CASE STUDY
Table of Contents
Statement of advice 1
Client name: Jack and Dusting of J&D Partners
Date of advice: 21/8/2022
Summary of document
This document includes advice from taxable income for dusting and Jack form their partnership as per ITAA of 1936 section 90. It provides details of assessable income.
Recommendation
As per the income tax assessment act 1936, section 90 net income of the partnership is calculated as the assessable income of the partnership, considering the partnership as the tax-paying individual (Income Tax assessment act 1936 (Cwlth)s.90). In relation to this section 90 interpretation, the exempt income gets calculated if the partnership counts as a taxpayer and Australian resident. On the other hand, the net income is calculated if the partnership was created as a taxpayer and currently allowed for all the deductions under sections 290-150 or division 36 of the income tax assessment act 1997(Income Tax Assessment Act 1997 (cwlth). Thus, based on the act of 1936, the partnership between Jack and Austin needed to be considered as tax-paying individuals.
From the finding, it has been identified that both the equal partner, Jack, and Dustin, have contributed an equal capital amount of $50000, and currently, they are receiving a 15% interest rate per annum on their invested capital for the business. While Dustin is currently receiving a total salary of $35000; therefore, the monthly salary is $2917, and he also received $4000 as a superannuation fund made by jack. After analysing the financial information for the year 2021/22, the total sales made by the company was $500000 with interest on capital of $15000, and the total cost of sales made $200000. The company also provides superannuation to Jack with a value of $4000, and the final capital gain is $120000. The company also has a car that was leased for business purposes and is currently used only by Dustin. The tax will be exempted in this scenario as 90% of the car usage is for business purposes and 10% for private purposes.
The total net income made by the partnership, which is currently taxable, is superannuation of the fund of $4000 with the additional operating expenses of $30000 and a capital gain of $60000. While on the other hand, the salary will not be counted as an income, but the cost of sales exempted from the total sales currently valued at $300000. $394000 is the total net income for the partnership of each partner, and it is also the taxable income for 2022. On the other hand, for calculating the income of an individual partner, it is very much important to identify the contribution of working capital which is $50000 each in this case. On the other hand, both received an interest rate of 15% per annum, and currently, it is 15000 for both Jack and Dustin. On the other hand, Dustin only received a 35000-salarybecause he leads the role of managing the business, and 4000 per annum gets speed directly to the business for the superannuation fund for Jack. While on a similar note, all the residual profits and losses get shared by both equal. So, in this case, their income of Jack is as follows.
15000 + 4000 + 100000 + 60000 = $179000
On the other hand, the total income of Dustin from this business is.
15000 + 35000 + 900 + 100000 + 60000 = 210900
Advice
In Australia, the tax liability on partnership is mainly focused on while any rent is paid by both the partner and all the interest obtained from the business capital held inside a joint account, and finally, all the dividend gets received as jointly held shares. On a similar note, under division 830 of the Income tax assessment act 1997, it also has been identified all the partnerships must use LLC and LLP to come under the Australian income tax purposes, and the same division also specified the income tax provision for applying under the definition of partnership in ITAA 97 (Partnership tax return instructions, 2010). In the case of Jack and Dustin, the total taxable income for both will be paid taxable income of 37% of their total income as both of them are corporate partners; however, after exemption, the total taxable income will be 21% after getting corporate rebates on taxation in Australia.
The total taxable income of Jack is $179000 * 19% = $34010
The total taxable income of Dustin is $210900 * 19% = $40071
Statement of Advice
Client name: Joanne Tran
Date of advice: 21/9/2022
Summary of document
This document include advice regarding taxation implication to Joanne regarding tax payable by beneficiaries after she has distributed the trust net income to each beneficiary at 50%.
Recommendation
After analysing the case study, it has been identified that Joanne Tran is currently residing in Australia and running a resident trust estate created through a trust deed. This trust was mainly created to provide benefits to her sons named, James and Lisa belonging to the age group of 18 years and 16 years. As per the Trust Tax Return Instruction 2021 appendix 10, they are clearly mentioned that if the beneficiary is entitled to obtain a share of trust income and belongs from the age of 18 years or under, then they will be liable to pay the tax as it will be counted as income of an individual. On the other hand, if the beneficiary belongs to the age group of under 18 years, then the beneficiary will get excluded from TFN and currently withholding all the rules that are closely held by the trust Trust Tax Return Instructions 2021(Trust tax return instructions, 2021). This beneficiary under age 18 does not have to withhold any such amount for making payment to the beneficiary and is not provided to be a TFN. The income tax act also suggests that if the beneficiary is still under the age of 18 years old on 30 June of the financial year will be counted as a minor beneficiary, and in this case, a special taxation provision will be applied to the income unless the beneficiary considered in this case is an excepted person or counting on excepted income (Glover, J., 2021, pp.55). When the beneficiary is a resident of Australia, then the trustee pays all the taxes based on their income at the nominal individual rate, and in such cases, if the beneficiary becomes a non-resident, then the trustee needs to pay all the taxes on their income at non-resident rates. As per the income tax rate, if the beneficiary is resident in Australia, the income counting to $416 does not need to pay any taxes (Heath, S., 2021, p.35). While on the other hand, if the beneficiary is generating income for more than 417 but less than 13007, then he is liable to pay 66 cents for every single dollar the beneficiary earns over the 416. Finally, if the beneficiary is generating income for more than 1308, then he or she needs to pay a tax of 45 cents in the dollar of the entire amount. The non-resident tax brackets are not considered in this case, as the beneficiary belongs to Australia and are Australian residents.
