Assignment 2
Required:
Discuss in detail, with reference to relevant legislation and case law, which of the above companies can form a multi entry consolidated group. Provide detailed reasons for your answers.
- Company black
- (Non-resident Company)
- Company yellow
- (Resident Company)
- Company White
- (Resident Company)
- Company Purple
- (Resident Company)
- Company blue
- (Non- Resident Company)
- Company Red
- (Resident Company)
Part (b)
Kathy pacific is an Australian resident who is a trained disaster and recovery specialist. She is usually subject to tax at the top marginal rate. During the 2015 tax year she had the following receipts:
• Dividends received of $20 000 in respect of shares held in a company based in Germany, a net amount of $ 17 000 was deposited into his Australian bank account. This dividend was subject to a withholding tax of 30 000.
• Salary of $20 500 received for the period 19 February to 30 June 2015 from her employer, the New Zealand Red Cross society, for work performed in Auckland on a disaster relief fund project.
• Interest earned of $15 000 from a bank in Switzerland, where she holds a fixed investment of $150 000. The bank has deducted $15 000 of foreign withholding tax and the balance of $135 000 was transferred into her Australian bank account.
• Royalties from a book titled "safety and first aid Management in the workplace" that she published years ago:
* Gross royalties from sale of the book, totaled $60 000
* Total withholding taxes paid relating to royalties received was $6 000
She is usually subject to tax at the top marginal rate.
Required:
Advice Kathy pacific how each of the above - mentioned receipts will be taxed in Australia, citing legislation and relevant case law where applicable.
Question 2:
Part (a)
The Trustee of a management Investment Trust distributed $100 000 of the trust's net income on 30 June 2015, to a unit holder who resides in Sweden, an information exchange country. The distribution included:
• Interest of $ 75 000
• Fund payment of $5 000
• Dividend of $20 000 which is 60% franked.
Required:
Discuss how the withholding tax rules apply to the payment of the distribution, citing legislation and relevant case law where applicable.
Part (b)
Lion leagues (pty) Ltd had the following transactions for the tax year ended 30 June 2015:
• During April 2013, one of the shareholders of the company, Mr Smith experienced financial liquidation and the board of directors decided to advance him a loan of $35000. This loan accrued interest at 10% p.a and was repayable on 30 June 2014. Interest payments were received in a timely manner. On 21 May 2015, Mr. Smith suffered a major heart attack and died. Mr. Smith's estate could not afford to repay the loan so the directors of the company decided to write off the loan.
• A $250 000 unsecured interest free loan with no fixed date of repayment to a friend's of one of its shareholders on 1 April 2015. This loan remained unpaid at the time the 2015 tax return was submitted.
Required:
Discuss in detail the tax implications of the above - mentioned transactions, citing legislation and relevant case law where applicable.
Question 3:
Peter operates an engineering business and it is classified as a Small Business Entities. On 1 July 2015, he purchased the following assets:
• An industrial drilling machinery for $5 000 (exclusive of GST) which he uses solely for a taxable purpose.
• A lathe machine for $80 000 (exclusive of GST) which he uses solely for a taxable purpose.
• A motor vehicle for $4 500 (exclusive of GST) which he uses 80% for a taxable purpose and
• A computer for $9 000 (exclusive of GST) which he uses 50% for a taxable purpose.
Required:
Advise Peter of any deductions he may be able to claim in respect of the above- mentioned assets for the 2014/2015 tax year, citing legislation and relevant case law where applicable.
Question 4:
Tommy lee is an Australian resident who is a specialist mining engineer. He is well respected in his field and has developed many ‘mining re-engineering processes' which he has patented.
These patents are now widely used in mining operations in Russia, for which he receives an annual royalty payment. Bill is very clever with his finances and invests most of his surplus cash in properties which he leases out and receives a rental income.
During the year, an Australian company employed him to develop specialized drilling processes for use in their iron ore mining operations. His employer sent him to Zambia to work on this project for a period of 8 months. During the 2015 tax year he had the following receipts:
- Dividends received for shares held in a company Japan $100 000
- Rental Income from investment property situated in Hawaii $12 500
- Rental Income from beach cottage situated in Phuket $7000
- Royalties Received for use of patents in Russia $50 000
- Salary on Zambia project $180 000
Required:
Advise Tommy lee how each of the above- mentioned receipts will be treated between Australia and relevant contracting states double Tax Agreement, citing legislation and relevant case law where applicable.
Part (b):
Jerry is a 52 years old chartered accounting who runs his own accounting practice and employs two assistants: Beatrice (age30) and Phillip (age 40). Beatrice is paid a salary of $150 000 and Phil is paid a salary of $45 000. Jerry makes contributions to their complying superannuation funds of $22 000 and $1 200 respectively. Beatrice and Phil also each contribute $6 500 to their respective complying superannuation funds.
In addition, Jerry contributes $50 000 to this personal superannuation and notifies the fund that he intends to claims a deduction for this contribution. He also makes an additional contributes $5 000 to the superannuation fund of his wife, who earn no income.
Required:
Advise all parties (including the trustees of the relevant superannuation funds) of the consequences of making the relevant contribution, citing legislation and relevant case law where applicable.