McDuck Enterprises Pty Ltd, a company owned by the McDuck family, amongst other investments, owns and operates a chain of profitable business clothing stores. McDuck Enterprises Pty Ltd also has a small number of investments. McDuck Enterprises Pty Ltd is an Australian resident company for tax purposes. The company's Senior Accountant, Mr Duckworth is in the process of preparing income tax returns for the income year 2021/22, for the company and staff. He approaches a prominent firm GlassWaterhouseCoopers (GWC) which employs a highly skilled team of tax lawyers and tax accountants. GWC is renowned for providing integrated tax solutions for their clients. GWC organises a meeting between Mr Duckworth and one of GWC's tax partners. The CEO of McDuck Enterprises Pty Ltd, Mr Ebenezer Scrooge, also attends the meeting. Shortly afterwards the parties sign an Engagement Letter which provides for McDuck Enterprises Pty Ltd to engage the services of GWC. McDuck Enterprises Pty Ltd seeks advice on the matters set out below: PART A During the 2021/22 income year, McDuck Enterprises Pty Ltd incurred a number of losses/outgoings including: - \$1.5 million for the purchase of trading stock - $2 million wages paid to employees - $20,000 advertising expense (consistent with previous years) - $200,000 rent paid to occupy retail premises in shopping centres - $25,000 in bad debts written off (after a major customer Bob Beagle died leaving no assets from which to recover the debt. Bob had previously purchased, on credit, a bulk order of business shirts from McDuck Enterprises Pty Ltd.) McDuck Enterprises Pty Ltd employs Mr Duckworth as the Senior Accountant for the business. For the 2021/22 year of income, Mr Duckworth paid $700 membership fees for his membership of the Association of Chartered Accountants, Australia \& New Zealand. He also paid $500 for an annual subscription to the Australian Accounting Review (AAR) magazine in 2021/22. Mr Duckworth is required, by his employer, to wear "all black" clothing while working as he often meets with clients. During the 2021/22 year of income, he spent $700 on "all black" designer suits to wear to client meetings. In October 2021 he took a client out for a lobster lunch at a restaurant in the Four Seasons hotel to discuss a work matter. The lunch costs $350 and he paid with the company's credit card. He is so busy working that he often has to bring work home on weekends. He completes this work using a laptop at a small table in the kitchen while his housemates are cooking and washing dishes. During the 2021/22 year of income, the heating and lighting costs for the kitchen are $500. McDuck Enterprises Pty Ltd also employs Mr Ebenezer Scrooge's 19 year old nephews Huey, Dewey and Louie as Assistant Bookkeepers working part-time (10 hrs per week) in the Accounts Department. Mr Ebenezer Scrooge is a majority shareholder in the company. Each of his nephews is paid a generous amount of $1000 per week (the market wage for these services is only $500 per week). McDuck Enterprises Pty Ltd also provides each of them with a laptop valued at $3000 to use for their work, however they mainly use these for playing video games. Prepare GWC's Memorandum of Advice. Advise McDuck Enterprises Pty Ltd, Mr Ebenezer Scrooge and Mr Duckworth regarding the following in relation to the 2021/22 income year: A) the income tax implications and any potential FBT implications, arising from the facts in PART A. (25 marks)
