BLO2206 TAXATION LAW AND PRACTICE
Summer Semester - 2013
Length: Total word length should be approximately 2,000 words.
Marking: Allocation of marks is set out for students in the introductory work notes. The answer is to be an individual piece of work. This is not a group assignment.
Due Date: To be submitted on Monday 4th February 2013. A hard copy must be placed in the law assignment box by the same time.
Referencing: A student can select any proper method for referencing. However, the same referencing style must be used throughout the paper.
Plagiarism Students should familiarize themselves with the university policy on plagiarism.
Homer Simpson was an accountant in South America. He specialized in international tax and knew how most of the countries tax systems worked. A client of his offered him a job in Australia for which he would be paid $250,000 per year.
After many weeks of thinking about it Homer and his family moved to Australia, he sold his house in South America, closed all bank accounts and decided to catch a plane with his family and accept the job offer.
Homer & his wife purchased a house in Toorak and financed this via obtaining a mortgage through the Commonwealth Bank. His new employer was called VicTax Accountants Pty Ltd. He worked there for most of the financial year ended 30 June 2011, he was also thinking that he should start his own business instead of working for someone.
After weeks of thinking Homer decided that his idea of starting his own business was the right move to make. On the 1st July 2011 he started his business as an international tax specialist and occupied a room from home and began working as an accountant.
Homers business was in the form of a company and it was called International Tax Pty Ltd.
2012 Financial Year
The following is a list of transactions which occurred during the financial year ended 30 June 2012 for International Tax Pty Ltd :
1. Only Homer performed duties as an accountant for the company.
2. Paid rent of $2,500 per month to Homer.
3. Total electricity for the financial year ended 30 June 2012 was $5,000. Of this International Tax Pty Ltd contributed a total of $4,000
4. Paid $60,000 in interest for the mortgage. Total interest on the mortgage total $100,000
5. Total area of the property was 1000 square meters, total area International Tax Pty Ltd occupied was 150 square meters
6. Paid for the yearly rates of $2,500
7. International Tax Pty Ltd acquired 4 x office assets (each costing $10,000) for the business totaling $40,000. The assets had an effective life of 5 years. Homer decided to deduct these in the year of income as he wanted to reduce his profit.
8. International Tax Pty Ltd had a separate telephone line and the bills were $250 per month.
9. International Tax Pty Ltd paid a cleaner to clean only the office every week at a cost of $150 per week.
10. Professional Indemnity insurance for the business was $4,000 for the financial year.
11. International Tax Pty Ltd’s professional fees collected from clients totaled $550,000. Homer had only 3 client of which the company received fees of $450,000.
12. Homer (director) didn’t like the idea of paying too much tax so he has advised that after calculating profit for the company, you are to pay wages to his wife and two daughters each receiving 25% of the profit.
- Homer is married with a wife and 2 kids
- Marg (wife) – doesn’t work at all. Used to be a receptionist and Administration support in South America.
- Kids – Maggie (age 18 year old), Lisa (age 19 years old) – both go to university part time, studying accounting, They go to university 2 days per week.
Analyse the above, and discuss the current structure in detail. In doing so advise Homer if he has any issues in either of the financial years? Discuss.
2013 Financial Year
Although Homer is an accountant he specializes in International Tax and comes to you for some advice.
In the 2013 financial year International Tax Pty Ltd is doing really well, turnover is increasing steadily and has a lot more clients, his largest client contributing to 30% of his total turnover. International Tax Pty Ltd also has now moved into an office in Collins Street, Melbourne paying market rent. Homer starts thinking about employing people to assist him with running the business.
Taking into account any issues identified in Part 1 above, Homes asks you if this is the most effective way to run his business from a tax point of view. Discuss