Assessment Assessment 3 Case Study – Tax Strategies
Individual/Group Individual
Length 2,000 words (+/–10%)
Learning Outcomes
The Subject Learning Outcomes demonstrated by the successful completion of the task below include:
c) Critically review types of taxation in Australia including income tax, goods and services tax, capital gains tax and fringe benefit/benefits tax and compute tax liability.
d) Investigate the tax treatment of individuals, partnerships, trusts, companies and superannuation funds and recommend taxation strategies to a range of stakeholders.
e) Critically evaluate the roles of key stakeholders in the administration of the tax system and clarify the difference between tax planning, tax avoidance and tax evasion.
Weighting 30%
Total Marks 100 marks
Assessment Task
Based on the two scenarios outlined in this assessment task, you will draft business letters for two different clients. In the business letters, you will outline tax strategies and provide advice relating to Goods and Services Tax (GST), Fringe Benefits Tax (FBT), Small Business Entity (SBE) concessions, business structures and tax planning. This assessment task is designed to develop your skills in developing a comprehensible piece of advice addressing clients’ needs and communicating to clients across a range of scenarios.
Context
For the purpose of this assessment, you are working as a tax agent. You are asked by your manager, Cynthia Smith, to draft advice in business letters regarding two clients’ tax issues. One client, Fabia Stanley, is seeking advice on how to claim GST on business lunches and how to reduce her overall income tax liabilities through a different business structure. Another client, Jackson Grove, is seeking advice about fringe benefits, FBT and SBE concessions
As a practising tax agent, you are required to undertake research to support the development of tax strategies based on clients’ needs and communicate tax advice based on those strategies to clients. Clients may seek a combination of specific information and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. You will need to identify all the issues presented by an arrangement and consider the potential consequences of different approaches to addressing the clients’ needs.
In each of your business letters, you will provide the appropriate tax advice to each client. This will involve researching and developing tax strategies in relation to:
(a) the requirements for claiming GST;
(b) determining a business structure to reduce overall tax liabilities as per the legislation;
(c) determining fringe benefits and calculating the FBT liabilities;
(d) evaluating the clients’ current business situation to minimise their tax liabilities; and
(e) communicating tax strategies to a range of stakeholders.
Instructions
Based on Case A and Case B (see below) you will draft a business letter specific to each case in which you will provide advice to optimise income taxes based on each client’s requirements. Topics your advice will relate to include GST, FBT, SBE concessions and various tax planning vehicles by structural or transactional planning, including tax evasion. You will need to explain the outcome of tax liabilities for each case and provide recommendations of the most tax-effective ways to minimise the overall tax liabilities.
In each of your draft business letters, ensure that you:
1. Apply the relevant legislation and/or case law to each of the case questions.
• Include correct section numbers and/or case names and/or ATO determination legislation and/or case law.
• Align references to section numbers and/or case names and/or ATO determination legislation and/or case law to the needs of the client.
2. Provide practical advice in response to each of the case questions with recommendations to your clients based on relevant cases and legislation.
• Include all calculations undertaken to reach final amounts based on each case scenario.
• Explain the eligibility of the GST input tax credit on meals and car expenses and the optimal business structure to minimise overall tax liabilities. (Case Scenario A).
• Explain the fringe benefits and FBT calculations and eligibility for small business entity, including the benefits or concessions. (Case Scenario B).
• Outline appropriate advice and recommendations to each client based on calculations undertaken for each case.
3. Use appropriate language and an appropriate structure to communicate to the clients via the business letters. You must identify each case by addressing the clients’ name/s. As you are producing draft letters, you do not need to use letterhead from a tax agentfirm.
4. On a separate page, provide a reference list covering all relevant legislation and/or case law and any other sources of evidence you referred to in your business letters using APA 7th style referencing.
Case A – Fabia Stanley
Fabia Stanley, aged 41 years, visited your practice to discuss GST-related issues and a possible change in her business structure.
She is currently working as a sole trader and often has to treat various customers to lunches to keep the sales contracts. The lunches are all business related. In addition, Fabia uses her private car to drive to the lunch venues. Fabia wishes to claim GST credits on the business lunches and car expenses.
Fabia earns $170,000 (net of deductions) from her sole trading business. She wishes to change her business structure from sole trader to another structure commencing on the 1 July 2023.
