Reference no: EM132959265

LAW6001 Taxation Law - Torrens University Australia

Assessment: Case Study (Tax planning)

Learning Outcome 1: Identify and analyse the tax treatment of various types of income and deductions.

Learning Outcome 2: Effectively apply taxation law in determining tax outcomes in various scenarios such as trust structure

Learning Outcome 3: Identify and calculation of capital gains tax (CGT), including CGT event A1 happening on disposal of an asset, the CGT discounts, the CGT consequences of death (estate planning) and the main residence exemption (and its application to investment properties), the availability of CGT concessions for small business, roll-overs, deemed disposals and gifts.

Task Summary

In response to the issues raised in the case study provided, research and develop a 3000-word tax advice that addresses (a) assessable income (b) allowable deductions (c) tax calculations and (d) your conclusions and recommendations that arise from a fact scenario and to give appropriate advice to clients. Please refer to the Task Instructions for details on how to complete this task.

Context
This assessment allows students to solve practical problems that arise from various scenarios and to give appropriate advice to clients.

This assessment assesses your research skills, your ability to synthesise an original piece of work to specific content requirements and your ability to produce a comprehensible piece of advice which addressing the client's needs.

It also assesses your written communication skills. The ability to deliver to a brief is an essential skill in the workplace. Clients may well approach advisors seeking a combination of specific information needs and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. It is therefore important to be able to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches to addressing the client's needs.

Task Instructions

• This case study must be presented as a group effort. The case study requires collaboration of effective team work. It is expected students will take parts and survey the relevant literature, including decided cases, and select appropriate additional resources.
• Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.
• With respect to each case study:
• Advise the best investment option for clients from the facts of the case study
• Identify the appropriate legal principles that requires discussion in the case study
• Apply the law to the facts of the case study
• After reaching a relevant conclusion, provide practical advice to your client(s).
• Your case study needs to identify and discuss the tax implications of the various issues raised.
• A report (word document, approx. 3,000 words) must be submitted for the calculations of the assessable income; allowable deductions and taxable income of the taxpayer including identifying and discussing them. E.g., how the amounts of income & deductions have been derived. If any receipts and payments are not assessable or deductible, the reasoning for non-inclusion of these in assessable income or deductions as per relevant legislation or cases. After all analysis, you must provide the best solution to save income tax payable.
• Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.

Referencing
It is essential that you use appropriate APA style.

Case Study - Comprehensive Individual Tax Return Advice

The following cases are independent cases. Various taxpayers have visited your tax office to seek advice to optimise their tax obligation in relation to the following situation.

CASE 1 - Capital Gains tax
Shirley is a single Australian resident for tax purposes. She has sold the following assets on 30 June 2020.

Principal residence at Sydney Surry hills
Purchased in November 1989 for $190,000 and sold it for $810,000 (Construction cost hasn't been
claimed in her individual tax return). Stamp duty on purchases $1,900 Marketing (advertising) on sale $3,400 Agent commission on sale $23,000

Rental property at Sydney Collaroy Plateau
Purchased on 1 July 2018 for $850,000 and sold it for $1,2000,000 (The property was built during 2000 with construction cost of $540,000. Capital works deductions have been claimed in her individual tax return each year up to disposal of the asset)
Stamp duty on purchases $2,100
Built an additional garage on 1 August 2019 $41,000 (capital works not claimed) Repairing broken window on 10 July 2018 $600
Timber floor to concrete floor on 1 September 2018 $12,500 Agent commission on sale $16,000
Marketing (advertising) on sale $3,000 Legal expenses on sale $2,500

Holiday house at Sydney Palm Beach
Purchased in August 2010 for $760,000 including stamp duty and sold it for $1,300,000 (The property was built during 1998 with construction cost of $340,000. Deductions related to construction have not been claimed)
Total interests on mortgage paid $125,000 Marketing (advertising) on sale $4,400 Agent commission on sale $19,700

Shares
• Telstra Shares: Purchased on 4 April 2012 for $4,000 and sold for $19,000
• Lihur Shares: Purchased on 12 September 1988 for $62,000 and sold for $41,000
• Xerox Shares: Purchased on 1 September 1990 for $7,000 and sold for $37,000

Personal and other items (all sold during June 2020)
• Sold her car making a loss of $5,000
• Sold some of her furniture and the overall loss was $18,000.

Other information
• Shirley's gross Salary $121,000 (PAYG $45,000)
• Shirley has capital losses of $7,000 from sale of paintings carried forward from the previous years.
• Rental income from her Collaroy Plateau property from 1 July 2019 to date of sale is $24,000.
• Total allowable deductions in respect of this rental income for the year ended 30 June 2020 was
$15,800 (excluding capital works).

Required
Advise the net capital gain for Shirley for the year ended 30 June 2020 by using the CGT method that provides the best outcome for her. Also calculate the taxable income of Shirley for the year ended 30 June 2020. You must provide relevant cases and legislation.

CASE 2 - Trust taxation
Susan Smith is the trustee of an Australian resident trust estate created by a Deed. She created the trust for the benefit of her unmarried daughters, Megan aged 19 years and Isabel aged 15 years.
They are both residents of Australia.

The following information indicates the trading activities of the trust for the 2019/20 income tax year.
Receipts
• Net income from trading activities $80,000
• Fully franked dividend received $25,000
• Proceeds from shares in Hub Ltd on 12 June 2020 (was purchased in 2005 at a cost of $20,000)
$60,000
• Rental income $65,000
Expenses
• Interest paid on investment $40,000
• Expenses incurred in generating rental income $15,000

Megan derived a salary of $7,000 while working casually at McDonalds. Isabel received interest income of $2,000 from her savings account.

Required
Advise Susan the taxation implications (tax payable by the trustee and/or each beneficiary) under each of the alternatives (a) and (b) below. You must provide relevant cases and/or legislation.
(a) Susan does not exercise any discretion as to the distribution of income during the year.
(b) Susan distributes the trust net income to each beneficiary 50% each.

CASE 3
(1) Employment termination payment
Barbra Purcell began her employment with the Republic Bank of Australia (RBA) in January 2005 and was made redundant on 1 April 2020, at the age of 58 years. Barbra received the following payments.
• Gross salary from employer $90,000
• Genuine redundancy payment $70,000
• Unused annual leave $5,000
• Unused long service leave $9,400

Required
Advise Barbra on the taxation implications of her redundancy. Assume no deductions to claim. You must clearly identify any ETP tax offset. You must provide relevant cases and/or legislation.

(2) Superannuation
Barbra (58 years old) also currently has superannuation valued at $662,000 with the Suncorp (complying Super fund).
The total amount includes the following elements;

Tax free component $105,000
Element untaxed in the fund $10,000
Element taxed in the fund $550,000

Required
Advise Barbra what would be the tax consequences of withdrawing her super during 2019/20, including all options available to her. You must provide relevant cases and legislation.

Attachment:- Taxation Law.rar