Subject Code and Title: LAW 6001 Taxation Law
Assessment : Assessment 3: Case Study (Tax planning)
Individual/Group: Group
Length: 3,000 Words +/- 10% excluding References
Weighting: 20%
Learning Outcomes:
a) Identify and analyse the tax treatment of various types of income and deductions including Termination payments and Superannuation.
b) Effectively apply taxation law in determining tax outcomes in various scenarios such as a trust structure
c) Identify and calculation of capital gains tax (CGT), including CGT event A1 happening on disposal of an asset, the CGT discounts, the CGT consequences of death (estate planning) and the main residence exemption (and its application to investment properties), the availability of CGT concessions for small business, roll-overs, deemed disposals and gifts.
LAW 6001 Taxation Law Assignment-Torrens University Australia.
Context:
This assessment allows students to solve practical problems that arise from a fact scenario and to give appropriate advice to clients.
Instructions:
- This case study must be presented as a group effort. The case study requires collaboration of effective team work. It is expected students will take parts and survey the relevant literature,including decided cases, and select appropriate additional resources.
- Your case study is not just a list of answers. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation.
- With respect to each case study:
o Advise the tax implication for clients from the facts of the case study
o Identify the appropriate legal principles that requires discussion in the case study
o Apply the law to the facts of the case study
o After reaching a 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
The following cases are independent cases. Various taxpayers have visited your office to seek advice to optimise their tax obligation in relation to the following situation.
CASE 1 – Capital Gains tax:
Christine Murphy is an Australian resident for tax purposes. The following information relates to Christine’s investments.
Private Residence:
- Private residence purchased in March 1998 for $300,000.
- Christine currently lives in the house and its market value as at 30 June 2020 is $900,000.
Rental Property in Cairns
- Purchased on 7/8/89 for $150,000 (the property was built in 1971).
- Exchanged contracts for the sale of this property on 30 June 2020 for $850,000.
- Settlement of the sale was finalised on 12 October 2020.
- Legal expenses on purchase $4,000 paid August 1989.
- Stamp duty on purchase $2,500 paid August 1989.
- Additional room added to property paid for on 1 July 2015 for $20,000.
- Landscaping to the property paid for on 1 July 2005 for $2,000.
- Legal expenses on sale $5,000 paid June 2020.
- Real estate agents commission on sale $4,500 paid June 2020.
Shares:
• Dragon Ltd shares sold on 11 February 2020 for $20,000, purchased on 1 May 1985 for $8,000.
• Raider Ltd shares sold on 20 April 2020 for $11,000, purchased on 1 July 2006 for $10,000.
• Eel Ltd shares sold on 2 August 2019 for $120,000, purchased 1 May 2006 for $30,000.
• Tiger Ltd shares sold on 30 June 2020 for $40,000, purchased on 1 April 2020 for $16,000.
Other information:
- Christine has capital losses from shares carried forward from the previous year of $8,000.
- Rental income from her Cairns property from 1 July 2019 to date of sale $12,000.
- Total allowable deductions in respect of this rental income for the year ended 30 June 2020 was $15,800 (including capital write off 2.5% x $20,000 x 5 years = $2,500).
Advise the net capital gain for Christine for the year ended 30 June 2020 by using the CGT method that provides the best outcome for her. Also calculate the taxable income of Christine for the year ended 30 June 2020.
CASE 2 – Trust taxation:
Rosa and Sam Costello are the only two beneficiaries of a discretionary trust created by their grandfather during his lifetime. Rosa aged 23 years resides in Italy and is a non-resident for Australian tax purposes. Sam aged 16 years is a resident of Australia. During the 2019/20 tax year the trustee received a dividend of $6,300 from a company resident in Italy, on which withholding tax of 10% had been deducted at source, and a fully franked dividend of $8,800 from a resident Australian company that is not a small business entity. The trustee resolved to distribute the income equally among the two beneficiaries.
Advise the Australian income tax liability of both the trustee and the beneficiaries on the distributions for the 2019/20 tax year.
LAW 6001 Taxation Law Assignment-Torrens University Australia.
CASE 3:
(1) Employment termination payment
After eight years’ service, Sam Baker, who is 51 years old, is made redundant from his place of work in 2019/20 and receives the following payments:
• Gross salary from employer $140,000
from the 1 July 2019 to 30 June 2020
• Payment in lieu of notice $1,723
• Genuine redundancy payment $40,000
• Unused annual leave $5,234
• Unused long service leave $11,423
• Gratuity payment $25,000
Under Sam’s workplace agreement, payment in lieu of notice and the gratuity are payable on termination of employment. Sam has five years of completed service and his redundancy meets the conditions of a genuine redundancy.
Advise Sam how much tax is payable on the above termination payments by addressing the following. Assume no deductions to claim. You must clearly identify any ETP tax offset.
1) Calculate the tax-free limit on the genuine redundancy payment.
2) Calculate the taxable component of the genuine redundancy part of the payment and indicate the applicable tax rate
3) Calculate the remaining ETP cap amount.
4) Calculate the whole of income cap amount, determine the lesser of the caps, and indicate the amount.
LAW 6001 Taxation Law Assignment-Torrens University Australia.
(2) Superannuation:
Sam also currently has superannuation valued at $582,000 with the Sun corp (complying Super fund).
The total amount includes the following elements;
Tax free component $25,000
Element un taxed in the fund $7,000
Element taxed in the fund $550,000
Required:
Advise him what would be the tax consequences of withdrawing his super during 2019/20, including all options available to him.
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