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LAW6001 Taxation Law Case Study Sample

Task Summary

In response to the issues raised in the case study provided, research and develop a 3000-word tax advice that addresses (a) assessable income (b) allowable deductions (c) tax calculations and (d) your conclusions and recommendations that arise from a fact scenario and to give appropriate advice to clients. Please refer to the Task Instructions for details on how to complete this task.

Context

This assessment allows students to solve practical problems that arise from various scenarios and to give appropriate advice to clients. This assessment assesses your research skills, your ability to synthesise an original piece of work to specific content requirements and your ability to produce a comprehensible piece of advice which addressing the client’s needs.

It also assesses your written communication skills. The ability to deliver to a brief is an essential skill in the workplace. Clients may well approach advisors seeking a combination of specific information needs and advice on the tax implications of a particular arrangement in the Australian tax jurisdiction. It is therefore important to be able to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches to addressing the client’s needs.

Task 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:

• Advise the best investment option for clients from the facts of the case study

• Identify the appropriate legal principles that requires discussion in the case study

• Apply the law to the facts of the case study

• After reaching a relevant conclusion, provide practical advice to your client(s).

• Your case study needs to identify and discuss the tax implications of the various issues raised.

• A report (word document, approx. 3,000 words) must be submitted for the calculations of the assessable income; allowable deductions and taxable income of the taxpayer including identifying and discussing them. E.g., how the amounts of income & deductions have been derived. If any receipts and payments are not assessable or deductible, the reasoning for non-inclusion of these in assessable income or deductions as per relevant legislation or cases. After all analysis, you must provide the best solution to save income tax payable.

• 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.

Solution

Case 1

Working Notes

Notes 1 Total sale

In case any item of business trading stock is used for private purpose then in accordance with assertions provided by Australian taxation office; it is considered to be sold and its value is accounted in business assessable income. For Assignment Help, In present case as coffee machine has been taken to home for personal use it would be recognized as part of business income (Using trading stock for private purposes, 2020).

Note 2: Total purchases

In accordance with Para 9 of AASB 102, inventories are required to be measured at lower of cost or net realisable value. In present case the cost of inventory in 2000 and net realisable value of same is 1800; thus it would be recognized at 1800 i.e. lower of net realisable value or cost (AASB 102 Inventories, 2020).

Note: 4 PAYG withholding

As per ATO provisions, employers does have responsibility to assist payee in accomplishing their tax liability and same is done through withholding payments from the amount paid to employees; thus it is part of salary or wage and deductible expense as well (Creighton, 2017).

Note 5: PAYG for personal tax commitments

When income or business receipts a certain amount as per taxable provisions; one is required to make payment of income tax instalment which could be quarterly or monthly. PAYG instalment assist in avoiding large bill; thus it is not a business expense hence no deduction would be available regarding same (Wollner, Barkoczy & Murphy, 2020).

Note 6: Other deductible expense

Other deductible expenses include decline in value of assets. It is assumed company complies with policy of accounting assets at market value, thus decline in values is being written off year. Hence same is deductible expenditure (Mather, 2018).

Note 7: Depreciation

Depreciation of coffee machine on straight line basis for each year

62000/10 =6200

For year 2020/21; it would be charged for 11 months i.e. 6200/12*11 =$5683

Depreciation of BMW motor vehicle on straight line basis for each year

89000/8 i.e. 11125

As vehicle is purchase on 1st May 2021, depreciation would be charged for 2 months and 40% only as it is used for business to specified extent only.

11125/12*2*40%
= 742

Total depreciation = 5683+742 =6425

Other notes and assumption

• It has been provided that cash receipts have been received as contribution by Michael to expand the business; thus it is a capital receipt and not considered as part of business income.

• Further cash drawings of $3000; are personal drawing thus same would be reduced from capital and not considered while calculating business profits.

• Payment of penalty for breach of Australian Customer regulation of $900 is not allowable as business expenditure; thus same would not be considered while evaluating business income.

• It has been assumed that company complies with straight line method of depreciation on its assets; thus same has been applied for calculating depreciation for motor vehicle and machine.

STATEMENT PRESENTING CALCULATION OF OTHER INCOME

Notes: In accordance with Australian taxation office provisions, insurance payout in context with personal items is not taxable. It includes insurance recovery received for family home or personal injury is not taxable. Thus, in present case recovery for medical relating to injury of Michael would not be taxable. However, other recovery i.e. receipts regarding business or income producing assets is to be taxed. Thus, compensation for loss of income as well as recovery against recovery of shop would be considered in assessable income as it is relating to personal.

STATEMENT PRESENTING CALCULATION OF CAPITAL GAIN ON SALE OF MOTOR VEHICLE

Note: An assumption has been made that motor vehicle has been used for more than one year and adjustable amount represents amount after making adjustment in context with depreciation and other deductions. In accordance with taxation provision of Australian taxation provision, gains on assets which are held by individuals for minimum period of twelve months would be considered as long term capital gains and they are subject to 50% exclusion.

STATEMENT PRESENTING NET TAX LIABILITY OF MICHAEL PAYABLE FOR YEAR 2020/2021

Working Note:

Tax liability on ordinary income

Tax on capital gain

References

 

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