Reference no: EM132919638 , Length: word count:2000

MA613 Taxation Law - Melbourne Institute of Technology

Learning Outcome 1: Appreciate and understand the factors influencing the creation and interpretation of income tax legislation and their relationship to accounting concepts and practice.
Learning Outcome 2: Explain and discuss income tax law in Australia and more particularly the taxation of capital gains, fringe benefits tax, goods and services tax and small business tax concessions.
Learning Outcome 3: Explain and demonstrate how to calculate the taxable income for different types of taxable entities.
Learning Outcome 4: Apply technical knowledge and analytical skills to evaluate and solve tax pDavidlems.problems
Learning Outcome 5:Communicate knowledge of the importance of income tax law within the practice of accounting to specialist and non-specialist audiences.

Background:
You are working as a tax agent in outer Melbourne, and the following clients visit you seeking assistance with their tax returns:

Question 1
Albert and Alice formed a partnership a few years ago to operate an Online Food Catering business. The partnership agreement includes the following clauses:

• Alice to receive interest at the rate of 10% per annum on a loan of $20,000 that she made to the business.

• Albert to be paid a salary of $40,000 per annum.

• After payment of Albert's salary, partners share profits and losses equally.

After reviewing their tax files, you noted:

Year ended 30 June 2019 - The partnership incurred a tax loss of $25,000 in the year ended 30 June 2019.

Year ended 30 June 2020 - The partnership's accounting profits for the year ended 30 June 2020 is $120,000 after expensing Albert's salary and interest payable to Alice.

Assessment Tasks:
Advise Albert and Alice as to the net income of the partnership and the assessable income of each partner from the partnership for the year ended 30 June 2020. Justify your advice with reference to ITAA sections where appropriate.

Question 2
David Smith comes into your office and asks you to prepare his tax return.
He provides the following details:
He commenced business on 1st July 2019 as a sole trader operating a clothing store. He is a small business entity and registered for GST. In the year ended 30 June 2020, David's business records revealed the following:
• Sales revenue of $660,000 (inc. GST) was received during the year.
• Insurance recovery of $6,000 in respect of a claim for a broken shop window which had been repaired and the cost deducted last year.
• Fringe benefits tax $5,000 paid this year in respect of stock discounts given to employees.
• David set aside a provision in his accounts of $11,000 for bad or doubtful debts. During the year he wrote off one debt for $1,600 as bad as the debtor had gone bankrupt.
• David purchased trading stock of $145,120 during the year. On 1 July 2019 trading stock on hand was valued at $31,340 and on 30 June 2020, trading stock on hand was valued at $18460.
• Business advertising of $7,200 was paid for magazine advertisements for the period 1 January 2019 to 31 December 2019.
• David sent staff on a full day training course on ‘Customer Service Skills' provided by an external training company. The cost of the course was $8,000.
• David has 2 employees that work as full-time staff doing exactly the same job. One, his son Arthur, was paid a salary of $160,000 while George, totally unrelated in any way to David, was paid $76,000 for the same job.
• In December 2019, a staff member was robbed at gun point while banking cash from the previous day's sales. David's business was not insured for such a loss and lost a total of $11,600 in business profits
• On 1stNovember 2019, the external roof of the clothing store was replaced due to water leaking through holes in the roof. This had been a problem since the property was first purchased; $20,000.
• On 1stJuly, 2019 David sold a rental property for $800,000. He had purchased the property on 1stJuly, 2010 for $400,000. He had not made any capital improvements.
• On 1stJuly, 2019 David also sold a Rolls Royce saloon for $80,000. He had purchased this item on 1stJuly, 2010 for $40,000.

Assessment Tasks:
You are required to advise David Smith what his taxable income will be for the year ended 30 June 2020 explaining the taxation treatment of the above revenue and expenditure items and justifying your advice with reference to case law and ITAA sections where appropriate.

Question 3

The following information has been extracted from the accounts of ACME MANUFACTURING Pty Ltd (a resident private company) for the year ended 30 June 2020.

» Closing franking account balance on 30 June 2019 was a $20,000 surplus.

» Dividends received on:
o 1/8/19 - $140,000 unfranked from TRIUMPH Corp (a USA company, after $30,000 USA tax was withheld)

o 2/11/19 - $70,000 fully franked from Hawthorn Pty Ltd (a private Australian company)

o 4/3/20 - $560,000 franked to 40% from BHP Ltd (a public Australian company)

» Dividends paid on:
o 21/9/19 - $140,000 fully franked

o 8/5/20 - $840,000 franked to 70%

» Taxes paid on:
»
o 10/12/19 - company income tax paid of $230,000

o 21/4/20 - GST net amount paid of $140,000

Assessment Tasks:
You are engaged by ACME MANUFACTURING Pty Ltd to prepare a running balance franking account for the year ended 30 June 2020; and to explain the effect of each listed item.

Question 4

On 1 July 2017 Gung Ho Pty Ltd was capitalised by issuing fifty ordinary shares each to Charles and James. Gung Ho Pty Ltd carried on a car importation and wholesale business and made a loss of $100,000 for the year ended 30 June 2018. On 1 July 2018, James sold all hisshares to William. The company made a further loss of $200,000 for the year ended 30 June 2019. Donald was issued fifty new shares on 30 June 2019.

During July 2019 the company decided to add a network of retail outlets and provided a full sales and service to the public. For the year ended 30 June 2020 the taxable income of Gung Ho Pty Ltd was $500,000.

Assessment Tasks:

Fully explain using references to ITAA provisions:

1) if the company can deduct the 2018 loss in 2020?

2) if the company can deduct the 2019 loss in 2020?

3) the taxable income of Bravo Pty Ltd for 30 June 2020?

Year   2018                2019              2020

Profit/(loss)        ($100,000)        ($200,000)       $500,000

Shareholding

Charles                  50                        50                           50

James                      50                          0                             0

William                    0                        50                           50

Donald                   0             0                            50

                              100                       100                       150

Question 5

You have been invited by the local group of Tax Agents of which you are a member to discuss at the next meeting of the group the decision in FC of T v Sharpcan Pty Ltd, High Court of Australia, 16 October 2019 which was the outcome of an appeal by the Commissioner to the High Court against a decision in the Full Federal Court to allow the taxpayer a deduction under sec 8-1 ITAA97.

Assessment Tasks:
Prepare a brief paper (in academic style) for presentation to the group covering the following points:

1) a full explanation of why this particular case reached the high court

2) a critical analysisof the tax law principles on which the taxpayer's arguments were based

3) a critical analysis of the Commissioners arguments in reaching their decision

4) what principles from other tax law cases did the judges refer to in supporting and making their decision?

Attachment:- Taxation Law.rar