Taxation Law Assignement.

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Taxation Law Assignement.


CLWM4100 T3 2023 Assessment 3 Outline SoA Page 1 Kaplan Business School Assessment 3 Data 2023 T3 Assessment 3 Case Study Data Background Amity Holdings Pty Limited (Amity) is an Australian resident company that was incorporated during 2022. After purchasing several investments including real estate and shares, in 2023 Amity commenced business as a golf equipment wholesaler with both Australian and overseas clients. Katy Mahon, the Managing Director of Amity, has terminated Kurt Aild, the company’s accountant, as she is concerned that there are several errors in the returns prepared. Katy has provided the following information produced by Kurt: a) 2023 Income Tax Return b) Additional notes accompanying the income tax return including franking account c) June 2023 Business Activity Statement (BAS) d) Additional notes accompanying the BAS e) 2023 Fringe Benefits Tax Return f) Notes and workings accompanying the FBT return Requirements Katy has requested that you prepare a statement of advice including: i) Any necessary corrections to Amity’s Income Tax Return that impacts taxable income, income tax liability or the franking account. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. ii) Any necessary corrections to Amity’s Fringe Benefits Tax Return that impacts the taxable value of benefits and fringe benefits tax liability. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. iii) Any necessary corrections to Amity’s Business Activity Statement that impacts GST on sales, GST on purchases and net GST payable. Each correction should be supported by a brief explanation and correct referencing from legislation, along with any workings and calculations. Page 2 Kaplan Business School Assessment 3 Data 2023 T3 Amity Holdings Pty Ltd 2023 income tax return Page 3 Kaplan Business School Assessment 3 Data 2023 T3 Amity Holdings Pty Ltd 2023 income tax return (cont.) Page 4 Kaplan Business School Assessment 3 Data 2023 T3 Amity Holdings Pty Ltd 2023 income tax return (cont.) Page 5 Kaplan Business School Assessment 3 Data 2023 T3 Amity Holdings Pty Ltd 2023 income tax return (cont.) Page 6 Kaplan Business School Assessment 3 Data 2023 T3 Notes and workings accompanying the tax return ITEM 6 INCOME $ $ C - OTHER SALES OF GOODS AND SERVICES Sales of goods and services to Australian customers 525000 Exported sales of goods and services 65000 590000 H - TOTAL DIVIDENDS Fully franked dividends received from listed companies 21000 Unfranked dividend from listed companies 2000 23000 R - OTHER GROSS INCOME Rent from residential investment properties (includes $5,000 accrued for rent outstanding) 195000 195000 EXPENSES A - COST OF SALES Purchases 175000 add: Closing stock (at cost) 37000 212000 D - SUPERANNUATION EXPENSES Contributions to complying fund 21500 Superannuation Guarantee Charge 1500 23000 E - BAD DEBTS Provision for doubtful debts (none written off during year) 20000 20000 H - RENT EXPENSES Management Fees 16000 Strata Levies 44000 Insurance 14500 74500 Page 7 Kaplan Business School Assessment 3 Data 2023 T3 Notes and workings accompanying the tax return (cont.) Y - MOTOR VEHICLE EXPENSES Running costs 14500 Speeding Fines 500 15000 S - ALL OTHER EXPENSES Fringe benefits tax paid 22300 Wages 205000 Other employee benefits 16000 Commercial rent - fully serviced business premises 63000 306300 ITEM 7 A - NET CAPITAL GAIN Amity entered into a contract for the sale of a residential property that was acquired in 2022: Capital proceeds 820000 less: Purchase price 685000 135000 less: 50% discount 67500 67500 J - FRANKING CREDITS 30% x $21,000 6300 CALCULATION STATEMENT T1 – TAX ON TAXABLE INCOME 69,300 $231,000 x 30% (Kurt noted that Amity is not a Base Rate Entity as more than 20% of assessable income is Passive) D – NON-REFUNDABLE CARRY FORWARD TAX OFFSETS As per Item 7 J – Franking credits from listed companies 6,300 30% x 21,000 Page 8 Kaplan Business School Assessment 3 Data 2023 T3 Notes and workings accompanying the tax return NOTE 1 Amity prepared the following franking account for the year: DATE DESCRIPTION DR CR BAL 1-Jul Opening Balance 3000 30-Sep Fully franked dividends totalling $21,000 received 6300 9300 21-Nov PAYGI Paid 8500 17800 21-Jan Dividend of $70,000 paid - fully franked 21000 -3200 31-Jan PAYGI Paid 8500 5300 21-Apr PAYGI Paid 8500 13800 28-Jun Dividend of $24,500 paid - unfranked 0 13800 NOTE 2 Rental properties held by Amity had unexpired constructions costs totalling $600,000. All properties were constructed between 2000 and 2010. NOTE 3 Amity was provided with artwork valued at $11,000 by a client in return for products provided at no charge. This has not been included in any returns as it is non-cash. NOTE 4 In 2022, Amity incurred company set-up and initial costs of $15,000. NOTE 5 PAYGI instalments paid amounts to $33,000 (i.e. 4 instalments of $8,500 each) Page 9 Kaplan Business School Assessment 3 Data 2023 T3 Extracts from the June 2023 Business Activity Statement Page 10 Kaplan Business School Assessment 3 Data 2023 T3 Page 11 Kaplan Business School Assessment 3 Data 2023 T3 Notes and workings accompanying the business activity statement $ $ G1 - TOTAL SALES Sales of goods and services to Australian customers 192000 Exported sales of goods and services 23000 Rent from residential investment properties 44000 259000 G11 - NON CAPITAL PURCHASES Trading stock purchases 51000 Superannuation 5300 Management Fees - rental properties 4500 Strata Levies - rental properties 12500 Insurance - rental properties 1600 Car running costs 4600 Commercial rent paid 17800 Purchase of new office furniture 3700 101000 OTHER NOTES Amity was provided with artwork valued at $11,000 by a client in return for products provided at no charge. This has not been included in any returns as it is non-cash. Page 12 Kaplan Business School Assessment 3 Data 2023 T3 Extracts from the 2023 fringe benefits tax return Page 13 Kaplan Business School Assessment 3 Data 2023 T3 Notes and workings accompanying the fringe benefits tax return ITEM 23 $ CAR FRINGE BENEFIT Running costs 15000 Estimated business use (no logbook kept) 50% TAXABLE VALUE 7500 EXPENSE PAYMENT BENEFITS Hospital (medical) costs paid for employee 10000 Furniture purchased for employee 6000 16000 NOTE - CAR BENEFIT The car originally cost $60,000 including GST and was available for the entire FBT year. No contributions were received from the recipient.
Answered Same DayFeb 12, 2024

