Bultaco Pty Ltd

30 LEE ROAD

LINCOLN, NSW 2840

8 Sept 2018

Greetings,

As you may know Bultaco expanded its business by buying the crankshaft manufacturer, Kuka Co., Ltd (Kuka) in Malaysia on 1 August 2013. Bultaco owns 100% of the shares in Kuka.

Kuka has A$1m of bank debt as at 30 June 2017 and will require additional funding of A$3m for its business expansion in next year.

There are two options for Kuka:

1. Kuka issues additional ordinary shares to Bultaco and Bultaco will borrow additional funds to acquire the shares in Kuka.
2. Kuka borrows $3m from the local market with annual interest rate of 8%.

Note: Bultaco is paying 6.5% per annum interest on its current loan and will pay the same interest rate for any additional borrowing.

We are seeking your advice on which funding option is best for Bultaco, ensuring the current Thin Capitalisation rules, as they apply to these options, are taken into account.

Yours faithfully,

Samuel Black

Public Officer

Using the Spreadsheets Bultaco Financials and Working_Papers; prepare formal written advice to the client, recommending the best option for the funding of Kuka's business expansion. Provide reasons for your recommendation, including appropriate references to tax legislation and/or case law.