Assessment 3 Information
Subject Code: CLWM4100
Subject Name: Taxation Law
Assessment Title: Case Studies
Assessment Type: Statement of Advice
Weighting: 30 %
Total Marks: 40
nalyse 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.
1) You are required to provide advice and tax calculations to Cynthia and Andreas (directors of Border Pty Ltd) regarding the tax payable by the company.
2) You are required to calculate the capital gains tax for Cynthia and Border Pty Ltd. 3) You are required to complete the franking account and tax implications on dividend received
by Border Pty Ltd shareholders.
For each question you are expected to: 1) identify the facts and issues for each case 2) apply the relevant legislation and/or case law.
Learning Objectives
After completing this Individual Assignment, you will be able to: 1) Research information about each question using tax cases and tax legislation. 2) Determine the main issues and make recommendations for each case. 3) 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.
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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
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
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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
1) 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.
2) 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) 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.
2) 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?
3) 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 each. They are Australian
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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 rate.
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 1) Advise both Cynthia and Andreas on the CGT consequences of their share sales.
2) 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 gains.
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Important Study Information
Academic Integrity Policy KBS values academic integrity. All students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Academic Integrity and Conduct Policy. 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 Students may seek study assistance from their local Academic Learning Advisor or refer to the resources on the MyKBS Academic Success Centre page. Click here for this information.
http://www.kbs.edu.au/current-students/student-policies/
https://elearning.kbs.edu.au/course/view.php?id=1481
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CLWM4100 Taxation Law
Assessment 3
Marking Rubric
/40 marks
Statement of Advice 1 (10 marks) 0 – 4 5 - 10 Achieved marks ( /10)
Has demonstrated limited achievement:
Correctly calculated some taxable income with assessable income and allowable deductions items. Stated recommendations for the best outcome of taxable income in relation to credit sales, dividend received, inventory, wages, PAYG withholding/instalment, superannuation, fringe benefit tax, dividend paid and purchase of motor vehicle. Struggled to articulate the correct taxable income. Failed to address assessability and deductibility of receipts and payments.
Has achieved all or most of:
Correctly calculated the taxable income with assessable income and allowable deductions. Stated recommendations for the best outcome of taxable income in relation to credit sales, dividend received, inventory, wages, PAYG withholding/instalment, superannuation, fringe benefit tax, dividend paid and purchase of motor vehicle. Articulated the correct taxable income. Addressed assessability and deductibility of each receipt and payment.
Statement of Advice 2 (10 marks) 0 - 4 5 - 10 Achieved marks ( /10)
Has demonstrated limited achievement:
Either did not prepare or only partially prepared Border Pty Ltd franking account for 2020/21. Failed to enter correct the debit/credit entries with running balances in the franking account. Failed to identify any consequences arising from Border Pty Ltd franking account balance as at 30 June 2021. Failed to correctly address tax implications of various shareholders.
Has achieved all or most of:
Correctly prepared Border Pty Ltd franking account for 2020/21. Correctly entered the debit/credit entries with running balances in the franking account. Correctly identified consequences arising from Border Pty Ltd franking account balance as at 30 June 2021. Correctly advised the taxation implications of various shareholders.
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Statement of Advice 3 (10 marks) 0 – 4 5 – 10 Achieved marks ( /10)
Has demonstrated limited achievement:
Did not explain or failed to explain the CGT consequences and CGT event. Either did not correctly calculate or only partially calculated correctly capital gains/losses per item. Failed to state various CGT methods. Failed to calculate the best outcome of net capital gains. Failed to advise on capital losses.