She has provided you with the following financial and other family details. Fabia Stanley has the following family members living with her:
• Jose Stanley: Fabia’s spouse who is 42 years old. Jose is a school teacher, earning$80,000.
• Juan Stanley: Jose’s father who is 68 years old. He retired from his job as a sales manager at Suncorp bank last year and had no income since. Does not receive any income.
• Daniella Stanley: Fabia’s 18-year-old daughter. She is a full-time university student, who currently has no income.
• Natacha Stanley: Fabia’s 16-year-old daughter. She is a high school student.
Fabia is considering one of the following options:
• A partnership with Jose, Juan, Daniella and Natacha Stanley in an equal profit-sharing ratio of 20% each. Two children will not be involved in the partnership business at all, but Fabia thinks this is a great tax planning strategy, as the profit will be divided by five partners.
• An Australian registered private company;
• A discretionary family trust
Case A Questions
With reference to the relevant legal principles, advise Fabia Stanley on the following issues in your draft business letter of advice:
1) Can she claim GST on business lunches?
2) Can a GST credit be claimed on her car expenses? Provide strategies for Fabia to claim GST credits regarding recording requirements.
3) Would having a partnership with all family members be considered tax planning or tax avoidance? Advise her with examples to distinguish between tax planning and tax avoidance.
4) Which of the above-mentioned business structures would best minimise her overall income tax? Comment on the tax implications of each business option considered.
Case B – Jackson Grove
Jackson Grove, aged 39 years, started a bottled drink retail business two years ago as an Australian private company, CleanBottle Pty Ltd. Jackson is a managing director of CleanBottle Pty Ltd. Jackson emailed you regarding the following issues related to his company.
CleanBottle Pty Ltd provided some ‘benefits’ to various stakeholders. As this is the first time Jackson has done this, he needs some guidance to determine fringe benefits and calculate the FBT. The following information was extracted from Jackson’s email; all the information relates to the FBT year ending 31 March 2022. CleanBottle Pty Ltd is registered for GST.
(a) A briefcase ($440 including GST) for a potential employee as an enticement to join the organisation.
(b) A holiday package costing $36,500 (including GST) to a customer as part of a competition.
(c) On 1 April 2021, CleanBottle Pty Ltd purchased a new company car at a cost of $51,000 including GST. The car was registered and insured on that date and was to be used exclusively by Jackson. The total distance travelled by the car in 12 months was 32,000 km, 9,000 km of which was for business purposes. The car was garaged at Jackson’s
residence at all times.
(d) Total running costs (GST inclusive) related to the car’s use were $7,200 and Jackson contributed $2,100 towards the cost of the petrol and oil for the car. Jackson wishes to opt for the Small Business Entity (SBE) option, but he is unsure whether this is a good choice for him and what benefits will become available when choosing the SBE.
CleanBottle Pty Ltd’s account details are as follows. CleanBottle Pty Ltd is registered for GST.
(e) The business turnover for the financial year ending 30 June 2022 was $2,780,000, including GST.
(f) The company purchased a delivery truck for $495,000 (including GST) on 31 May 2021, which was ready to use on 1 August 2021. The truck was not operational until 1 August 2021.
(g) The opening stock value was $189,000 on 1 July 2021 and the closing stock valuewas $192,000 on 30 June 2022.
(h) The company paid an annual insurance premium of $8,000 starting from 1 April 2022. CleanBottle Pty Ltd uses an accrual method to account for his income and expenses.
Case B Questions
With reference to the relevant legal principles, advise Jackson Grove on the following issues in your draft business letter of advice:
1.) Which of the items listed at (a) – (d) above do not fall within the meaning of ‘fringe benefit’?
2.) For any items (a) – (d) that constitute a fringe benefit, calculate the taxable value and the minimum FBT payable.
3.) Is Jackson’s business eligible to be the SBE?
4.) What concessions are available for CleanBottle Pty Ltd based on the account details listed above at (e)–(h)?
5.) What ‘tax’ concessions are available regarding income tax and capital gains tax for the SBE?
Submission Instructions
You must submit both draft business letters addressing Case Scenario A and Case Scenario B and a combined reference list on a separate page in one PDF file.
Submit your PDF file via the Assessment link in the main navigation menu in LAW601 Tax Law and Practice. The learning facilitator will provide feedback via the Grade Centre in the LMS Portal.
Feedback can be viewed in My Grades.
