ASSESSMENT 3 COVERSHEET
Subject Code and Title LAW 6001 Taxation Law
Assessment Case Study: Tax Planning
Individual/Group Group
Length 3,000 Words +/- 10% (excluding References and calculations)
Learning Outcomes b) Recognise and effectively apply ethical and professional responsibilities placed on tax agents and financial advisers providing taxation advice under the Tax Agent Services Act (TASA) and associated regulations.
d) Critically assess differences between the tax treatment of individuals, partnerships, companies and trusts and evaluate the effectiveness of each structure in meeting various client needs.
e) Analyse, evaluate and recommend taxation strategies to develop comprehensive solutions in order to maximise client financial outcomes.
f) Research, interpret and effectively communicate complex taxation concepts and recommended taxation strategies to clients in an industry compliant format.
Submission
By 11:55pm AEST/AEDT Sunday of Week 10 (Module 5.2)
Weighting 25%
Total Marks 100 Marks
Context:
This assessment allows students to solve practical problems that arise from various scenarios and to provide appropriate advice to clients.
Instructions:
• This case study must be presented as a group effort. The case study requires collaboration and effective team work. It is expected students research the relevant literature, including decided cases and select appropriate additional resources.
• The case study is not just a list of answers. The reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.
• With respect to each case study:
• Advise the best investment option for clients based on the facts of the case study
LAW6001 Assessment 3: Group Case Study
• Identify the appropriate legal principles that require discussion in the case study • Apply the law to the facts of the case study
• After reaching the relevant conclusion, provide practical advice to your client(s).
• You will be assessed in accordance with the Assessment Rubric.
• The format of the report should be a business report and using APA referencing style
LAW6001 Assessment 3: Group Case Study
PART A: CASE 1 – Married young couple
Matt and Miranda Murphy are an Australian married couple, living in Gold Coast, Queensland with their 3 children and Matt’s father.
Matt and Miranda plan to purchase some assets and wonder which way is the best in order to optimise their tax obligations on various investments.
They have visited your office to seek advice to optimise their tax obligation in relation to the following investment situation.
1) Regarding Share Investment (17 Marks)
Matt and Miranda jointly purchased shares in Citybank Ltd on the 20th of June 2016 at a cost of $110,000. The shares have a market value on the 1st of June 2019 of $120,000. The shares have returned fully franked dividends of $28,000 each year over the past 3 years.
When Matt and Miranda purchased the shares, they were both employed full-time. Miranda now works part-time and is occupied with caring for the child and father in law.
Matt is an engineer who earns $150,000 per annum (net of all allowable deductions) from his sole trading work and Miranda is a part time teacher, earning $10,000 per annum (net of all allowable deductions) from her teaching job.
They are considering selling the shares and re-acquiring them in Miranda’s name only.
Required
Assuming the share price is stable in June at a market value of $120,000 and with an increase to $121,000 in July, which of the following options would you recommend for them to minimise their tax obligations? Justify your answers.
a) Not to sell shares at all
b) Sell the shares on the 30th of June 2019 and re-acquire them on the 30th of June 2019
c) Sell the shares on the 1st of July 2019 and re-acquire them on the 1st of July 2019.
Determine which one of the above options would minimise total net tax payable for both options above for the tax year ended the 30th of June 2019 and 2020 (after medicare levy/surcharge and eligible tax offsets). Calculate how much tax would be saved.
Note: They are not covered by private health insurance.
2) Regarding Rental property (15 Marks)
Matt wishes to purchase an apartment from which he can collect rent before making profit on the sale of the property in three years’ time. He intends to buy the property in July 2019 and sell it in July 2022. He has determined that he can afford to purchase a three-bedroom apartment costing $480,000 and has identified two suitable alternatives as follows;
Address of the property 1 Single St, Brisbane 32 Pam Ave, Brisbane
Purchase price (including stamp duty & legal costs) $480,000 $480,000
Construction date built in 1971 built in 2001
Construction cost $37,000 $220,000
Depreciable assets (fillings) $8,000 $30,000
Remaining effective life (use Prime cost) 4 years 10 years
Annual maintenance fees $3,500 $3,500
Annual council & water rates $2,000 $2,000
Annual interest on $400,000 mortgage $29,000 $29,000
Annual rental income $32,000 $32,000
Expected selling price in July 2021 $700,000 $700,000
In each case, the values of the fillings and construction costs have been verified by certified valuer.
Required
For each property, advise Matt on following:
a) Provide an estimate of annual net rental income or loss
b) Provide an estimate of the net capital gain on sale in July 2022
c) Which property will minimise Matt’s total taxable income from the investment?
