WEALTH PROTECTION - TAX PLANNING

Vision Unlimited is a partnership between two eye specialists, Dr Smart Kwek Poh Soon and Dr Brilliant Heng Lye Huat, sharing profits in the ratio of 6:5. The partners are considering setting up a consultancy company to handle their accounting and administrative functions. The partners' wives and family members will either be employed or be appointed as directors. Dr Smart and Dr Brilliant proposed that the consultancy company make the following payments:

I. Salary of $120,000 to Dr Smart's wife for acting as General Manager. Mrs Smart is a full-time housewife.

II. Director's fee of $120,000 to Dr Brilliant's mother, who is residing in Australia.

III. Salary of $8,000 to Sparkle, son of Dr Brilliant, who recently graduated from Republic Polytechnic with a Diploma in Communication.

Dr Smart is also an employee of a Medical Group and his company provided the following benefits in 2018:

I. His employer provided a company car for him. Running expenses of $25,000 were paid by the company. Total mileage travelled was 15,000, 40% being for business use. The cost of the car is $210,000 with a residual value of $32,000.

II. An all-expenses paid holiday to Bali for Dr Smart and his family. The total amount paid was $8,500.

III. A partly furnished apartment from 1 March 2018 to 31 December 2018. The annual value of the apartment is $25,000. Dr Smart and his family stayed in a self-rented bungalow before 1 March 2018.

An employee stock option was granted to Dr Smart by his employer on 1st January 2016. This entitled Dr Smart to purchase up to 100,000 shares within five years at an option price of $1. Dr Smart exercised the option on 30 July 2018 to purchase 50,000 shares when the market price was $1.50. Dr Smart sold the shares on 31 October 2018 at a price of $2.80, realising a profit of $90,000.

Dr Smart exercised the remaining portion of the share option on 1 August 2018 and the last closing price was $1.80. Dr Smart has yet to sell this lot of 50,000 shares.

Dr Smart wrote a book for which he received a royalty income in 2018. The following breakdown is as follows:

Royalty Income

S$78,520

Related Expenses Incurred

Printing and Stationary

S$15,500

Advertisement and Publicity

S$8,600

Legal Fees

S$2,480

1b(i)

Illustrate the critical aspects of Wealth Guarding through Tax and Insurance Planning by commenting on the tax implications for

I. Salary to Dr Smart's wife

II. Director fee to Dr Brilliant's mother

III. Salary to Sparkle

1b(ii)

Illustrate the critical aspects of Wealth Guarding through Tax and Insurance Planning by calculating the following tax liabilities for Dr Smart:

I. Company car

II. An all-expenses paid holiday to Bali

III. A partly furnished apartment

1c(i)

Illustrate the critical aspects of Wealth Guarding through Tax and Insurance Planning by calculating the amount of Share Option benefit assessable on Dr Smart.

1c(ii)

Illustrate the critical aspects of Wealth Guarding through Tax and Insurance Planning by calculating Dr Smart's tax liabilities for his royalty income.