Country of Taxation = New Zealand

Part A: Business Tax Liability Alvin and Lydia emigrated to New Zealand before the Covid-19 lock down. They have been living off their savings so far. One of their friends owns two separate companies and is having financial difficulties due to the loss of income during the lock down. Their friend has convinced Alvin and Lydia to buy one of his companies at a depressed price. The company (Superior Cleaners Ltd) has existing clients that Alvin and Lydia will take over when they purchase the company. After consulting with family and friends, Alvin and Lydia have purchased Superior Cleaners Ltd and will start operations on 1 July 2020. The financial statements of Superior Cleaners Ltd shows that the company made profits of $120,000 for the tax period ending 31 March 2020. Alvin and Lydia expect to make a profit of $90,000 for the tax period ending 31 March 2021. Alvin and Lydia are not familiar with the New Zealand tax system and have come to you for tax advice. (a) Explain to Alvin and Lydia how the tax liability of a business is calculated. Provide specific references to ITA 2007. (1 mark) (6) Explain to Alvin and Lydia what provisional taxpayer' means, what is provisional tax and how often provisional tax needs to be paid. Provide appropriate references to ITA 2007. (2 marks) (e) What are the options for calculating provisional tax? Which option should Alvin and Lydia choose? Explain. (2 marks) Part A: Business Tax Liability Alvin and Lydia emigrated to New Zealand before the Covid-19 lock down. They have been living off their savings so far. One of their friends owns two separate companies and is having financial difficulties due to the loss of income during the lock down. Their friend has convinced Alvin and Lydia to buy one of his companies at a depressed price. The company (Superior Cleaners Ltd) has existing clients that Alvin and Lydia will take over when they purchase the company. After consulting with family and friends, Alvin and Lydia have purchased Superior Cleaners Ltd and will start operations on 1 July 2020. The financial statements of Superior Cleaners Ltd shows that the company made profits of $120,000 for the tax period ending 31 March 2020. Alvin and Lydia expect to make a profit of $90,000 for the tax period ending 31 March 2021. Alvin and Lydia are not familiar with the New Zealand tax system and have come to you for tax advice. (a) Explain to Alvin and Lydia how the tax liability of a business is calculated. Provide specific references to ITA 2007. (1 mark) (6) Explain to Alvin and Lydia what provisional taxpayer' means, what is provisional tax and how often provisional tax needs to be paid. Provide appropriate references to ITA 2007. (2 marks) (e) What are the options for calculating provisional tax? Which option should Alvin and Lydia choose? Explain. (2 marks)