Reference no: EM133051546
CLWM4100 Taxation Law - Kaplan Business School
Workshop - Company Taxation
Pre - workshop questions
Question 1
Why do you think a company is a taxable entity?
Question 2
How is it possible a company can have a positive cash flow yet not have a taxable income?
Question 3
How is the tax paid by a company associated with the dividends received by shareholders?
Workshop Questions
Question 1
On 1 July 2017, Crunch Pty Ltd was owned by the following shareholders. Felicity - 46%; Gabbi - 29%, Howard - 18%; and Ingrid - 7%.
On 7 July 2018, both Felicity and Ingrid sold all of their shares in Crunch Pty Ltd to Jorge.
Does Crunch Pty Ltd satisfy the continuity of ownership test between the following tax years?
• 2017/18 and 2020/21?
• 2018/19 and 2020/21?
• 2019/20 and 2020/21?
Crunch Pty Ltd generated tax losses in 2017/18: -$8,000, 2018/19: -$4,000, 2019/20: -$1,000 and had taxable income of $23,000 in 2020/21, would it be able to claim a deduction for any of the tax losses (assuming it passes one of the Continuity of Business Tests)?
Question 2
Gold Nugget Pty Ltd is a private company that undertakes gold mining activities in North Queensland. The company was incorporated in 2009. The company had previously carried out exploration activities that revealed gold ore and traces of copper. The mining lease permitted the mining of gold and copper but as the copper prices and demand for copper was low the copper was extracted but wasted. The company has had the following results for the past three years:
|
Tax Year
|
Taxable Income (loss)
|
|
2018/19
|
($120 000)
|
|
2019/20
|
($ 29 000)
|
|
2020/21
|
$227 000
|
Note - the above figures comprise only assessable income and deductions (excluding losses of previous years).
On 1 August 2018, 60% of the company's shares changed ownership. On 27 June 2020, copper prices had increased so the company purchased new equipment to process the copper. However, the processing of copper was only a small part of the overall core business.
Can the company utilise any of its tax losses against its 2020/21 taxable income?
Question 3
Frankly Awful Pty Ltd, a corporate tax entity, has the following transactions for the 2020/21 tax year.
|
Date
|
Transactions
|
|
|
30/06/20
|
Credit Balance
|
$11 000
|
|
15/07/20
|
PAYG Instalment
|
$ 8 900
|
|
29/08/20
|
Received 60% Franked Dividend
|
$16 100
|
|
11/10/20
|
PAYG Instalment
|
$ 8 900
|
|
24/12/20
|
Refund of 2013/14 company tax
|
$19 950
|
|
14/02/21
|
Paid 75% Franked Dividend
|
$11 200
|
|
19/02/21
|
Received Dividend from Chile ($1 000 tax withheld)
|
$ 9 000
|
|
03/05/21
|
Paid Unfranked Dividend
|
$ 6 650
|
|
12/05/21
|
Received Unfranked Dividend
|
$ 8 000
|
|
28/06/21
|
Paid Fully Franked Dividend
|
$17 850
|
Note - the benchmark franking percentage is 75%. The commissioner has not been notified of any variation.
Prepare the franking account for the 2020/21 tax year. Calculate any additional taxes payable.
Question 4
Crime Converters Pty Ltd has prepared an income statement for 2020/21.
|
Gross Profit
|
|
$1 624 000
|
|
Add: Other Income
|
|
|
|
Unfranked Dividends
|
$ 2 300
|
|
|
Fully Franked Dividends
|
$ 7 700
|
|
|
Net Dividends from Spain - Note 1
|
$ 32 000
|
|
|
Gain on Sale of Shares - Note 2
|
$ 2 000
|
$ 44 000
|
|
Total Operating Expenses
|
|
|
|
Expenses
|
|
|
|
Depreciation - Note 3
|
$ 34 000
|
|
|
Fringe Benefits Tax
|
$ 48 000
|
|
|
ayroll Tax
|
$ 46 900
|
|
|
Superannuation - Note 4
|
$ 75 000
|
|
|
PAYG Instalments Paid - Note 5
|
$ 92 000
|
|
|
Other Deductible Expenditure
|
$965 000
|
$1 260 900
|
|
Net Profit
|
|
$ 407 100
|
Note 1 The dividends from Spain have had $8 000 of tax withheld
Note 2 Shares sold during the year were acquired in 1984 as an investment
Note 3 Decline in value deduction is calculated as $28 000
Note 4 Superannuation includes an amount of $30 000 paid to a director's wife. This entire amount is deemed to be excessive.
Note 5 All of the PAYG tax instalments relate to the current year.
Prepare a tax statement reconciling net profit with taxable income for the 2020/21 tax year. Calculate net tax payable by the company for the 2020/21 tax year.
After workshop questions
Question 1
Other than paying dividends or salaries can you think of any other ways we could get money out of a private company? Can we utilise this approach to get tax free money from our private company?
Question 2
Why do you think the FCT has so many penalties associated with the incorrect management of franking accounts?
Question 3
Do you think trusts should be taxed like companies? What would this approach mean for the tax system?
Attachment:- Company Taxation.rar