Part A - Written or Oral Questions
1. The monthly actual sales extracted from financial information of a company are: $1,000 for August, $1,095 for September, and $1,210 for October. The rents will be reviewed by the owner of the premises every July, and not subject to the change until the next review. Assume that all the income shown below has been received, and all the expenses have been paid in cash during the month. The company tax rate is 30%. Use Percentage to sales method to forecast the income and expenditures for November as below.
(Showing all your working and explanation) (10 marks)
Administrative expenses $100
Rental expenses $300
Operating expenses $500
Net profit before tax $310
Less: income tax expenses ($93)
Net profit after tax $217
2. You are a registered tax agent, and have prepared a tax return for your client. Can you lodge the tax return directly to ATO after the completion? (3 marks)
3. You are the owner of ABC Pty Ltd, and provide a company car with a market value of $42,000 from 1 April 2014 for the full 365 days to an employee for personal transportation. The employee made an after-tax contribution of $1,500. The car is not an in-house benefit. Besides the income tax, is there any tax obligation for the company? How much will the company be required to pay for the tax liability in the above transaction? How will this transaction affect the employee's Payment Summary? (Show all your working and
explanation) (12 marks)
4. Why is it important to review the tax plan on a regular basis? (5 marks)
Part A total: 30 marks
Part B - Written Assessment
Case Study - Tax Plan
Sean is a resident who has always lived in Australia.
He is currently working full time for a large global company and earning $95,000, which is expected to increase annually by 4%. His employer pays the superannuation guarantee to his nominated complying super fund. Sean incurred $8,000 expenses related to his work, and such expenses are expected to increase annually with inflation.
He may be transferred by his employer to the Branch in China for one year, and will return to Australia to resume work here after the expiry of the contract.
He purchased a property two years ago and immediately used it as his main residence until now. During his absence, Sean is planning to rent out his property. He did some research and found the average rental income from the properties in the suburb he currently lives is $345 per week. He also provide the following actual expenses related to the purchase and ownership of the property:
- Property purchase price: $400,000
- Strata levy: $1,970 per quarter
- Council rate: $394 per quarter
- Water rate: $217 per quarter
- The cost of obtaining finance: $2,000
- Annual interest on loan: $15,764
He will seek the real estate agent to manage the property during his absence. The additional expenses may be incurred:
- Advertising fees: $985
- Property management fees: $148 per month
Sean notes that the carpet in his property is badly worn, he is considering to rectify the damage by replacing the carpet with carpet of a similar quality. Based on the current price research, it may cost Sean about $7,882.
Sean bought 10,000 shares from a listed company with a cost of $0.50 per share. The current market price of the shares held by Sean is $2 per share. The trend of the share price remains stable in these weeks. He thinks it is the time to sell all these shares at the current price.
Sean is also planning to operate a business for exports of goods and services from Australia. The expected turnover is $60,000, and the net profit is estimated to be $30,000.
Sean does not have the appropriate private health fund with hospital cover.
Develop a tax plan for Sean to respond to the following issues:
1. Sean's employer offers him a salary sacrificed super contribution arrangement. How much pre-tax salary should Sean sacrifice to contribute to his super fund? Is this a tax-effective strategy?
2. During his absence, will Sean still be considered as Australian resident for tax purposes? Why or why not?
3. Advise which above expenses can be deductible for Sean if he is about to rent out the property during his absence, and how will it affect his tax liability?
4. Advise if Sean is required to pay CGT in the future when the property is sold because he is about to use it to produce assessable income during his absence.
5. Advise how to minimise the taxable capital gain arising from the disposal of the shares.
6. Advise what kind of the tax entity (i.e. sole trader, partnership or company) Sean can use for his proposed business, and provide the tax planning for the GST.
Part B total: 60 marks
Assessment 2 total: 90 marks