File Type: Microsoft Word (.doc or .docx ) files only to be submitted. Do not submit pdf files.
Part 1 – worth 90% - detailed response to four (4) client-based GST & FBT issues
Part 2 – worth 10% - summary note/memo to you manager
You have recently accepted a position at a Gold Coast based mid-tier tax advisory firm. Two of the clients in your portfolio are Craftsman Lawn Care Pty Ltd and Betty’s Cafe. Both of whom are seeking your advice on various GST and FBT related issues.
Below are four (4) issues your clients have sought your advice. Your job is to investigate the issues and document the appropriate advice, supported by the relevant statutes and case law. You are also required to prepare a briefing note for your manager. This one-page document should provide a succinct summary of the key talking points your manager should discuss with the client.
Issue 1 – Craftsman Lawn Care Pty Ltd Craftsman Lawn Care is a GST registered company incorporated in Australia. They specialise in the importation of Husqvarna zero-turn mowers. The mowers are made in Japan. Each mower costs Craftsman $6,000 to purchase and a further $750 to ship from China. These mowers sell to Australian customers for $9,449 (including GST). Craftsman also sells the mowers to customers in New Zealand and Thailand. In these cases, the sale price is $10,450 and Craftsman never takes delivery of the mowers, they are shipped directly from the Japanese manufacturer to the overseas customer. During the 2021 financial year there was a problem with one of the mowers sold to an Australian customer. Eventually, Craftsman had to provide a full refund six months after the initial sale. Craftsman also incurred a $880 (including GST) penalty for failing to comply with Australian regulatory requirements.
Advise Craftsman of the GST consequences arising from the above scenario
Issue 2 – Betty’s Café at Bonogin
Betty owns a café at Bonogin. She is registered for GST and employs a permanent part-time chef. She rents the premises and is also required to pay outgoings, including council rates, water and sewer, as well as the weekly rent.
During the year Betty’s business purchased an Audi A4 for her chef, Antonio, to drive. The car cost $65,500 including window tinting and dealer deliver fees (see details below). All suppliers are registered for GST and all amounts include GST where applicable. In future years, Betty plans on closing the café for August to October. As a result, she expects her sales for the 2022 year, and beyond, to be approximately $70,000. Advise Betty of the GST consequences arising from the above scenario. Include the total amount of GST payable/refundable at the end of 2021 year.
Issue 3 – Craftsman and their staff
Paul is an employee or Craftsman Lawn Care Pty Ltd. On 17 January 2021, Paul purchased a mower from Craftsman for $1,000. The mower would usually be sold for $3,000 and cost Craftsman $500 to purchase. In addition, Craftsman gave Paul a seat cover as a “free gift” for the purchase of the mower. The seat cover would usually be sold for $150 and cost Craftsman $50 to purchase. Craftsman also hosted a Christmas party in December 2020 for all Australian based employees and their partners at a local Thai restaurant. In total, there were 20 attendees (10 employees and 10 partners) and the party cost $3,300 (including GST). The only other food and drink Craftsman provided employees during the year was the monthly morning teas the company hosts to update the staff on business performance. These morning teas are held in the office. Advise Craftsman of the FBT consequences arising from the above scenario. Include the total amount of FBT payable (you may assume that any benefits are Type 1 benefits). Craftsman elected for Division 9A of FBTAA to apply (however, a complete answer will address the situation if they did not).
Issue 4 – Betty’s cars
Betty’s Café has two cars. One for Betty and the other used by the chef, Antonio. Antonio’s car is an Audi A4. It was purchased by Betty on 1 October 2020. Antonio kept a logbook for the entire holding period to 31 March 2021 which showed the car travelled 17,400 kms of which 8,080 kms were related to income producing activities. The value of $65,500 including window tinting costing $630 and a dealer delivery fee of $2,400. Other costs incurred in relation to the vehicle during the 2021 FBT year were loan repayments of $1,700 each month (paid on the 1st day of each month including October), insurance $1,190, servicing $550, registration $850 and fuel $1,485. The car was also extensively sign written with the Betty’s logo and contact details at a cost of $859. Antonio cleaned the car twice at a commercial car wash for a total cost of $65. He paid for this himself as well as $350 worth of aditional petrol. Betty’s car is a 2019 Audi A4. It was purchased and delivered on 1 August 2020 for $69,000, including a dealer delivery fee of $2,480. Betty has not kept a logbook but estimates her work-related travel is around 70%. During the 2021 FBT year the vehicle travelled 27,000 kms. Betty’s business paid the following expenses in relation to the car: fuel $3,260, insurance $1,202, registration $850 and work-related road tolls of $462. Servicing and repair costs paid by Betty personally were $1,672, including $650 for the excess on an insurance claim after the car was involved in an accident. The total cost to the insurance company to repair the damage was $3,595. The vehicle was purchased outright by Betty’s café business. You can ignore any stamp duty on both cars. Advise Betty of the FBT consequences arising from the above scenario. Include the total amount of FBT payable for the year.
1. For each of the issues above, provide a detailed file note/working papers1 outlining your rationale for the advice you provided. Provide the appropriate authority to support your conclusions.
2. A one-page memo to brief your manager on all issues (that is, summarise all issues on one page – referred to as a SOAP2 ). Your manager requests the memo for when the client contacts them looking for a progress update on their tax advice.
*1 Working papers are an important element of being a professional tax advisor or accountant. Often you will only look at a client’s file once a year, when they come to see you regarding their annual accounts. Working papers not only support your calculations but also act as a reminder of the decisions you made 12 months ago. Past working papers are also the first place to look when given a new client file. If the previous responsible staff member no longer works at the organisation (and therefore not accessible to answer queries) it can be difficult to work out what and why certain calculations were performed if the working papers are poorly created or incomplete. Therefore, your working papers need to be clearly set out to serve as reminder to you and easily followed to others who may need to use the file. For most instances of working papers there is no set format (balance sheet reconciliations are an exception) but the information needs to be clear, succinct and detailed enough for others to understand your processes. However, too much erroneous detail is also not desirable.
2 SOAP = summary on a page