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TABL3007 Taxation Of Corporate Finance

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TABL3007 Taxation Of Corporate Finance

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Course Code: TABL3007
University: University Of New South Wales

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Country: Australia

Question:
Discuss about the Taxation of Corporate Finance. The unincorporated organization has a legal responsibility in regards to corporation tax. Generally, the members of the organization are all liable for any particular contractual and debt obligations.
Answer:

Taxation Liabilities for Unincorporated Organizations and Individuals
An unincorporated organization is typically an organization which has been established through an agreement among a group of individuals who have come together with the reason of not just making a profit, but it could be another reason, and this could be a sports club or even a voluntary group. Often the registration of an unincorporated organization is not registered the same as a company or even a charity organization, and this is because there is no cost incurred during its registration. The primary accountabilities of such an organization are typically the sponsors and the members. The unincorporated organization has a legal responsibility in regards to corporation tax. Generally, the members of the organization are all liable for any particular contractual and debt obligations.
After the unincorporated organization has begun its trading activities and typically makes a profit, it will pay a corporation tax and also file a company tax return, and this should be done just the same way as a limited company. All the unincorporated organization must all pay a corporation tax once it has been established that they have made a certain amount of profit and this also includes the sports club. The corporation tax paid by the unincorporated organization is paid on the basis of the fact that it is a limited company, a foreign company and a club such as a sports club. Also, the corporation tax rate is at 20 percent for all the unincorporated organizations, and this is for all the profits beyond $300,000.The government of the day often sets the tax thresholds. However such thresholds are typically subject to any particular future changes (Coletti & Rutledge, 2016). The taxable profits paid for corporation tax often is deducted from the money the association makes which is usually from, selling an asset above the cost, investment and the trading profits. 
Trading Activity
An unincorporated organization typically pays for corporation tax based on a variety of purpose. Such purposes may include, management of investment, receiving of any particular income such as the sale of the capital item and compensation payment, provision of services, earning of interest, conducting a business activity which could be a professional or trade activity and selling and buying of products to make profits for the organization. The determination of a corporation tax of an unincorporated organization can be done first by differentiating the income of the members and non-members of the particular organization. A typical example of the unincorporated organization is a club. There are certain activities of the club which could be exempted from the corporation tax (Coletti & Rutledge, 2016). The particular reason for exemption of some of the activities of a club is on the basis of mutual trading activity.
The mutual trading generally entails the recycling of money of the members of the club with the aim of administering sporting and recreational affairs of the club, and this is done for the benefit of the club. Even though the mutual trading of a particular club could be exempted from corporation tax, the variety of incomes generated from the members of the club such as investment income and those which have been obtained from open races are subjected to taxation (Polito, 2017). Also, any particular income which could be taxed for the club should be reported to avoid the consequences of tax evasion. The evading of taxes is considered as a grave offence which should be avoided highly by the clubs and particularly the unincorporated organization as a whole. Based on the changes which took place recently, which was in relation to all the organizations, it was made that all the organizations must file their tax returns. The returns should also be submitted online for all the accounting periods. 
Tax Breaks and Legal Structure
The legal structure is a key determinant of a variety of tax breaks or maybe certain exemptions. A typical example could be a qualifying body or even a charity which may organize for a variety of fundraising activities, and hence this calls for tax exemptions or tax banks. Also, the unincorporated organization is required to invest all of its income carrying out most of its purposes (Polito, 2017). Additionally, such unincorporated organizations are provided with certain small-scale tax breaks and exemptions which have linked to the sale turnover for a particular accounting period. Tax relief on trading income is given to the community amateur sports club and this often up to $50,000.There is also a tax relief on the property income, and this provides it with a full tax exemption on its qualifying activities.
Taxation Liability of Sole Proprietorship
The tax liability of the sole proprietorship paid against the income generated from the business which is on the personal tax returns. All the profits which obtained by the business are taxed, and this is done after the deduction of the various expenses incurred in the business. As a sole proprietor, it is typically significant to estimate the amount of taxes which will be paid to the tax authorities, and this is done to avoid cases of tax evasion by the business which have different adverse implications.
Self-Employment Taxes
In a sole proprietorship organization, there is generally contributions made to the Medicare and social security system, and they all make up the self-employment taxes (Pakroo, 2017). Just like the payroll taxes for the workers in a business enterprise, the self-employment taxes are typically imposed on the workers in a sole proprietorship business. The tax rate for the self-employment is about 15 percent, and this is typically for the first $80,000 and a 2 percent on income above $80,000.
