One is satisfying the conditions of share trading plan if he does the following-
The share trader assessable income will include money from the sale of shares and share dividend and the cost of buying and selling can be claimed as a tax deduction.
As per the given case study, Dan and Judith jointly purchased a share in the BHP ltd on 20 June 2016 and they received the franked dividend of $28000 each year over the past 3 years.
So the best option is to not sell the share as in that case they will refund else in both the above options they will be taxed.
When one sells his rental property he makes the capital gain or losses. A capital gain or loss is the differentiation of what it cost you to purchase and improve the property (the cost base) and the amount receives when one dispose of it. If one makes the capital gain he will be liable to CGT and if there are capital losses then he can carry forward and deduct it in later years. The cost base of property covers the amount paid along with incidental costs like legal fees and stamp duty. One must include all the rental income in the tax return. However, GST does not apply to rental property income. One cannot claim credits of GST included in cost related to the rental such repair maintenance expenses on the premises.
As per the given case, applying the law to the case it is quite clear that Dan has rented property which he has purchased in July 2019 and has the intention to sell it in July 2022. He has the option of two suitable alternatives to property.
Property 1: Annual rental income $ 31000
Net rental loss $(49250)
Property 2: Annual rental income $31000
Net rental loss $(233400)
So from the above estimate, it is clear that from the second property there is more loss as compared to first. So Dan will prefer the first property.
Property 1: Expected selling price $700000
- Purchase price (including stamp duty & legal costs) $627000 Net capital gain $73000
Property 2: Expected selling price $700000
- Purchase price (including stamp duty & legal costs) $810000 Net capital loss $(110000)
Hence the capital gain of $73000 in property 1 is more than the capital loss of $110000 in property2.
The sole trader is an individual who runs the business, it is the simplest and the cheapest form of business structure. One is individually responsible for his business. As a sole trader he has to file his tax return, register for GST if his turnover is $75000 or more, claims deductions regarding the personal super contributions.
A partnership firm is an association of people who divide income and losses between them. It is inexpensive, partnership agreement helps in the reduction of disputes. In this control, income and losses are shared, the partnership does not have to pay income tax but its partners have to file the same in their return, each and every partner have to pay tax on their own of the profits of the partnership firm at his own eligible rate and claim tax offset.
The company is a legal entity with high administration cost and have to comply with additional reporting requirements. The company must apply for the tax file number (TFN) and company return is filed annually.
Trust can be set up but it is expensive as the formal deed is necessary which prescribes how the trust will operate. The trustee is appointed to take care of the trust assets and operations of the trust. The profits of the trust will be divided among the beneficiaries of the trust. Trust has to lodge its income tax return annually whether trust pays tax or not is determined how the income of the trust is distributed among the beneficiaries. IF the trust divides its income to the beneficiaries who are adult then trust will not pay taxes each beneficiaries will pay tax on his own and not by trust. If trust accumulates the income of the trust then the trustee is assessed on such income and will be liable to pay the highest individual tax rate.
As per the given case, Dan Murphy is considering to change the business structure from a sole trader to another form. In sole trader they will be liable at their individual tax rate and in the partnership firm their profit sharing will be shared and in the private company it will taxed at the flat rate percentage and in case of trust beneficiaries will be liable to tax.
The best suitable form for him will be a partnership as it has many advantages over any other form in this his profits sharing ratio will be equal to his wife as they both have income net of deduction $160000 which they share equally and there are no compliances regarding different return filing of the firm and the most that he may be eligible for the small business tax offset which is not available in any other form. In other forms, there are many compliances regarding returns and controlling power.
So the best suitable option for Dan Murphy is to for the partnership firm with his wife sharing equal profit sharing ratio with fewer compliances as compared to other forms where there are many compliances. So he should form a partnership firm to minimize his total tax liability on his income.
Case Study 2
Employee termination payment is taxed at a concessional rate up to a certain limit and cap depends upon the types of payment. Payment must be made within the 12 months of termination to qualify as an Employee termination payment and to be taxed at a concessional rate. If it received after 12 months then the payment may be included in the assessable income of the recipient and would be taxed at a marginal rate.
