Prepare and administer tax documentation for legal entities/implement plans and evaluate tax obligations

Prepare and administer tax documentation for legal entities/implement plans and evaluate tax obligations

Written report

The Managing Director has been very impressed with your guidance to date and he has asked you to review some specific taxation matters for the Ethical Trading Group.

He has asked you to prepare a report to him in relation to the taxation matters noted for the company.

Note: Please ensure that the report is structured (include subheadings based on the information

provided below) and ensure you have researched and responded to issues identified.

Please note that all questions in the assessment relate to the tax year ended 30 June 2015.

The Managing Director would like you to review the information provided on the business activities of the Ethical Trading Group and provide some guidance on the following matters.

Note: Please include any specific rates and thresholds in your responses.

Report Section 1: Luxury Hybrid Fuel efficient Cars

  1. Due to the ethical nature of the business, Ethical Trading Group offers senior managers an opportunity to use a luxury hybrid car. Provide some advice on the benefits of purchasing a luxury hybrid fuel efficient vehicle, relative to a standard luxury car.
  2. The Managing Director is currently driving a hybrid vehicle that cost $66,000 including GST. Running costs on the vehicle were $12,000 plus depreciation of $16,500. The car was acquired on 1 April 2014. He has a log book showing 60% business usage. He is considering replacing this car and salary packaging a bike for $2,200 (including GST) to get him to and from work. Discuss the FBT consequences of the two means of transport.
  1. The Ethical Trading Group has now acquired two additional hybrid motor vehicles, The 1 Tonne Ute for $44,000 including GST and a Lexus Hybrid for $48,500 including GST. Both vehicles were acquired on the 1 April in the current FBT year. In addition the following details have been provided:
  • The 1 tonne Ute travelled 55,000 kilometres. A log book has been maintained and noted a business usage of 90%.
  • The total running costs of the Ute were $15,000 (excluding depreciation).
  • The employee did not make any contribution towards running costs of the ute.
  • The ute was available for use for 360 days.
  • Jeff used the Lexus Hybrid and travelled 32,000 kilometres of which 8,000 kilometres were private. A log book has been maintained noting business usage of 75%.
  • Running costs were $12,000 (excluding depreciation).
  • The car was involved in an accident and spent two weeks at the smash repairers. Jeff paid $2,000 out of his own pocket for the accident.
    1. Consider both vehicles. Determine any FBT consequences and then calculate the taxable value (TV) of the benefit using both methods for car fringe benefit calculations – the statutory formula and operating cost methods. (Note: please show all workings or calculation steps in your answer). Which method provides the best result for Ethical Trading Group?
    2. There are two gross up rates used when calculating an employer’s liability for FBT. What are these rates? Why are there two rates? Provide an example of where each rate would be used.

Report Section 2: GST and Imports

  1. Ethical Trading Group is importing goods from India, Sri Lanka and France and selling these items both in Australia and overseas. Discuss any specific GST consequences to be aware of. Hint: Consider the rules around taxable importations.

 

Report Section 3: Franking accounts and dividends

  1. Discuss the requirement for the Ethical Trading Group of franking accounts. Why is it required and when can dividends be paid? What is the process that Ethical Trading Group should follow in regards to coming to the decision to pay a dividend?

Ethical Trading Group had a credit franking account balance of $8,500 at the beginning of the financial year (1 July).

The following transactions occurred during the year:

  • A fully franked interim dividend of $10,000 was paid on 2 July.
  • During the year, PAYG instalments of $3,000 were paid on the 28 July, 28 October, 28 February and 28 April of the current income tax year.
  • The company received a fully franked dividend of $5,000 on 1 September and a further $2,000 in fully franked dividends on the 31 March.
  • On 1 April they paid a fully franked final dividend of $7,500.
  • On 20 February they received a tax refund of $4,500 for last financial year.
  • On 28 July of the next financial year, a PAYG instalment of $4,000 was paid.

Based on the information provided, prepare a franking account for ETHICAL TRADING GROUP. Show any workings (where relevant).

Date Details Debit Credit Balance
1 July Opening Balance

 

 

 

 


 

Report Section 4: BAS

  1. Review the information in regards to one of Ethical Trading Group’s GST branches for the stores for the March Quarter Business Activity Statement (BAS). Complete the relevant fields on this form as indicated. For this part of the assessment, you need to go to the ATO website to download a copy of the BAS sample form.

The branch is paying PAYG Instalments at a rate of 10%. The information provided for the company is as follows:

Sales and purchases for the March quarter IAS – accruals basis

Code Description Rate Net sales value Net Purchase value GST collected GST paid
FRE GST free 0% $1,200 $8,300
GST Goods and services tax 10% $127,000 $78,700 12,700 7,870

Included in the purchase value, Simon acquired a new computer at a cost of $3,300 including GST on 1 March.

 

Payroll activity summary report

Gross Wages Superannuation Taxes
$33,700 $3,202 $9,600

Task

Review the following link for the ATO Business Activity Statement Requirements:

https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/

  1. a) Then download a copy of the BAS sample form from the ATO website and use it as a reference to help you complete the relevant fields for the March quarter.

Refer this link to obtain a PDF copy of the BAS form:

https://www.ato.gov.au/uploadedfiles/content/cas/downloads/bus25199nat4189s.pdf

  1. b) Assume the form has been fully completed and reviewed by the taxation manager. Sign the relevant parts of the BAS sample form, so it is ready for submission to the ATO.

 

Report Section 5: Trust income

  1. The Ethical Trading Group likes to invest in different types of assets, so they can use any excess profits made to reinvest in sustainable activities. Assume Ethical Trading Group has the Ethical Trading Group Discretionary Trusts and it has sold the following assets on 1 June 2015 and made a capital gain of $20,000 as follows:
  2. A gain of $5,000 on shares purchased in January 1984
  3. A gain of $7,000 on a Unit Trust investment purchased in April 1998
  4. A gain of $6,000 on shares purchased in July 2008
  5. A gain of $4,000 on shares purchased on 1 October 2014
  6. A loss of $2,000 made on a painting acquired on 1 November 2014

For each of the above transactions, discuss whether or not the gain is taxable and what concessions, if any, are available to the Trust. Include a calculation of the correct capital gain.

 

Report Section 6: Superannuation

  1. The Ethical Trading Group has established the Ethical Trading Group Superannuation Fund to invest in sustainable and environmentally friendly investments. The fund had the following receipts and payments for the current tax year:
Receipts $
Employer contributions 1 100 000
Employee voluntary contributions 150 000
Contributions from a member who is self-employed

(a contractor to ETHICAL TRADING GROUP/tax deductible for members)

 

 

25 000

Funds rolled over from an industry super fund.

(The rollover related to deducted contributions)

 

250 000

Fully franked dividends 150 000
Foreign interest, net of withholding tax of 10% 180,000
Proceeds from Sale of shares in XYZ Ltd (sold 25/6/2015) 60,000

 

 

Payments $
Purchase of shares in XYZ Ltd (acquired 1/10/2014) 48 000
Accounting and audit fees 8 500
PAYG instalments 160 000
Acquisition of shares in HMN Ltd (acquired 7/9/2014) 22    000

 

Additional information: Remaining fund assets with a cost of $250,000 were

revalued to $300,000 at 30 June.

 

Calculate the taxable income and the tax payable of the fund for 2015. (Note: show your workings and provide some explanations for any exclusions from your calculation).

Report Section 7: Technology systems

  1. Discuss how the use of systems and digital technology will assist Ethical Trading Group meet its taxation compliance obligations. Discussion could include information on the use of accounting software and other systems or technology.

 

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