Reference no: EM132527839

LAW303 Taxation Law - Elite Education Institute

Problem 1

Leo is a tax agent and tax accountant who has been involved in the creation of a range of tax avoidance arrangements concerning tree plantations.

Andrew, an ATO auditor, is particularly interested in the Pine Plantation Scheme and has served Leo with a notice under s. 353-10(1) of Schedule 1 of TAA, requiring him to provide:

a copy of any advice given to potential participants in relation to how the Pine Plantation Scheme was alleged to provide tax benefits;
a copy of any brochures or other advertising material published by Leo to promote the Pine Plantation Scheme;
an explanation of how the scheme is alleged to operate;
a list of every person who has entered into a Pine Plantation arrangement; and
a table showing when various steps in the implementation of the scheme were taken.

The notice allows 28 days for compliance with its requirements.

Leo does not wish to provide any of the information requested and notes that:
this is the busiest time of the year for him, and preparation of a response to the notice would require him to allocate a number of staff to this task for several days, which would have a severe impact on his business; and
he believes that all the information to which Andrew seeks access is protected by legal professional privilege and/or the ‘accountants' concession'.

Advise Leo on the implications for him from the notice served by Andrew and the validity of his reasons for not providing the requested details.

Problem 2 (Taxation of Partnerships)

Part A:
Tom and his wife, Kelly, purchased an income-producing property as joint tenants, to secure greater financial independence for Kelly. They entered into a partnership agreement that stated that the net income from the property was to be apportioned 80 per cent to Kelly and 20 percent to Tom, but any losses were to be apportioned 20 per cent to Kate and 80 per cent to Tom.

What are the income tax implications of this arrangement?

Part B:
Jacky and Joe formed a partnership in which it was agreed to share profits and losses equally. As Jacky would be more active attending to the partnership business, it was agreed that she be paid an annual salary of $20 000.
The accountant has just finalised the partnership results for the 2018/19 tax year and has advised the partners that the partnership net result was a loss of $10 000 after paying Jacky's salary.

Please answer the following questions,
For the purposes of completing the statement of distribution on the partnership tax return, what is the partnership net income or loss?
How is the partnership net income or loss as calculated in (a) to be distributed to each partner for tax purposes based on the partnership agreement?

Problem 3 (Taxation of Trust)

Part A:
Judy and Tim Hill are the only two beneficiaries of a discretionary trust created by their grandfather during his lifetime - that is, it is not a testamentary trust. Julie resides in the United States and Tim is a resident of Australia. The beneficiaries are aged 22 and 17 respectively.
During the 2018/19 tax year the trustee received a dividend of AUD 3400 from a company resident in the United States, on which withholding tax at 15 per cent ($600) had been deducted at source, and the trustee also received a fully franked dividend of AUD 3300 from a resident Australian company.
The trustee resolves to distribute the income equally among the two beneficiaries.

Advise the trustee and the beneficiaries as to their Australian income tax liability on the distribution.

Part B:
Under a trust created by the Will of the late Robert French, the trust income of $200 000 for the year ended 30 June 2019 is to be dealt with as follows:
50 per cent is to go to Robert's widow;
20 per cent is to go to Robert's daughter Jane (aged 21), who is intellectually disabled; and
30 per cent is to go Robert's younger child, Jim currently aged 10
Jim-$60 000 is to be applied to the payment of school fees;

As trustee for the estate of the late Robert French, outline the income tax implications of the allocation of trust income for the 2018/19 tax year.

Problem 4 (Taxation of Companies)

Part A:
The Lucy family needed funds from their private company, JWZ & Co Pty Ltd (JWZ & Co), to assist one of their daughters (Judy). JWS & Co is a private company for tax purposes and is equally owned by Mr and Mrs Lucy. Assume that JWZ & Co lent Judy $300 000 during the year ended 30 June 2019. The loan was for a term of six years, with interest payable at 4 per cent, and the loan was unsecured. Judy has no involvement in the company's affairs (i.e. is not an employee).

The accounts of JWZ&Co for the year ended 30 June 2016 are as follows.

Assets                                                  $                      Liabilities                                               $

Current assets                                       18,000              Non-current liabilities                  48,000

Non-current assets(loan to Frieda) 300,000

Shareholders' funds

Issued capital                            60,000

Retained profits  210,000

318,000 318,000

What are the tax consequences of the loan made by JWZ & Co to Judy for both parties? Your answer should consider references to Division 7A of ITAA36.

Part B:
On 1 July 2018, the secretary of Peter Pty Ltd (Peter), a resident private company for tax purposes, put forward the following proposals for the 2018/19 tax year:
Peter made a $50 000 loan to a shareholder as an interest-free advance. No loan agreement or repayment schedule was documented. This advance would not be repaid by the shareholder at the end of the financial year or prior to the lodgement of Peter's 2018/19 income tax return.

Introduce a dividend reinvestment plan so that shareholders will have a choice of accepting either a cash dividend or additional shares.

Advise the secretary of Peter as to the income tax implications of each of these proposals.

Attachment:- Taxation Law.rar