Advise the tax implications of the above transaction

Reference no: EM133062523

Question 1. A resident company pays a fully franked dividend of $700 to a resident shareholder. Advise the income tax implications of the shareholder if it is:

(a) an individual subject to the top marginal tax rate;
(b) an individual with marginal tax rate of 15%;
(c) a company with other assessable income of $8,000, and a carried forward loss of
$12,000;
(d) a company with other assessable income of $9,000 and deductions of $16,000; and
(e) a partnership with two resident individual partners sharing equally partnership profits or losses.

Question 2. Yumyum Thai Pty Ltd is in the business of running a Thai restaurant, serving traditional Thai food. It has two shareholders, Gary and Matt. Gary held 75% of the shares in company while Matt held 25%. After a decade of profitable operation, the company incurred tax losses of $200,000 in each of the last two income years. Gary sold two thirds of his shares to Matt on 1 July in this income year. Gary now holds 25% of the shares in the company, and Matt holds 75%. Gary incurred a capital loss of $300,000 in the share disposal.

Immediately after the share transfer, Matt introduced a new menu in the restaurant. Instead of traditional Thai dishes, the new menu features largely French dishes with hint of Thai flavour. The name and decoration of the restaurant was also changed to reflect the new menu. The company also published a cookbook in October this income year featuring the signature dishes of the restaurant. The book was a bestseller, contributing a significant amount of revenue to the company. The company turned around in the income year and became profitable again.

Advise whether the company can use the carry forward losses in this income year.

Question 3. Green Planet Pty Ltd was incorporated to research and develop a new technology to produce biodegradable plastic from seaweed. After making losses for several years, a venture capital company purchased 60% of the shares in the company. The company then discovered that the "seaweed to plastic" technology can also be used to make an organic fertiliser. This new product contributed 40% of the turnover of the company, which turned around and made a profit in the current income year.

Advise whether the company can use the carry forward losses in this income year.

Question 4. Gary, an Australian resident, is the sole shareholder of MC Pty Ltd, a company incorporated in Australia. In this income year, MC Pty Ltd made an interest free loan of $80,000 to Gary. By the income year end, the company waived 30% of the loan. The balance of the loan remains outstanding by the company's lodgement date. The company's distributable surplus for the income year is $60,000.

Advise the tax implications of the above transaction for Gary. How will your answer be different if the shareholder of MC Pty Ltd is a wholly owned subsidiary of another company incorporated in Australia?

Reference no: EM133062523

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