Reference no: EM133773017 , Length: word count:2000

Taxation Law

Assessment - Statement of Advice

Your Task

You must prepare a Statement of Advice (SoA) that addresses all the questions raised in a letter.

Assessment Description

Assume that you are a team of graduate tax accountants working for a registered tax firm. Your firm provides its clients with advice regarding tax issues, including applying the relevant cases and/or legislation in preparing tax returns. You must prepare a Statement of Advice (SoA) for your client(s).

The maximum length for the SoA is 2,000 words (+/- 10%) You should address all the technical issues in your advice, followed by a Reference List. Marks will be awarded based on two components:

Technical component 23% - This includes the technical discussion in your SoA, the explanation of each issue, and the sources used. You must analyse the information provided and recommend the correct accounting treatment. You must justify your recommendations by referencing specific paragraphs of relevant accounting standards. You must explain the rationale behind each accounting standard requirement.

Communication Skills (Writing Skills) component 7% - marks will be awarded based on your ability to gather information and effectively communicate strategies to the client as part of the SoA. It will also cover the generic skill of writing, clear meaning, structure and organisation, appropriate tone and grammar, spelling, punctuation and in-text referencing etc., throughout the whole assignment.

Assessment Instructions
Assume that you are a team of graduate tax accountants working for a registered tax firm. Your firm provides its clients with advice regarding tax issues, including applying the relevant cases and/or legislation in preparing tax returns. You must prepare a Statement of Advice (SoA) for your client(s).

You must prepare a Statement of Advice (SoA) for your firm's client(s) to address several accounting issues raised. Your client's accounting issues will be made available.
You must include the following in your Statement of Advice (SoA):
Cover Page should include:
Name/logo of your accounting and consulting firm
The words "Statement of Advice"
Who the document is prepared by
Who the document is prepared for
Date
Brief information on what the document is about
Recommendations and explanations for each case item
You also must include in-text referencing. In-text referencing refers to ITAA section numbers or cases. You must identify and refer to specific section numbers of the relevant taxation law and cases in your advice.

Case Study Data Background

Shine Pty Limited (Shine) is an Australian resident company that was incorporated in 2015. After purchasing several investments including real estate and shares, in 2020 Shine commenced business as a computer equipment wholesaler with both Australian and overseas clients.

Julia Tan, the Managing Director of Shine, has terminated Sahid Tram, the company's accountant, as she is concerned that there are several errors in the returns prepared. Julia has provided the following information produced by Sahid:
Preparation of 2023 Income Tax Return Information & notes
Preparation of 2023 Franking account & notes
Preparation of 2023 June Business Activity Statement (BAS) & notes
Preparation of 2023 Fringe Benefits Tax Return & notes

Requirements

Julia has requested that you prepare a statement of advice including:

Any necessary corrections to preparations of Sahid's Income Tax Return that impacts taxable income, income tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. Please use a reconciliation format - this reconciliation should start with Sahid's taxable income and incorporates any necessary adjustments for deductions and income to arrive at the final taxable income figure. In addition, calculate net tax payable/refundable.

Prepare a franking account and advise the consequences of franking deficit tax.

Any necessary corrections to Sahid's preparations of Fringe Benefits Tax Calculations that impacts the taxable value of benefits and fringe benefits tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations.

Any necessary corrections to Sahid's preparations of Business Activity Statement that impacts GST on sales, GST on purchases and net GST payable. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations.

Preparation for Income Tax return provided by Sahid

Assessable income $
Sales of goods and services Note 1 2,680,000
Dividends Note 2 41,000
Franking credits 17,571
Gross rent & other leasing income Note 3 119,000
Net capital gain Note 4 59,000
Allowable deductions
Cost of Sales Note 5 958,000
Superannuation expenses Note 6 54,238
Rent expenses Note 7 52,290
Interest expenses Note 8 61,190
Repairs and maintenance Note 9 46,000
Depreciation expense Note 10 44,800
Motor vehicle expenses Note 11 26,700
All other expenses Note 12 1,498,000
Company loss (2021 to 2022) Note 13 130,000
Taxable income 45,353

Notes and workings accompanying the tax return
Note 1 SALES OF GOODS AND SERVICES
Sales of computer equipment in Australia $ 2,000,000
Sales of computer equipment to overseas $ 680,000 $2,680,000

Note 2 DIVIDENDS
Dividends from base rate entities (fully franked) $ 13,000
Dividends from listed companies (fully franked) $ 28,000 $41,000

Note 3 GROSS RENT AND OTHER LEASING INCOME

Rental income from subletting restaurant building $ 83,000
Rental income from residential properties * $ 36,000 $119,000
* For residential properties, a further $4,000 of rent from residential tenants was received in advance as at 30 June 2023

Note 4 NET CAPITAL GAIN
Sale of business car (WDV $37,000, Proceeds $49,000) $ 12,000
Sales of shares investments * $ 47,000 $59,000
* Regarding the sale of shares, the total capital gains were discounted by 50%, as Sahid indicated that the shares were held for more than one year, making them eligible for the capital gains tax (CGT) (Purchased on 1 August 2020 for $18,000 and sold on 30 August 2022 for
$112,000). Car above was held less than 12 months, hence no discount.

