Carter Pty Ltd (Carter) is a company owned by Julie and Cameron Carter (equal 50% shareholding), and it makes its profit by offering building supplies at a discounted rate to house and land developers. It has been doing this since its incorporation in 2012. In July 2016, Carter purchased five adjacent blocks of land in a new development for $300,000 each, with the intention of building a high-rise development.

 

Carter had never purchased land or engaged in the construction of buildings before this. In December 2016, the Victorian Civil and Administrative Tribunal (VCAT) declared the high-rise development proposed by Carter would be an "eyesore" that would "significantly impact on neighbor's quiet enjoyment of their homes" and refused to grant a planning permit.

 

Carter sought advice from their lawyer, Joe Dodgy, and based on his advice Carter contracted CC Design Pty Ltd to design and build five unique, but community-appropriate, homes for the five prime pieces of land, at a build value of $250,000 each. Legal fees in relation to all five properties amounted to a total of $300,000. Carter then sold the five properties for $2 million per property. Advertising fees amounted to $100,000 in total. Joe Dodgy told them that they would not have to pay any tax on the profits made from the sales since they were just merely realizing the five blocks of land to the best of their value!

 

Cameron is so happy with their building endeavors that he pays out $1 million to himself and Julie as dividends.

 

Required:

You work for the Australian Tax Office, and your supervisor asks you to prepare a memorandum with respect to the following issues:

 

c. Explain the tax implications of the dividends of $1 million (if any). (Calculations are required). (Approx. 420 words).

 

d. If the Federal government decides to repeal the franking credits scheme effective immediately. Explain the tax implications of the dividends of $1 million (if any). (Calculations are required)