As in the given case Inder Muller received the following payments from his employer but will only the income of gross salary from the 1st of July 2018 to 30th of May 2019 of $57000 will be taxed and else all payments like genuine redundancy payments, unused annual leave, and unused long service leave will not be liable to tax as these are excluded from the Employee termination payment and the tax will be paid at a concessional rate if it is payment is made within 12 months else it will be included in the income of Inder Muller and taxed at marginal rates.
The above factors determine whether one pays tax on the withdrawals or will get the offset that reduces the payment of tax. The taxable component taxed or untaxed element depends on whether it has paid from taxed or untaxed sources. Untaxed element is paid by public sector funds. The provider pays tax on super at 15 %. The super is the 'taxed element' of your taxable super. If payer has not paid tax on taxable super then the amount is untaxed element of the taxable super of the person accounts. One cannot choose to withdraw only the tax-free element of super unless the total amount is tax-free. If it is a taxed element of taxable component and is a lump sum than the tax rate will be including medical levy i.e. marginal tax rate or 17% whichever is lower and if the same is an untaxed element of taxable component and is in lump sum than tax rate would be 32% or marginal tax rate whichever is lower. One has not to pay tax on the tax-free component if he withdraws as a lump sum or receives a defined benefit income stream where he is in between preservation age and 60 years age and which is not the death benefit stream.
As in the given case, Inder is having a superannuation fund that is valued at $ 582000 which is further divided into tax-free component, element untaxed in the fund, element taxed in the fund. The tax consequences of withdrawing from the superannuation fund before his retirement will be liable to tax consequences. As applying the above law the tax-free component will be not eligible to tax but the given element untaxed in the fund will be levied tax at the marginal rate or 32% whichever is lower and taxed element will be levied at the marginal rate or 17% whichever is lower. Hence the same will be consequences if he withdraws before the retirement including all the options available to him.
Aggregate turnover refers to annual turnover along with the annual turnover of any business which is connected to you. One should be eligible for a Small business entity if his aggregated turnover of the previous year is less than $10 million or in the current year it is expected to be less than $10 million than it will be a Small business entity for the current year.
If one is in the business there are various concessions available from 1 July 2016 based on the turnover. Some of them are.
Applying the given law to the case study it is quite clear that Belinda's news agency business falls in the small business entity as her business turnover is $5million which is less than the limit of $10million. Hence her business is eligible for the SBE (Small business entity). Hence all the concessions which are available to the Small business entity will be given to Belinda’s news agency business and she will be eligible for the input tax credit of GST paid on the photocopy machine of $5500 from the day when she uses that machine i.e. from 1 March 2019 and also she is eligible for the ITC of the motor vehicle as she uses solely for the business purpose only. Hence she can claim ITC on both motor vehicle and photocopy machine and the above tax concessions will be also be given as the tax benefit to Belinda's business as she falls in the small business entity.
 Australian Taxation Officer. (n.d). Shareholding as investor or share trading as business. Retrieved from
 Australian Taxation Officer. (n.d). Residential rental properties. Retrieved from https://www.ato.gov.au/General/property/residential-rental-properties/
 Australian Taxation Officer. (n.d). CGT when selling your rental property. Retrieved from https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Sale-of-property-and-other-CGT-events/CGT-when-selling-your-rental-property/
Australian Taxation Officer. (n.d). Choosing your business structure. Retrieved from https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/
Australian Taxation Officer. (n.d). Taxation of termination payments. Retrieved from https://www.ato.gov.au/Business/Your-workers/In-detail/Taxation-of-termination-payments/
 Australian Taxation Officer. (n.d). Withdrawing your super and paying tax. Retrieved from https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/withdrawing-your-super-and-paying-tax/
Australian Taxation Officer. (n.d). Small business entity concessions. Retrieved from https://www.ato.gov.au/business/small-business-entity-concessions/
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