Taxation Law & Practice Assignment -
Purpose - To extend familiarity with locating legal decisions and undertaking research into an aspect of currently debated taxation law and practice.
It is important for you to have time to think through how to structure and present your responses, and to review and discuss what the law is in a particular area. Whilst discussion with others is encouraged, the final piece of work must be your own.
Required: - Read the Topic and then complete tasks A, B and C.
Topic -
Tax reform continues to remain an ongoing topic of debate in Australia. During March the dividend imputation debate being held both in Parliament and throughout the media became increasingly heated.
In a recent political update from the Australian Labor Party the Leader of the Opposition, the Honorable Bill Shorten MP, said "Here are the simple facts: Labor's reforms to excess dividend imputation credits will crack down on a tax loophole that mainly benefits millionaires who don't pay income tax........".
The Liberal National Coalition government disagrees. The article 'The real story of Labor's dividend imputation reforms' reproduced by the Grattan Institute on March 2018, noted "The government claims that 54 per cent of people affected by Labor's policy - some 610,000 individuals - have taxable incomes of less than $18,200. And it says that 86 per cent of the value of all franking credits refunded are received by those with taxable incomes of less than $87,000 a year."
Task A - Describe how the existing system of dividend imputation operates, and the reason for its introduction in the 1980s. Then identify and explain Labor's proposed reforms to the dividend imputation system. (Labor's Policy). In your response you should refer to relevant legislation and tax rulings, and identify which taxpayers benefit under the current system; and whether (and if so, how) these taxpayers will be affected under Labor's Policy.
Task B - With reference to appropriate legal sources, evaluate the advantages and disadvantages of Labor's Policy, coming to a conclusion about whether this is "good policy". In your response you should identify generally accepted attributes of a good tax policy.
Task C - Sigma Pty. Ltd. (Sigma) is a private company with Australian residency. It has 10 shareholders. In the 2015/2016 year Sigma's aggregated turnover was $12 million; and in 2016/2017 it was $9 million. Sigma had taxable income of $1 million at the end of the 2015/2016 financial year. In August 2016, Sigma's directors passed a resolution to pay a fully franked dividend (of its retained earnings) of $100,000 to each of its shareholders. Yolande is an Australian resident who holds shares in Sigma. She is on the highest marginal tax rate for the year ending 30 June 2017.
Required: Complete the following questions and tasks.
1. What is Sigma's corporate tax rate for each of the 2015/2016 and 2016/2017 tax years?
2. Is this different to the corporate tax rate for imputation purposes for each of these years, and if so why?
3. Based on the information above, and referring to relevant tax rate tables, calculate the tax payable by Sigma - and Yolande - for the year ending 30 June 2017.
4. Would your answer be different if Yolande had purchased her shares in Sigma Pty. Ltd. on 30 May 2017? If so, why?
5. Would there be a difference in the overall tax payable by Yolande and Sigma IF Sigma's aggregated turnover for the 2016/2017 financial year was $20 million rather than $9 million? Why? Calculate any difference in the overall tax payable.