Taxation Liabilities for Partnership Business
According to Peden (2017), the partnership business is not typically subjected to any form of income taxes. It is typically the partners of the business whose incomes are taxed, and this is typically after sharing out the income of the partnership business. Further, the partnership business is considered as pass-through tax entities. It, therefore, implies that all the profits and losses of the business have to pass through the business to the particular partners. The partners will, therefore, pay taxes on the basis of the share of their profits which is to be deducted from their income tax returns.
Filing of Tax Returns
The partnership business has to file a form even though it does not pay the income tax by itself. The form contains certain information relating to the taxes paid by the partners, and such a form is reviewed by the tax authorities to ascertain whether the value of income reported by the partners is correct (Smith, 2015). A schedule K-1 has to be provided by the partnership business which contains break down of all the particular shares of the business held each of the partners including the profits and losses.
Estimation and Payment of Taxes.
In the partnership business, often, there is no employer who would estimate and typically withhold the particular income taxes, it, therefore, implies that every particular partner will be compelled to place some amount of money to be used in paying for the taxes based on his or her share of the profits (Hopkins, 2017). Additionally, all the partners should all be in a position to approximate the amount of taxes to be paid for a year and thereafter submit their tax returns to the relevant authorities.
Self-Employment Taxes
A partner who is actively involved in management and conduction of different activities of the particular partnership will be forced to pay certain additional taxes apart from the income taxes often referred to as the self-employment taxes. The self-employment taxes is based on the amount of partnership profits which is to be allocated to every particular partner who is actively engaged in the activities of the business. The key components making up the self-employment taxes include Medicare and Social Security systems which are to be paid just like the employees (Aprill, 2017). A critical difference between the amount of contributions made by the partners and employees is that the partners pay the contributions with the regular income taxes. Also, they have to pay twice as much as the employees pay. The current self-employment tax rate is about 15 percent for the first $84,000 of income and 2 percent for any income past $84,000.The self-employment taxes is reported by the partners using a schedule called schedule SE, and this is typically submitted on a yearly basis together with the income tax returns.
Taxation of Limited Liability Company
According to the internal revenue services a limited liability company can be taxed either as a partnership or as a corporation. At times, the limited liability company can be disregarded as a separate entity from the owners. The income taxes paid by the limited liability company is dependent on the number of the members and also on the fact that it could be a separate entity from the owners. 
Payment of Income Taxes by Single Member Limited Liability Companies
The taxes imposed on the single member limited liability companies is done as if the company is a sole proprietorship. A schedule C is used in the preparation of information of the limited liability company relating to the net income, expenses and income (Speck, 2015). Also, on the basis of tax purposes, the single member limited liability company is a disregarded entity which typically implies that the owner of the company and the entity are separate.
Payment of Taxes by Multiple Member Limited Liability Companies
According to Burnett, Taylor & Wong (2015), when a limited liability company has more than one typical member, it will be forced to pay the income taxes as a partnership business. Just like in the partnership business where the partnership does not pay the taxes itself, it is the partners who pay taxes. The limited liability company also do not pay taxes directly; it is instead the members of the company who pays income taxes. An information return is filed by the member of the company containing the profits and losses made by the company and share of every particular member of the company.
Payment of Income Taxes by Limited Liability Company to State
The classification of the limited liability company for payment of income taxes to the state is different for every particular state. The most common classification used by different states is the federal internal revenue services. However the tax rates can be typically modified by the states.
Self-Employment Taxes
The members of the limited liability company are not typically employees, but instead, they are self-employed. The contributions of the members of the company towards the Medicare and social security systems are never withheld at the paychecks (Griffith & Gonzales, 2017). The self-employment taxes are therefore paid to the internal revenue services.
Taxation Liabilities for Incorporated Organizations
An incorporated organization is typically an association which is legal and developed with the key purposes of charity and recreation. The act of incorporation makes an organization legal, and this provides it with the legal structure of independent of its members, such an organization can therefore enter into various contractual agreements (Nithman, 2015). All the incorporated organizations are expected to pay for taxes. The incorporated organizations are not for profit making are typically exempted from paying for taxes and this often referred to as tax concessions. It is important to note that, the incorporated organizations must, however, satisfy certain criteria to be provided with a taxation concession.
