Question 3 (23 marks)

Part (a)

Woodwork Pty Ltd (Woodwork) is an Australian resident private company that carries on a business of manufacturing and selling wooden furniture. It was incorporated in August 2005 and its shareholders and directors are all residents of Australia for tax purposes.

For the income tax year ended 30 June 2021, interim calculations revealed the taxable income of the company to be $250,000, but this amount has not considered the additional information below.

Additional information for the year ended 30 June 2021 (not included above):

1. On 30 September 2020, Woodwork received a $14,000 dividend from another resident company that was 50% franked.

2. On 25 November 2020, Woodwork sold a machine for $500 that had an adjustable value at that date of $700. The machine was solely used to produce assessable income in the business.

3. Woodworks PAYG Instalments for the 2021 income tax year totalled $50,000.

Required

Based on the provided information provided directly above for part (a), calculate Woodworks taxable income and tax payable for the year ending 30 June 2021. Write reasonably argued positions in your own words using the cite, describe, apply method where appropriate to support your tax treatment of all the tax issues raised therein. Small business concessions must be ignored.

(18 marks)

Part (b)

Small Parts Pty Ltd (Small Parts) is an Australian resident private company. Its franking account on 28 February 2021 was in credit with a balance of $10,000 and the next PAYG Instalment of $7,500 will be paid on 28 April 2021. The Board Directors of Small Parts wish to pay a dividend to shareholders on 31 March 2021. Being a small company, it only pays fully franked dividends.

Required

Based on the information provided directly above for Part (b), recommend a fully franked dividend for approval by the Board of Directors of Small Parts and complete the franking account from 28 February for the remainder of the year ended 30 June 2021. Cite relevant income tax law for the franking account entries.

(5 marks)