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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 synthesize 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

Question 2

In the given case scenario, it is required to determine net tax payable by the beneficiaries of trust for the tax year 2020-2021.

The taxable profit of the trust is referred as assessable income generated during the year after getting deduction of allowable expenses, which is worked out of the notion that the beneficiary are resident of the country. Since, the profit of the trust is ascertained as per the trust deed and its net profit is ascertained as per the taxation laws and therefore both amounts are not same. Usually, tax is charged on the net profit of the trust in the hands of the beneficiaries on the basis of their share in the net profit of trust notwithstanding of the fact that whether or not the profit is actually paid to them (Australian Taxation Office, 2021). For Assignment help For instance, if share of the beneficiary was 50% in the net profit of trust, then they would be assessed for 50% share in the net profit of trust, which is considered as proportionate mechanism. It is required by trustee to give details about every beneficiary of their proportion in the net profit by which they could include such amount in the taxation return.

Rules for franked distributions:

Unless not restricted through the trust deed, franked distribution is particularly entitled by the beneficiary, assisting in taxed is charged on the beneficiary with respect to the franked distribution (Mather, 2017). In such manner, franked distribution could be allocated to the particular beneficiary for the purpose of tax. if not any beneficiary is particularly entitled for the franked distribution, then in such case, tax is charged on proportionate manner for entire beneficiaries on the basis of their entitlement to the profit of trust, which suggests that in the same manner as of other net profit of the trust. Moreover, if any beneficiary has right to off-set of franking credit then in such case, they are also required to include this amount in the assessable profit (Millar, 2017).

Apart from the above aspects, a loss occurred by trust in the financial year could not be divided among beneficiaries. Although, it could be carried forward and implemented for deduction of the net profit in the subsequent year.

Rules for capital gains:

Unless not restricted through the trust deed, capital profit of the trust could be streamed to beneficiaries for the purpose of tax by creating them particularly entitled to the profit. This would allow permission to beneficiary to balance the capital profit with their capital losses, application of applicable discount and subject to the condition of integrity rules, obtain the advantage of any franking credit connected to a franked distribution (Slott, 2020).

Capital profit and franked distribution to which not any particular beneficiary is specifically permitted are allocated in the proportionate manner on the basis of their current share to the net income of trust as per Division 6 Part III of ITAA 1936.

Rules of taxation:

Individuals aged more than 18 years and company beneficiary are required to make payment of tax on their portion on net profit of trust at the rates of tax applicable to them. Further, beneficiaries are required to pay tax on behalf of minors on the basis of their share in net profit of trust. Some special norms are applicable of income generated by minor less than age of 18 years. Under such norms, they are required to pay higher amount of tax rates on particular types of profit like distribution from a family trust.

Rates of income tax for individual less than age of 18 years:

If an individual is less than 18 years, some of the profit may be changed to higher tax rates as compared to an adult. Although, they are required to make payment for the same rates as an adult for –

- All profit they receive if they are an excepted individual, this might be applicable if they have completed full-time study and engaged in work in full time or they have disabilities. Or they are permitted to a double orphan pension (Boadway, Brooks, & Macnaughton, 2019).

- Profit they receive as excepted profit, it consists business profit or employment profit, centrelink payment, and profit from estate of deceased person.

If there is any element of net profit of the trust for which there is not any beneficiary is exist, then in such case, tax is charged on the trustee on the corresponding share of the net profit. Further, if there is not any existence of net profit then tax is charged on trustee on any net profit. It should be noted that, trustee is usually levied tax on the net profit of trust at the greatest marginal rates applicable on the individual apart from some types of trusts that are charged to tax at altered individual rates (Australian Taxation Office, 2021).

Computation of Net Profit of Trust

Table 1 Computation of net income of trust

It has been noticed that, total capital gain from sale of shares 20000 and 7000 respectively and capital loss from prior years of $50000. By setting off capital loss from capital gain on sale of shares, in this year, not any capital gain is generated by trust. Further, remaining capital loss is 23000 (50000-27000), which would be carried forward in the subsequent year.

Shares of beneficiary –

Table 2 Computation of share of beneficiary in net income of trust

In the above case, it has been noticed that, share of the beneficiary was 95%, and therefore tax on the 5% net income would be charged in the hands of trustees.

Table 3 Computation of tax payable by beneficiaries

References

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