties for academic misconduct? What are the late penalties?

How can I appeal my grade?

 

Click here for answers to these questions: http://www.kbs.edu.au/current-students/student-policies/.

 

Word Limits for Written Assessments

 

Submissions that exceed the word limit by more than 10% will cease to be marked from the point at which that limit is exceeded.

Study Assistance

 

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