(Note, in this course we will take the position that all companies are subjected to the 30% corporate tax rate, even though some "small and passive income" companies can be subject to a 27.5% tax rate). Problem One Part A Brooks Pty Ltd (Brooks) is a company owned by members of the Brooks family. The company owns and operates three sportswear stores (i.e. clothing used for playing sport) in the eastern suburbs of Sydney. Brooks purchases its clothing from a wholesaler in Parramatta. The share ownership structure of Brooks (all shareholders are natural persons) over the last three-years along with its tax position (e.g. tax loss of $80,000 for 2017-18, taxable income of $152,000 in 2019-20) is as follows: 2017-18 2019-20 ($80,000) A: 15% B: 20% C: 30% D: 35% 2018-19 (1/7/18 to 1/11/18:($18,000); 2/11/18 to 30/6/19: ($22,000)) A: 15%; A: 55% B: 20%: B: 35% C: 30%: C: 5% D: 35%; D: 5% $152,000 A: 55% B: 35% C: 5% D: 5% The change of ownership in November 2018 allowed A and B to have control of decision-making, it being considered that they were best placed to turn the company's fortunes around. The directors of Brooks have been A, B, C and D at all times in the above period (i.e. July 2017 to June 2020). On the assumption that Brooks cannot pass the Business Continuity Test, advise Brooks on whether it can access any of the past tax losses as a deduction for the 2019-20 income year. Fully explain your advice. Part B Assume the facts in Part A, but add these extra facts: In August 2019, after many months of deliberation, Brooks decides to open a new store in the western suburbs of Sydney to service the growing population in those outer suburbs. The new store sells the same type(s) of clothing that is sold at the established stores. The new store is about the same size as the established stores. The new store contributed $45,000 of the taxable income of $152,000 for 2019-20 income year. Other than the new store in the western suburbs, Brooks' activities have remained largely the same. Advise Brooks on the income tax implications from the above. Fully explain your advice by reference to income tax legislation and income tax principles. (Note, in this course we will take the position that all companies are subjected to the 30% corporate tax rate, even though some "small and passive income" companies can be subject to a 27.5% tax rate). Problem One Part A Brooks Pty Ltd (Brooks) is a company owned by members of the Brooks family. The company owns and operates three sportswear stores (i.e. clothing used for playing sport) in the eastern suburbs of Sydney. Brooks purchases its clothing from a wholesaler in Parramatta. The share ownership structure of Brooks (all shareholders are natural persons) over the last three-years along with its tax position (e.g. tax loss of $80,000 for 2017-18, taxable income of $152,000 in 2019-20) is as follows: 2017-18 2019-20 ($80,000) A: 15% B: 20% C: 30% D: 35% 2018-19 (1/7/18 to 1/11/18:($18,000); 2/11/18 to 30/6/19: ($22,000)) A: 15%; A: 55% B: 20%: B: 35% C: 30%: C: 5% D: 35%; D: 5% $152,000 A: 55% B: 35% C: 5% D: 5% The change of ownership in November 2018 allowed A and B to have control of decision-making, it being considered that they were best placed to turn the company's fortunes around. The directors of Brooks have been A, B, C and D at all times in the above period (i.e. July 2017 to June 2020). On the assumption that Brooks cannot pass the Business Continuity Test, advise Brooks on whether it can access any of the past tax losses as a deduction for the 2019-20 income year. Fully explain your advice. Part B Assume the facts in Part A, but add these extra facts: In August 2019, after many months of deliberation, Brooks decides to open a new store in the western suburbs of Sydney to service the growing population in those outer suburbs. The new store sells the same type(s) of clothing that is sold at the established stores. The new store is about the same size as the established stores. The new store contributed $45,000 of the taxable income of $152,000 for 2019-20 income year. Other than the new store in the western suburbs, Brooks' activities have remained largely the same. Advise Brooks on the income tax implications from the above. Fully explain your advice by reference to income tax legislation and income tax principles
