Case study
Claude (age 48) and Lilou (age 43) Maroilles are a married couple, living in Pilbara region, Western Australia. They have two dependent children, Gabrielle (age 15) and Milena (age 13).
Claude and Lilou are pearl divers and work for themselves, selling their pearls to luxury jewellery brands. In the previous financial year, the value of their combined pearl harvest was $580,000 and the harvest is expected to be the same this financial year. They have one full-time employee, James (age 25).
Glenda, their tax accountant, gave them your name as they are seeking personal financial advice regarding business and retirement planning. Glenda is a distant acquaintance to you.
Glenda’s services include the preparation and lodgement of Research and Development (R&D) Tax Incentive applications and R&D Tax Incentive Schedules and to date has successfully managed nine R&D schemes involving taxpayers.
Claude and Lilou recently purchased a commercial property, affectionately termed the ‘boat shed’ where they sometimes bring the lugger in for repairs, but more importantly, securely store and prepare the pearls for buyers.
Additional details of the clients’ situation are listed below.
Personal details
Claude Lilou
Health Good Good
Smoker No No
Expected retirement age 65 60
Lifestyle assets and liabilities
Claude Lilou Joint Liability
Family home – – $950,000 ($150,000)
Car $120,000 – – –
Ute – $43,500 – –
Home contents (insured value) – – $150,000 –
Other assets and liabilities
Claude Lilou Joint Liability
Investment assets
CBA transaction account – – $13,500 –
CBA credit card ($30,000 limit, cleared each month) – – $0 –
ING online savings account – – $530,000 –
Retirement assets
Hostplus Super $210,000
AustralianSuper $150,000
Business assets
Pearl Lugger (Boat) $120,000
Diving Gear $10,000 $10,000 $20,000
Pearling licence $150,000 $150,000 $300,000
‘Boat Shed’ $350,000 $350,000 $700,000 $290,000
Estimated annual gross income details
Claude Lilou
Self-employed income (after business related expenses) $250,000 $250,000
Interest income^ $2,915 $2,915
Total $252,915 $252,915
^ Interest income from online savings account at 1.1%. Transaction account interest 0%.
Annual expenses
Claude Lilou Joint
General living expenses – – $100,000
Mortgage repayment – – $18,000
Personal insurance premiums $3,500 $3,500 $7,000
Children’s boarding school fees – – $74,000
Marine Conservation (donation) $500 $500 $1,000
Total $200,000
Insurances
Amount insured Premium p.a. Policy owner
Life & TPD cover $200,000 $1,100 Super – Claude
Life & TPD cover $300,000 $1,300 Super – Lilou
Income Protection $10,000pm $3,500 Claude
Income Protection $8,000pm $3,500 Lilou
HCF – Hospital & Extras (family) $4,500 Joint
Claude and Lilou went to Glenda to obtain her advice on what might be the best tax entity structure to operate their pearling business through and would like your opinion also.
All required facts are in the case study above.
Explain the four tax entity structures by discussing three (3) specific features of each, relevant for Claude and Lilou to consider. Indicate in each structure its appropriateness to the clients’ situation. (16 marks)
Calculate Claude’s net tax payable using the following table for 2024/25. Compare his current position (individual of a partnership) compared to a company structure by taking a $190,000 and a
$43,500 fully franked dividend. Assume a company tax rate 27.5%. (10 marks)
Income tax position Partnership Company
Self-employed income $ $
Interest income $ $
Dividends/Distributions from portfolio $ $
Franking/Imputation credits $ $
Total assessable income $ $
Less allowable deductions ($) ($)
Taxable income $ $
Tax on taxable income $ $
Medicare levy $ $
Total tax payable $ $
Franking credit tax offset ($) ($)
Net tax payable $ $
Criteria-Based Marking Guide for Question 1(a)–(b)
(a) Excellent (Mark range: 21–26 marks) Satisfactory (Mark range: 13–20.5 marks) Unsatisfactory (Mark range: 0–12.5 marks)
comprehensive explanation of all four tax entities covering three (3) relevant features reasonable justification of appropriateness of each structure for client comprehensive explanation of all three tax entities covering two (2) relevant features inadequate justification of appropriateness of each structure for client Inadequate explanation of all four tax entities covering one (1) relevant feature inadequate justification of appropriateness of each structure for client
(b) correct figures calculated, including correct application of the franked dividends minimal errors in figures presented mostly correct figures calculated, including correct application of the franked dividends moderate errors in figures presented generally incorrect figures calculated, including correct application of the franked dividends significant errors in figures presented
Assume that Claude and Lilou went ahead with Glenda’s recommendation to establish a company, MariSole Pty Ltd (MariSole) and returned to Glenda for her assistance with the Research and Development (R&D) tax incentive.