Also, they are expected to pay taxes for various goods and services, and this is particularly on certain goods and services. There are various taxation concessions which are typically available for the incorporated organizations and, this includes, goods and services tax concessions, exemptions from income tax and rebates aimed at reducing fringe benefits tax payable among others (Golub, 2015). The key qualification for a taxation concession is that the incorporated organization should be typically be a not for profit organization. There is, therefore, more than one tax concessions for the incorporated organization and, this is on the basis that they are not for profit organizations. A key feature of a not for profit organization is that it has to contain the not for profit clause during its registration and this entails the provision for rules relating to its operations. 
Charities
Most of the incorporated organizations are typically chairities.A charity is typically that organization which aims at pursuing of charitable purpose for the benefit of the public. A charitable organization has to fulfill certain criteria in order to become a charity (Sjostrom, 2015). Such qualifications entail, existing for the benefit of the public, not for profit and having the key purpose of being charitable. 
Community Interest Company
The community interest company are typically limited companies which have certain special characteristics. The company is developed for the individuals in the society who are willing to set up businesses which are beneficial to the society and not for profit making (Lawson, 2015). The asset lock and community interest test are the key elements used in ensuring that the community interest company has been created for the sole purpose of benefiting the society. All the liabilities and assets are used typically for the benefit of the society.
Tax Considerations
According to Major (2018), generally, there are tax deductions on the company interest company which is done against the costs incurred in the administration of the business and the capital expenses. A discretionary relief may however be offered by the local government to the company which reduces the tax liabilities. When the company interest company donates part of its items to a charity organization, the amount is deducted and is considered as charge when estimating the profits which will be used in the approximation of tax liability.
Further, the community interest company which carries out trading activities is not exempted from paying for value added tax. The estimation n of the value added tax is done in regards to the nature of goods and services which are provided by a particular organization. It is typically a tax on the sales turnover (Hopkins, 2017). The other community interest companies which are not profit oriented also pay for the value added tax. The only community interest companies which are exempted from paying the value added tax are those involved in the provision of the health, social welfare and education to the particular community (Surahyo, 2018). 
Company Limited by Guarantee
The company which is limited by guarantee is typically an organization which is formed based on the corporation act 2001.It is not a profit oriented organization. However, it is only limited by guarantee. Such a limitation by guarantee gives it the right to carry out business activities internationally and even interstate (Donohoe, Lisowsky & Mayberry, 2015). The members of such a company often contribute particular amount money when the company is dissolved which is to be used for the settlement of debts which could arise at the time and, this is what is referred to as the guarantee (Ma, 2017).
Taxation
The amount of the tax liability typically depends on the amount of activities of the particular organization (Manny, 2017). The company limited by guarantee is only exempted from paying for taxes when it provides charity services to the community.
References
Aprill, E. P. (2017). Section 501 (C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties.
Burnett, C., Taylor, C. J., & Wong, J. (2015). Qualification of Taxable Entities and Treaty Protection: National Report for Australia.
Coletti, L., & Rutledge, T. E. (2016). Diversity Jurisdiction and Unincorporated Entities: Recent Developments.
Donohoe, M. P., Lisowsky, P., & Mayberry, M. A. (2015). Who benefits from the tax advantages of organizational form choice?. National Tax Journal, 68(4), 975.
Golub, E. (2015). Corporations: Taxation-Professional Corporations-Are They Corporations for Federal Tax Purposes?. DePaul Law Review, 13(2), 304.
Griffith, J. L., & Gonzales, A. (2017). Series LLCs Part 2-Current Status, Multi-State Issues and Potential Uniform Limited Liability Company Protected Series Act.
Hopkins, B. R. (2017). Starting and managing a nonprofit organization: A legal guide. John Wiley & Sons.
Hopkins, B. R. (2017). Starting and managing a nonprofit organization: A legal guide. John Wiley & Sons.
Lawson, T. (2015). The modern corporation: the site of a mechanism (of global social change) that is out-of-control?. In Generative Mechanisms Transforming the Social Order (pp. 205-230). Springer, Cham.
Ma, X. (2017). Do taxes influence the organizational boundaries of international firms? An incomplete-contracting model with empirical evidence. The Journal of International Trade & Economic Development, 26(7), 801-828.
Major, A. (2018). The New Capitalist Rich: Corporate Organizational Form and the Political Economy of US Income Inequality. Critical Historical Studies, 5(2), 209-236.
Manny, J. S. (2017). Governance Issues For Non-Profit Religious Organizations. The Catholic Lawyer, 40(1), 2.
Nithman, R. W. (2015). Business Entity Selection: Why It Matters to Healthcare Practitioners Part III-Nonprofits, Ethics, Practice Implications, and Conclusions. The Journal of medical practice management: MPM, 31(1), 36.
Pakroo, P. (2017). Starting & building a nonprofit: A practical guide. Nolo.
Peden, E. (2017). Civil and criminal liability of directors and officers of sporting clubs. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 31(1), 12.
Polito, A. P. (2017). Mandatory Passthrough Taxation for Non-Publicly Traded Businesses. Va. Tax Rev., 36, 449.
Sjostrom Jr, W. K. (2015). Business Organizations: A Transactional Approach. Wolters Kluwer Law & Business.
Smith, K. J. (2015). Charitable Choices: The Need for a Uniform Nonprofit Limited Liability Company Act (UNLLCA). U. Mich. JL Reform, 49, 405.
Speck, S. G. (2015). The Social Boundaries of Corporate Taxation. Fordham L. Rev., 84, 2583.
Surahyo, A. (2018). Forms of Construction Organizations. In Understanding Construction Contracts (pp. 29-34). Springer, Cham.

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