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CLWM4100 Taxation Law

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CLWM4100 Taxation Law

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Course Code: CLWM4100
University: Kaplan Business School

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Country: Australia

Question:
The company has a rotating Managing Director with the role changing every three months between the directors. The shares are held only by the directors and are held in equal proportion. Elwood would like to know:
 
Is the company a resident of Australia for tax purposes?
Answer:
In order to test the residential status of a company in Australia, Three methods are specified in the section 6(1) of the Income Tax Assessment Act 1997. The methods which are being used to test the residential status of a company located in Australia are; the place of incorporation test, place of central management and control test and the test to controlling the shareholders. To be obliged as a resident of Australia for taxation purpose, the companies need to fulfil one of the stated criteria (Australia 2016). The company can also be regarded as a resident of Australia for taxation purpose if the company has already managed itself to be enlisted as an incorporated entity under the Corporation Act 2001, Australia. As for the first test, the company needs to carry on business and other major financial activities within the territory of Australia in order to be regarded as a taxable resident of the country. In the second method, the company needs to have a central management system and control unit within the territory of Australia in order to be regarded as a taxable resident. All the operations of the company need to be operated within the territory of the country so that taxes can be implemented upon it. The case law regarding this provision is stated in the case of Bywater Investment Ltd & Ors V Commissioner of Taxation in 2016 (Edmonds 2018).
In the shipping venture of Elwood Blues, the company is situated in Singapore. All the board meetings are being held there and two out of four board members are operating the business from Singapore. But all the contracts are being signed in Sydney and the annual board meeting is also held in Australia. The main operation carried on by the company is to ship the containers from Sydney to Africa. The territory of operation for the company is located in Australia but the control unit of the company is situated in Singapore (Bajada 2017). Here certain comments can be made upon the residential status of the company for taxation purpose. As the majority of the operations of the company is being conducted in Australia, the company is liable to pay the tax to Australian government, and as per the case law is stated from the reference of Bywater Investment Ltd & Ors V Commissioner of Taxation, as the decisions taken by the management of the company are being implemented in Australia, the company is liable to pay taxes in accordance with the legislations of Income Tax Assessment Act 1997. 
In this segment of the report, the payable taxes over the amount of sales that are being recovered by the assets will be discussed in accordance with the Index cost of acquisition. The amount will be added to the taxable income after deducting the losses incurred upon the total sales value. The assets can be regarded as long term capital gain assets if it is acquired by the company for more than three years and as for shares, the period is one year from the date of purchase (Burkhauser et al. 2016). The capital gain tax rate will be decided by taking into account the index value of the assets while the time of purchasing and the index price of the assets in the time of selling. The differences which can be found in the amount of these two indexes can be regarded as indexing factor. In order to get the index price, the index factor needs to be multiplied by the purchase cost. If the calculated index price is found to be lower than the sales price, the value of the asset should be regarded as a capital loss and thus the amount will be deducted from the capital gains incomes (Saad 2014). 
In accordance with section 8-2 of the Income Tax Assessment Act 1997, no tax is applied for the personnel usable assets as it is not regarded as a CGT asset (Wilkins 2015). 
As it is stated in the section 25-35 of ITAA 97, the bad debt incurred in the business will be deducted from the taxable income of the business. The deduction of the amount has shown below:

Part 2 Question 2

Particulars

Amount ($)

Taxable Amount ($)

 

Sales Proceeds

200000

 

 

Less Bad Debt

40000

 

 

Net Sales Proceeds

160000

 

 

Acquisition Cost

20000

 

 

Less: Index Cost Of Acquisition

59630.60686

 

 

Taxable amount

 

100369.3931

In accordance with the section 186-5 of ITAA 97, the share price will be considered as a CGT asset if the company holds the share for more than one year. The table shows the deductibility of shares:

Question 3

particulars

Amount ($)

Taxable Amount ($)

 

Sales proceeds

175000

 

 

Acquisition Cost

80000

 

 

Index Cost Of Acquisition

142810.9855

 

 

Taxable Amount

 

32189.01454

As the asset was hold by the company for more than three years (1989-2018), the asset will be considered as a long term capital assets of the company.

Question 4

Particulars

Amount ($)

Amount

 

Sales Proceeds

15000

 

 

Less: Index Cost Of Acquisition

10235.50725

 

 

Cost of acquisition

5000

 

 

Taxable amount

 

4764.492754

 
Question 5
Again in this case, the Jewellery was hold by the company for 8 years and thus will be stated as a long term CGT assets and is liable for taxation.

Question 5

Particulars

Amount

Amount

 

Sale Provide

5000

 

 

Less: Index Cost Of Acquisition

22665.31027

 

 

Acquisition cost

20000

 

 

Taxable Amount

 

-17665.31027

The shares of XYZ Ltd were hold by the company for 19 years as a long term investment and are being regarded as a CGT asset. The taxable amount from this asset is:

Question 6

Particulars

Amount

Amount

 

Sales Proceeds

45000

 

 

Less: Index Cost Of Acquisition

68615.78171

 

 

Cost OF acquisition

41500

 

 

Taxable Amount

 

-23615.78171

In accordance with the provisions of ITAA 1997, if a company transfers its license, the same amount of CGT assets value will also be transferred along it and thus the cost will not be deducted.

Question 7

Particulars

Amount

Amount

 

Sales Proceeds

50000

 

 

Less: Cost of Acquisition

25000

 

 

Taxable Amount

 

25000

In accordance with the section8-1 of the ITAA 97, non-income generating assets such as interest and media campaign charges should be deducted from taxable income. But as the campaign influence to generated income from other sources, the cost incurred in campaign will be included in the deductable expenses.

Particulars

Amount ($)

Amount ($)

Interest on loan

250000

 

Media Campaign

175000

 

 

 

425000

Reference
Australia, C.C.H., 2016. Australian Master Tax Guide: 2016. CCH Australia.
Bajada, C., 2017. Australia’s Cash Economy: A Troubling Issue for Policymakers: A Troubling Issue for Policymakers. Routledge.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Dixon, J.M. and Nassios, J., 2016. Modelling the impacts of a cut to company tax in Australia. Centre for Policy Studies, Victoria University.
Edmonds, R., 2018. Resource Capital Fund IV LP: the issues on appeal?. Taxation in Australia, 53(1), p.22.
Parker, H., 2018. Instead of the Dole: an enquiry into integration of the tax and benefit systems. Routledge.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic Review, 48(1), pp.93-102.

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