Note 5 COST OF SALES
Computer equipment parts costs $ 958,000
Note 6 SUPERANNUATION EXPENSES
Superannuation contributionspaid

$ 43,390
Superannuation contributions accrued $ 10,848 $54,238
Note 7 RENT EXPENSES
Management fees to residential property $ 13,390
Management fees to commercial buildings $ 27,900
Rates ($5,400) & Strata levy ($5,600) $ 11,000 $52,290
Note 8 INTEREST EXPENSES
Interest paid on loan (purchased buildings for rental)

$ 53,390
Borrowing costs for Rental above * $ 7,800 $61,190
* Interests and borrowing costs have been incurred since 1 July 2021 in relation to rental properties

Note 9 REPAIRS AND MAINTENANCE EXPENSES
Plumbing & other repairs for shops & offices $ 18,100
Removal of a wall to expand the kitchen area within the office* $ 27,900 $46,000
* The above was completed on 1 March 2023.
Note 10 DEPRECIATION EXPENSES
Office & shops equipment and fittings $ 44,800
* The above was calculated using straight line method, cost $498,000 less residual value
$50,000 with useful life of 10 years (all depreciable assets above purchased on 31 August 2020). Shine Ltd is using a prime cost method for tax purposes.

Note 11 MOTOR VEHICLE EXPENSES
Running costs - car benefit $ 24,800
Speeding fines paid $ 1,900 $26,700

Note 12 ALL OTHER EXPENSES
Salaries and wages paid

$ 493,072
Other deductible operating costs $ 902,528
Fringe Benefits Tax Paid for 2022 $ 5,600
Employee's leave accrued $ 72,900
Income tax expenses $ 23,900 $ 1,498,000

Note 13 COMAPNY LOSSES
Loss incurred for the year ending 30 June 2021

$ 90,000
Loss incurred for the year ending 30 June 2022 $ 40,000 $130,000
* Shine Pty Ltd, a resident Australian company, operated a business selling farmland in Western Australia until 1 September 2020, at which point it transitioned to selling computer equipment. Since the change in business activities, the company has incurred losses of $90,000 for the year ending 30 June 2021 and $40,000 for the year ending 30 June 2022. The company initially had five shareholders, each holding an equal share since its incorporation. However, three of five shareholders sold their shares to a new investor on 30 January 2022.

Notes and workings for the company tax payable

Sahid informed that the company net tax payable/refundable for 2023 should be as follows.

Taxable income 45,353
Tax on taxable income x 30% 13,606
Less PAYG withholding (refer to franking account) -40,000
Net Tax Refund -26,394

Preparation for Franking Account provided by Sahid

DATE DESCRIPTION DR CR BAL
1-Jul Opening balance 1,000

15-Aug Fully franked dividends totalling
$28,000 received - listed company 12,000 16,000
19-Oct PAYGI Payment for 2023 10,000 (3,000)
12-Jan Fully franked dividend of $56,000 paid 56,000 (53,000)
19-Jan PAYGI Payment for 2023 10,000 (43,000)
26-Apr Fully franked dividends totalling
$13,000 received - base rate entities 5,571 (37,429)
27-Apr 2022 income tax refund 18,900 (18,529)
1-May Unfranked dividend of $56,000 paid 56,000 (74,529)
29-May PAYGI Payment for 2023 10,000 (64,529)

30-Jun Payment of PAYG withholding for suppliers who did not provide ABN 10,000 (54,529)
Note 1

Note 1 FRANKING DEFICIT TAX
Sahid informed that the company needs to pay $54,529 by 30 June 2025.

Preparation for the business activity statement provided by Sahid

Sahid informed the following should be included in the annual GST return for 2023.

G1 TOTAL SALES
Sales of computer equipment in Australia 2,000,000
Sales of computer equipment Overseas 680,000
Rental income - commercial rent Rental income - residential rent 119,000
Net capital gains 59,000
2,858,000
G11 NON-CAPITAL PURCHASES
Purchases of computer parts 1,053,800
Rent expenses 52,290
Repair 46,000
Motor vehicle expenses 26,700
All other expenses 902,527
2,081,317

Sahid informed that the company's GST payable for the 2023 should be as follows.

1A GST payable to the ATO = $2,858,000 /11 $ 259,818
1B GST refundable from the ATO = $2,081,317 / 11 $ 189,210
Net GST payable $ 70,608

Preparation for the fringe benefits tax return provided by Sahid.
Sahid informed the following should be included in the fringe benefit tax return for 2023.

$
CAR FRINGE BENEFIT
Car value 55,000
Estimated business use (no logbook kept) 40%
TAXABLE VALUE 22,000
Note: A car was provided to the general manager for the entire FBT year. The car was available for private use and originally cost $55,000 including GST on 1 April 2022. The vehicle was parked at the general manager's residence, except for a period of 31 days when it was undergoing servicing.

EXPENSE PAYMENT BENEFITS

Overseas holiday trip costs for daughter of employee

6,000
Mobile phone accounts paid for an employee (on work use phone)
550
Tickets to concert provided to employee as a gift 250
TAXABLE VALUE 6,800

Sahid informed the FBT payable for 2023 is as follows.
Total taxable value $28,800 * 2.0802 = $59,909 * 47% = $28,157.23