Assessment Instructions

Statement of Advice 1 Prepare a tax return for an entity (Australian private company) (10 marks for technical and calculation accuracy and relevance and 10 marks for writing style; refer to marking rubric for more guidance.)

In your current role, you are responsible for providing taxation services to individual/business clients. You conducted an initial meeting with two (2) clients (Cynthia and Andreas Rafter, both Australian residents) to obtain and document all the relevant information which is required to prepare the relevant tax documentation.

Both Andreas and Cynthia are directors of Border Pty Ltd, an Australian resident private company with a corporate tax rate for imputation purposes of 30% for the 2020/21 income year. Page 2 Kaplan Business School Assessment Outline The clients have requested that you evaluate their tax position and provide recommendations relating to income tax liability and the optimum tax treatment.

Border Pty Ltd sells coffee machines using accrual basis accounting for tax purposes. Receipts and payment details as at 30 June 2021 are as follows (ignore GST and small business concessions).

Receipts Cash received for Sales (note 1) $278,000

Dividend received (note 2) $8,720

Payments Purchases of inventory (note 3) $97,000

Net wages paid to employees $57,890

PAYG withholding paid to the ATO $12,780

Superannuation paid (note 4) $4,987

PAYG instalment paid the ATO (note 5) $5,210

Fringe benefit tax paid to the ATO $11,210

Fully franked Dividend paid (note 6) $30,000

Purchase of motor vehicle (note 7) $52,000

Other deductible expenses $26,900

Notes

Note 1) All sales during 2021 income year were on credit. Account receivable balances were as follows.

Date 1 July 2020 30 June 2021 Accounts receivable $17,600 $19,800

Note 2) Dividend income received by Border Pty Ltd for the year included:

On 30/8/2020, a dividend of $3,600 received from Australian Bank Ltd (an Australian resident public company for tax purposes) franked to 60%.

On 28/2/2021, an unfranked dividend of $5,120 from Lowest Ltd (an Australian resident public company for tax purposes).

Note 3) All inventory purchases during 2021 tax year were on credit. Account payable and inventory balances were as follows.

Date 1 July 2020/ 30 June 2021

Accounts payable $5,280/ $5,830

Inventory (trading stock) on 1 July 2020 $7,100

Inventory (trading stock) on 30 June 2021

- at cost $8,400

- at market selling $8,600

- at replacement $8,500

Page 3 Kaplan Business School Assessment Outline

Note 4) As per the ledger balances on 30 June 2021, Superannuation payable for June quarter was amounted to $1,727. The payment is due by 28 July 2021.

Note 5) As per the ledger balances on 30 June 2021, PAYG instalment liabilities payment and payable information are as follows.

24/8/2020 PAYG instalment paid for June quarter 2020 $ 860

25/11/2020 PAYG instalment paid for September quarter 2020 $1,450

28/2/2021 PAYG instalment paid for December quarter 2020 $1,450

26/5/2021 PAYG instalment paid for March quarter 2021 $1,450 June quarter 2021 was amounted to $1,450.

The payment will be paid on 25 August 2021. Note 6) The fully franked dividend was paid on 25 February 2021.

Note 7) The motor vehicle was purchased on 1 March 2021 and used to deliver coffee machines. Andreas wishes to use the taxation effective life to depreciate the machine.

Required

1) Andreas wishes to minimise the income tax for 2020/21. Calculate Border Pty Ltds net tax liability in respect of the income that it derived in the tax year 2020-2021.

2) Advise assessability of receipts and deductibility of payments with explanations (Sales, Dividend income, Trading Stock, PAYG withholding, PAYG instalment, Superannuation guarantee, fringe benefit tax, Dividend paid and motor vehicle purchase). Include section numbers and/or cases in your explanations.

Statement of Advice 2 Advice on company franking account and distributions (10 marks for technical and calculation accuracy; refer to marking rubric for more guidance) Cynthia and Andreas seeking your advice regarding Border Pty Ltds franking account. (Please note: use all figures/information provided from Statement of Advice 1 above to construct the franking account for 2020/21. Opening balance is provided below).

Required

1) 1 July 2020, the balance in Border Pty Ltds franking account was $7,158. Construct Border Pty Ltds franking account for the 2020/21 financial year. You also need to calculate the franking account balance as at 30 June 2021.

2) Border Pty Ltd wishes to pay a final fully franked dividend of $40,000 on 30 June 2021. However, Andreas and Cynthia are concerned about the franking account to go into deficit. Calculate and advise the maximum frankable distribution amounts that Border Pty Ltd can pay as fully franked dividend. What are the tax consequences if Border Pty Ltd goes ahead and pays $40,000 fully franked dividend on 30 June 2021?

3) Assuming Border Pty Ltd paid $40,000 fully franked dividend on 30 June 2022 (only dividend paid for the year), comment on the tax treatment of the dividend to the following four (4) shareholders:

Cynthia & Andreas Rafter receive a dividend of $15,000 each. They are Australian residents at the highest marginal tax rate.

$5,000 to Justin Rafter, the son of Cynthia & Andreas, who has been studying in London for three years and is a foreign resident.

$5,000 to Leaf Pty Ltd, an Australian private company with a 30% company income tax rate.

Advise how each of the above four shareholders of Border Pty Ltd would be taxed on the distribution received in 2021/22.

Statement of Advice 3

Advice on net capital gains (10 marks for technical and calculation accuracy; refer to marking rubric for more guidance.)

Since 1997 Andreas and Cynthia have invested in various Australian shares. Cynthia acquired the shares in her own name whereas Andreas had his company Border Pty Ltd acquire his share portfolio. On 20 August 2021 both Cynthia and Andreas made a decision to dispose of their Australian shares and the proceeds and purchase prices information are as follows.

Cynthias share portfolio

Shares Purchase date/ Costs /Proceeds

Mega Mining Ltd 1 April 1997/ $8,000 /$12,400

Global Media Ltd 10 June 2000/ $15,000/ $90,000

Watson Tel Ltd 17 May 2013/ $34,000 /$33,500

Qantas Ltd 8 January 2021 /$17,900 /$21,000

Border Pty Ltd share portfolio

Shares Purchase date /Costs/ Proceeds

Xero Ltd 28 March 2018 $45,000/ $62,000

Qantas Ltd 26 June 2021 $21,600 / $28,800

Other information Cynthia has a capital loss of $600 carried forward from sale of painting during 2018.

Required

1) Advise both Cynthia and Andreas on the CGT consequences of their share sales.

2) Calculate net capital gains for both Cynthia and Border Pty Ltd the 2021/22 tax year. You must provide all methods available for her and choose the best method to minimise net capital gains.