3) Regarding Business structure (18 Marks)
Matt Murphy is considering a change of his business structure from the sole trader to another structure commencing on the 1st of July 2019 (starting from a new financial year). He has provided you with the following financial and other family details.
Matt is earning $150,000 (net of deductions) per annum from his engineering business.
Miranda earns $10,000 (net of deductions) from her teaching job. They have the following family members living with them.
• Robert Murphy: Matt’s father who is 70 years old. He has retired from his job as chief executive officer of Suncorp Ltd on the 15th of July 2019 (gross income was $2,000) and has not been earning any income since retirement. Miranda takes care of him as his health has deteriorated recently.
• Jean Murphy: 19-year-old son. He is a full time university student, currently no income. • Xavier Murphy: 15-year-old son, full time high school student • Megan Murphy: 2-year-old daughter.
Matt is considering the following options.
• Continue as a Sole Trader
• Partnership with Miranda in equal profit sharing ratio
• Australian registered private company
• Discretionary Family Trust
Required
Please advise which business structure would you recommend in order to minimise tax on the client’s income.
Comment on the tax implications of each business option considered.
4) Regarding Trust and Asset distribution (8 Marks)
Matt seeks advice on the following matter.
Robert (Matt’s father) had provided significant financial support during their marriage. The support was provided significantly through Trusts that had been set up by Robert himself for Matt, Linda and their children. The Trusts were discretionary and were completely controlled by Robert. Miranda made no financial contribution to the trust assets such as the house which had been utilised by Matt and Miranda during their marriage. There were no significant assets other than the house which had been provided by Robert, and the assets owned by the Trusts set up by Robert who has complete control and discretion.
Required
In case of a marriage breakdown in this scenario what would be the taxation of this estate?
Should the trust assets form a part of the assets available for distribution between the parties? Explain your reasoning.
PART B: CASE 2 – Taxpayers at retirement age
Trex Muller, aged 58, recently retired from his employment as chief accountant of Moon Light Pty Ltd, after 17 years and 4 months of service. Trex’s wife Belinda, aged 59, is currently running a small newsagency. Trex and Belinda have visited you seeking an advice on various retirement planning options specified below. Trex and Belinda both are covered by private health insurance.
1) Regarding Trex’s Termination payment (8 Marks)
Trex received the following payments from his employer
Gross salary from employer from the 1st of July 2018 to 30th of May 2019 $47,000
Employee Share scheme (taxable, taxed-upfront schemes not eligible for reduction) $6,500
Genuine redundancy payment received on the 30th of May 2019 $53,000
Unused annual leave $26,000
Unused long service leave $2,800
Advise Trex how much tax is payable on the above termination payments. Assume no deductions to claim. You must clearly identify any ETP tax offset.
2) Regarding Trex’s Termination payment & Superannuation (16 Marks)
Trex currently has superannuation valued at $582,000 with the Suncorp (complying Super fund).
The total amount includes the following elements;
Tax free component $25,000
Element untaxed in the fund $207,000
Element taxed in the fund $350,000
Required
Advise him what would be the tax consequences of withdrawing his super prior to his retirement age, including all options available to him.
3) Regarding Belinda’s Business (18 Marks)
Belinda has started the newsagency business 3 months ago. She would like to get an advice on the tax benefits available for her new business.
The expected business turnover for the financial year ending 30th of June 2019 is $500,000 including GST.
She has purchased the following assets for the business.
Photocopy machine for $5,500 including GST on the 15th of Feb 2019 and was ready to use on the 1st of March 2019.
Motor vehicle purchased on the 1st May 2019 for $68,800 including GST, to be used solely for business purposes.
She wishes to opt for the Small Business Entity (SBE) option but Trex is unsure whether this is the good choice for them and what benefits will become available when choosing the SBE. Advise Belinda and Trex the following. • Eligibility for SBE;
• Concessions for trading stock;
• Asset pools; and
• Capital gains tax concession.
End of Assessment 3
Learning Rubric: Assessment 3 Case Study (Group Case Study)
Assessment Criteria Fail
(Unacceptable) 0-49% Pass
(Functional)
50-64% Credit
(Proficient) 65-74% Distinction
(Advanced)
75 -84% High Distinction
(Exceptional)
85-100%
Knowledge and understanding (technical and
theoretical knowledge)
30% Limited understanding of required concepts and
knowledge
Key components of the assignment are not addressed.
