For purposes of this question, ignore Goods and Services Tax (GST). Therefore, you are not required to make any adjustments to account for GST, and you are not required to address GST in any way in your answers. Jake Jones is a partner in a leading management consultancy firm. One of the valuable lessons that he learns when he completes a personal growth and self-awareness course, is that he should take better care of his mental health and reduce his work hours. As a result, he resigns from his job with the management consultancy firm effective 30 June 2019. Jake wants to start up a new business in the 2019-2020 income year, operating an art gallery in the picturesque seaside town of Noosa. Jake comes to you for income tax advice about two separate matters in relation to this business that he wants to start: Matter number 1- Choosing an appropriate legal structure for the business Jake knows that his choice of the legal structure to operate the business will have an impact on the overall taxes payable in relation to the business. Specifically, Jake wants to compare the overall taxes payable if he operates the business as a sole trader, to the overall taxes payable if he operates the business through a private company in which he is the only director (drawing a cash salary) and sole shareholder (receiving fully franked dividends from the first year when he starts the business). The budget for the business for the 2019-2020 income year is as follows: $ 1,000,000 (750,000) (100,000) Sales revenue (ordinary income, s 6-5, income from business) Less: ongoing running expenses (tax deductible under s 8-1) Less: cash salary that Jake will draw Less: share of profits that Jake will take out of the business in cash to pay for his personal expenses Money reinvested in the business to fund working capital (50,000) 100.000 Jake will always have sufficient private patient hospital cover. Therefore, he will never be liable to pay the Medicare Levy Surcharge. In order to prepare the relevant calculations for Jake in relation to matter number 1, you have to complete the following steps: Step 1: (2 marks) Determine the taxable income of the business if he operates it as a sole trader; and then Determine the taxable income of the business if he operates it through a private company. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. As part of your calculations, you have to specifically address the income tax treatments of the cash salary and share of profits Jake plans on taking out of the business in cash. Step 2: (2 marks) Briefly explain what Jake's taxable income is if he operates the business as a sole trader. Calculate Jake's taxable income if he operates the business through a private company. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. . Step 3: (3 marks) Calculate all of the taxes payable if Jake operates the business as a sole trader; and then Calculate all of the taxes payable if Jake operate the business through a private company. By completing step 3, you will be able to compare the overall taxes payable if he operates the business as a sole trader, to the overall taxes payable if he operates the business through a private company. Show all your calculations and provide reasons for your answers. As part of your calculations, you should consider: any corporate taxes payable; basic taxes payable by Jake; Medicare Levy payable by Jake; tax offsets available to Jake. Matter number 2 - Painting by Ben Quilty Jake purchased a painting by the acclaimed Australian artist, Ben Quilty, in 2001. He only paid $1,400 for the painting, as Quilty's was not well-known at that time. This painting hung in Jake's private residence ever since. For purposes of this part of the question (matter number 2), assume that Jake chooses to operate the business as a sole trader. These are Jake's plans with the painting for the 2019-2020 income year: He plans on putting the painting into the trading stock for the gallery on 1 August 2019, and estimates that the market value of the painting on that day, will be $100,000. Jake is confident that he will be able to sell the painting in the art gallery within the first six months after opening the art gallery. He estimates that he will sell the painting for $120,000. For purposes of matter number 2, you are required to: Discuss the income tax implications of Jake's plans with this painting for the 20192020 income year and to provide him with income tax advice about his options, assuming he chooses to operate the business as a sole trader. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. Assume that Jake has no other capital gains or losses and no unapplied capital losses. (8 marks) For purposes of this question, ignore Goods and Services Tax (GST). Therefore, you are not required to make any adjustments to account for GST, and you are not required to address GST in any way in your answers. Jake Jones is a partner in a leading management consultancy firm. One of the valuable lessons that he learns when he completes a personal growth and self-awareness course, is that he should take better care of his mental health and reduce his work hours. As a result, he resigns from his job with the management consultancy firm effective 30 June 2019. Jake wants to start up a new business in the 2019-2020 income year, operating an art gallery in the picturesque seaside town of Noosa. Jake comes to you for income tax advice about two separate matters in relation to this business that he wants to start: Matter number 1- Choosing an appropriate legal structure for the business Jake knows that his choice of the legal structure to operate the business will have an impact on the overall taxes payable in relation to the business. Specifically, Jake wants to compare the overall taxes payable if he operates the business as a sole trader, to the overall taxes payable if he operates the business through a private company in which he is the only director (drawing a cash salary) and sole shareholder (receiving fully franked dividends from the first year when he starts the business). The budget for the business for the 2019-2020 income year is as follows: $ 1,000,000 (750,000) (100,000) Sales revenue (ordinary income, s 6-5, income from business) Less: ongoing running expenses (tax deductible under s 8-1) Less: cash salary that Jake will draw Less: share of profits that Jake will take out of the business in cash to pay for his personal expenses Money reinvested in the business to fund working capital (50,000) 100.000 Jake will always have sufficient private patient hospital cover. Therefore, he will never be liable to pay the Medicare Levy Surcharge. In order to prepare the relevant calculations for Jake in relation to matter number 1, you have to complete the following steps: Step 1: (2 marks) Determine the taxable income of the business if he operates it as a sole trader; and then Determine the taxable income of the business if he operates it through a private company. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. As part of your calculations, you have to specifically address the income tax treatments of the cash salary and share of profits Jake plans on taking out of the business in cash. Step 2: (2 marks) Briefly explain what Jake's taxable income is if he operates the business as a sole trader. Calculate Jake's taxable income if he operates the business through a private company. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. . Step 3: (3 marks) Calculate all of the taxes payable if Jake operates the business as a sole trader; and then Calculate all of the taxes payable if Jake operate the business through a private company. By completing step 3, you will be able to compare the overall taxes payable if he operates the business as a sole trader, to the overall taxes payable if he operates the business through a private company. Show all your calculations and provide reasons for your answers. As part of your calculations, you should consider: any corporate taxes payable; basic taxes payable by Jake; Medicare Levy payable by Jake; tax offsets available to Jake. Matter number 2 - Painting by Ben Quilty Jake purchased a painting by the acclaimed Australian artist, Ben Quilty, in 2001. He only paid $1,400 for the painting, as Quilty's was not well-known at that time. This painting hung in Jake's private residence ever since. For purposes of this part of the question (matter number 2), assume that Jake chooses to operate the business as a sole trader. These are Jake's plans with the painting for the 2019-2020 income year: He plans on putting the painting into the trading stock for the gallery on 1 August 2019, and estimates that the market value of the painting on that day, will be $100,000. Jake is confident that he will be able to sell the painting in the art gallery within the first six months after opening the art gallery. He estimates that he will sell the painting for $120,000. For purposes of matter number 2, you are required to: Discuss the income tax implications of Jake's plans with this painting for the 20192020 income year and to provide him with income tax advice about his options, assuming he chooses to operate the business as a sole trader. Show all your calculations and provide reasons for your answers, referencing relevant sections and divisions of the Income Tax Assessment Acts and relevant case law. Assume that Jake has no other capital gains or losses and no unapplied capital losses. (8 marks)