Answer To: Taxation Law Assignement.

Sandeep answered on Feb 13 2024
18 Votes
Statement of Advice
To: Katy Mahon, Managing Director of Amity Holdings Pty Limited
Subject: Corrections to Amity's Tax Returns and Business Activity Statement
Dear Katy,
Upon thorough examination of the documentation submitted, our analysis has uncovered several inconsistencies within the tax returns
and Business Activity Statement (BAS) of Amity Holdings Pty Limited for the fiscal year 2023. We have meticulously outlined the essential rectifications below, accompanied by comprehensive explanations grounded in pertinent legislation and meticulous calculations:
i) Income Tax Return Corrections:
Adjustment for Taxable Income:
Correction: After reviewing the company tax return, it was noted that other sales of Goods and Services should always be included in the total taxable income.
Explanation: According to Section 6-5 of the Income Tax Assessment Act 1997, all income received by a company during the income year is assessable unless specifically exempted. Therefore, other sales of Goods and Services should always be included in the total taxable income (Cooper & Vann, 1999). This is an area it was observed some errors factoring the sales of goods and services was not included in the Taxable Income. Hence urgent need for Amity to make this adjustment to ensure that its financial situation is not significantly impacted. In the case, the exported sales of goods and services, $65,000 should be added to the total sales that has been highlighted in the tax return statement. The total calculation should have been $65,000 + $590,000 = $655,0000.
Deduction for Non-Deductible Items:
Correction: Non-deductible items should be excluded from the taxable income calculation.
Explanation: Section 8-1 of the Income Tax Assessment Act 1997 outlines that only expenses incurred in gaining or producing assessable income are deductible for tax purposes.
Adjustments to Franking Account:
Correction: The calculation of the franked dividends received from the listed companies has to be adjusted to reflect accurate dividend transactions. The total dividends received has not effectively been calculated in the note and workings accompanying the tax return section.
Explanation: Franking refers to the system of imputation credits in Australia, wherein companies can attach imputation credits, also known as franking credits, to dividends they pay to shareholders. These credits represent the tax already paid by the company on its profits. Division 207 of the Income Tax Assessment Act 1997 requires franking account balances to be accurately maintained to avoid penalties.
In simple terms, Smith (1992) points out that when you receive fully franked dividends from listed companies, the franking credits are typically calculated based on a 30% tax rate, as specified in the Income Tax Assessment Act 1936.
The total dividends received from listed companies in the H-TOTAL DIVIDENDS section have been miscalculated, as the 30% rates specified by tax regulations were not taken into account. The accurate calculation should have been...
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