Advice
After analysing this case study, the total net rental income has been calculated at $57000 with the Frank dividend received of $4300. While on the other hand, James is currently receiving a job seeker payment of $8890 during the tax year of 2021-22. On a similar note, Lisa is a full-time high school student, and she also earns $4000 by working at a local restaurant during the school holidays. Right now, Joanne is ready to distribute the net trust income to each of the beneficiaries at a rate of 50%; therefore, the distribution will be between the two, and both of them will get $28500 while the Franked dividend also will be diluted between two at a rate of $2150. Currently, Lisa is aged 16 years, while James is aged 18 years, and in this case, Lisa does not need to pay any tax on her income generated from the net income after getting her distribution from the net trust income. While on the other hand, James needs to pay a good amount of tax on it as currently he is 18 years, and the rate of tax will be 19% under the text bracket of $18201 to $45000. Therefore, James needs to pay a tax of 5415. How about some tax relieving provisions that are present and this provision is currently related to the minor beneficiary’s obligation to pay the additional tax? In this case, James can also apply as a farm management deposit, and if he does this, then the beneficiary will get treated as a legal disability and access on their individual return.
Statement of Advice 3
Client name: Jerry Haufmann
Date of advice: 24/9/2022
Summary of document
This document includes franking percentage account of Haufmann Pty Ltd and net tax payable for the company.
1.
Recommendation
Franking percentage account of Haufmann Pty Ltd
| Date | Transaction details | Debit ($) | Credit ($) |
| 1/7/2021 | Opening balance (Being started the business with the opening balance of $2400 in the first of the financial year) | 2400 | |
| 30/08/2021 | Tax refund 2021 (tax return) (Being returned the tax after calculating the payments on per quarter PAYG) | 4500 | |
| 20/10/2021 | PAYG instalment (Being the instalment paid for the quarter of June in 2021) | 1900 | |
| 11/11/2021 | PAYG instalment (Being the instalment paid for September in 2021) | 1300 | |
| 28/12/2021 | Dividend (Being the dividend paid to franked) | 10000 | |
| 02/02/2022 | Dividend (Being the dividend received from the Australian company year ended 2021) | 6000 | |
| 27/02/2022 | Instalment paid for PAYG (Being the instalment paid for December 2021 with PAYG) | 1300 | |
| 25/05/2022 | PAYG instalment 2022 (Being the instalment for a march of the quarter 2022) | 1300 | |
| 28/06/2022 | Dividend paid (Being the dividend received for the franked with the total 60% of the whole amount) | 10000 | |
| Total amount | $29700 |
From the above calculation, it can be identified that the total consequences arise from the franking account balance as of 30 June 2022. From the start, the opening balance was credited with PAYG instalments for June and September as well as December 2021. On the other hand, the tax refund in 2021 also deducted from the total amount, and finally, the dividend was received and is credited to the franking account. The instalment paid on PAYG for December 2021 and March 2022 in the year 2022 with a total valuation of 2600. After that, a total dividend was paid on behalf of 60% of the whole amount by Franked in the same year. The final calculation shows the total amount of franking account balance is $29700 for the year ended 2022. The debit and credit format is mainly attached to the liability for deficit tax, and the credit is mainly equal to the PAYG instalments attached to the FDT liability. In this account, no surplus or deficit has been noticed that can exceed the sum of franking credits.
2.
Advice
After analysing the total accounting information of Kaufmann pty. ltd, it has been identified the total benchmark franking percentage of the company is 100%, with a total taxable income of 27000 during the financial year 2021/22. As per the Australian income tax Act 1997, it can be identified if the company makes 27000 per year, then the tax rate will be applicable on an average rate of 7.5% (Income Tax Assessment Act 1997 (cwlth). While on the other hand, for business or company purposes, the marginal tax rate will be 27.5%. The net payment will be 24982 after getting exempted from taxes of 2018. It directly indicates that the company needs to pay the taxes of 2082 per month, and if the average tax rate is 15.8% with the marginal tax rate of 24.3% in Australia, then the company is liable to get 2800 tax payable or refundable on the books of the company. The marginal tax rate directly refers to the immediate additional income, and if the income gets increased by $100, then the tax will be increased by 27.46. It is very much applicable to properly generate bonuses on the extra 725 income, and after calculating the final payment and instalment of the company in the quarter of June 2022, the total instalment is 1300 with the paid timeline of August 2022. In the previous section, the tax refund gained by the company during the year 2021 was 4500, and in the current year of 2022, the company needs to pay a total tax of 5700, and among the total amount of tax, the company will get a benefit of 200500 under the income tax act Australia.
Reference list
Glover, J., 2021, January. Trusts at the intersection of tax and criminal laws: unpaid tax,” unexplained wealth orders” and the Proceeds of Crime Act 2002. In Australian Tax Forum Vol. 36, Issue No. 1, pp.45-89
Heath, S., 2021. Tax Files: The future of tax in Australia. Bulletin (Law Society of South Australia), Vol. 43, Issue no.1, pp.36-37.
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