Knowledge or understanding of the field or discipline.
Resembles a recall or summary of key ideas.
Often confuses assertion of personal opinion with information substantiated by evidence from the research/course materials.
Thorough knowledge or understanding of the field or discipline/s. Supports personal opinion and information substantiated by evidence from the research/course materials.
Demonstrates a capacity to explain and apply relevant concepts.
Highly developed understanding of the field or discipline/s.
Discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Well demonstrated capacity to explain and apply relevant concepts.
A sophisticated understanding of the field or discipline/s.
Systematically and critically discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Mastery of concepts and application to new situations/further learning.
Formation of recommendations based on the identification of the issues and the application of case law principles and relevant legislation identified in the research process.
30% Difficulty in formulating own opinion and a lack of recognition of the various issues. A lack of application of the relevant case law and/or relevant
legislation
No optimal investment advice has been provided to clients.
Difficulty in justifying own opinion. Some recognition and discussion of the various issues. Some application of the relevant case law and/or relevant
legislation
Own opinion is partly justified with reference to case law and/or relevant legislation. Recognition and discussion of the various issues identified in the question Application of the relevant case law and/or relevant legislation to these issues Own opinion is justified with reference to case law and/or relevant legislation.
Recognition and discussion of the various issues identified in the question plus others identified by the student Application of the relevant case law and/or relevant legislation to these issues Sophisticated arguments supporting own opinion is justified with reference to case law and/or relevant legislation. Recognition and discussion of the various issues identified in the question plus others identified by the student and problems identified Application of the relevant case law and/or relevant
legislation to these issues
Evaluation of information selected to
support the case study
30%
Limited understanding of key concepts required to support the case study.
Confuses logic and emotion. Information taken from reliable sources but without a coherent analysis or synthesis.
Viewpoints of experts are taken as fact with little questioning. Resembles a recall or summary of key ideas.
Often conflates/confuses assertion of personal opinion with information substantiated by evidence from the research/course materials.
Analysis and evaluation do not reflect expert judgement, intellectual independence, rigor and adaptability.
Supports personal opinion and information substantiated by evidence from the research/course materials.
Demonstrates a capacity to explain and apply relevant concepts.
Identify logical flaws.
Questions viewpoints of experts. Discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Well demonstrated capacity to explain and apply relevant concepts.
Viewpoint of experts are subject to questioning.
Analysis and evaluation reflect growing judgement, intellectual independence, rigor and adaptability. Systematically and critically discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading.
Information is taken from sources with a high level of interpretation/evaluation to develop a comprehensive critical analysis or synthesis.
Identifies gaps in knowledge.
Exhibits intellectual independence, rigor, good judgement and adaptability.
Effective
Communication
5%
Difficult to understand for audience, no logical/clear structure, poor flow of ideas, argument lacks supporting evidence.
Line of reasoning cannot be followed in regards to investment decisions for the clients. Information, arguments and evidence are presented in a way that is not always clear and logical.
Line of reasoning is often difficult to follow in regards to investment decisions for clients. Information, arguments and evidence are well presented, mostly clear flow of ideas and arguments.
Line of reasoning is easy to follow in regards to investment decisions for clients. Information, arguments and evidence are very well presented; the presentation is
logical, clear and well supported by evidence.
Great line of reasoning and analysis has been performed in regards to investment decisions for clients. Expertly presented; the presentation is logical, persuasive, and well supported by evidence, demonstrating a clear flow of ideas and arguments.
Excellent line of reasoning and detailed analysis has been performed in regards to investment decisions for clients
Correct citation of key
resources and evidence
Demonstrates inconsistent use of good quality, credible and Demonstrates use of credible and relevant resources to support and Demonstrates use of good quality, credible and relevant resources Demonstrates use of good quality, credible and relevant resources to support and Demonstrates use of highquality, credible and relevant resources to support and
5% relevant resources to support and develop ideas.
Demonstrates no section numbers or incorrect section numbers per
ITAA1936 and ITAA1997. develop ideas, but these are not always explicit or well developed.
Demonstrates some section numbers per ITAA1936 and
ITAA1997 with some errors. to support and develop ideas.
Demonstrates some section numbers per ITAA1936 and ITAA1997 with a couple of errors. develop arguments and statements. Shows evidence of wide scope for sourcing evidence.
Demonstrates sufficient correct section numbers per ITAA1936 and ITAA1997. develop arguments and position statements. Shows evidence of wide scope for sourcing evidence.
Demonstrates all correct section numbers per
ITAA1936 and ITAA1997.