Glenda promotes herself to prospective clients as an R&D specialist and sends a letter of engagement stipulating her fee is 20% of any R&D tax offset that the client might obtain. Clients provide her their business’ financial and operational information which she uses to prepare and submit a R&D Tax Incentive application. Once the registration is confirmed, she prepares a R&D schedule instructing her clients to incorporate this in their tax return and invoices the client.
Claude and Lilou have costs in relation to their researching sustainable pearl farming practices. They asked Glenda how she managed to get R&D tax offsets so easily as they had previously tried themselves and not succeeded. Glenda reassured them that they can trust her and that her process is her intellectual property and not willing to disclose it.
Glenda has just been found guilty of being a promoter of a tax scheme she created to secure benefits from R&D tax offsets.
All required facts are in the case study above.
Explain the key differences between tax planning, tax avoidance and tax evasion and why these differences matter in terms of integrity provisions. (6 marks)
Are you likely to be considered a promoter of the tax exploitation scheme if you advise Claude and Lilou to invest funds that were sourced from the R&D tax offset? Justify your answer with supporting references to the ATO’s definition of a ‘promoter’. (6 marks)
Glenda is obliged to act according to the TPB Code of Professional Conduct. Identify and explain three (3) principles in the code that she has breached. (6 marks)
You are subject to the Financial Planners and Advisers Code of Ethics 2019. If you were aware that the scheme being promoted by Glenda was a tax exploitation scheme, identify and explain three (3) standards you would apply in dealing with this situation. (6 marks)
Criteria-Based Marking Guide for Question 2(a)–(d)
Excellent (Mark range: 19–24marks) Satisfactory (Mark range: 12–18.5 marks) Unsatisfactory (Mark range: 0–11.5 marks)
(a) comprehensive explanation of the integrity measures in place relevant to the case study adequately explanation of the integrity measures in place relevant to the case study inadequate explanation of the integrity measures in place relevant to the case study
(b) comprehensive analysis of ‘promoter’ definition and relevant justification from case study facts to determine adviser’s position adequate analysis of ‘promoter’ definition and relevant justification from case study facts to determine adviser’s position inadequately analysis of ‘promoter’ definition and relevant justification from case study facts to determine adviser’s position
(c) comprehensive explanation of three (3) principles from the TPB Code Glenda breached comprehensive explanation of two (2) principles from the TPB Code Glenda breached comprehensive explanation of one (1) principle from the TPB Code Glenda breached
(d) comprehensive explanation of three (3) standards from the Code an adviser should apply if they were aware of the scheme comprehensive explanation of two (2) standards from the Code an adviser should apply if they were aware of the scheme comprehensive explanation of one (1) standard from the Code an adviser should apply if they were aware of the scheme
For each of the following transactions, determine whether they are taxable supplies for goods and services tax (GST) and explain the relevant classification:
MariSole’s provision of boat charter services, ie sometimes recreational scuba-divers want a ride out to the ocean and pay $400 for that service. (5 marks)
Claude wants to take out a loan to purchase a jet ski. (5 marks)
From the information below, calculate and explain the GST and corporate tax each company would pay to the ATO. The supplies are all taxable, the GST rate is 10% and the corporate tax is assumed to be 27.5% for all the companies. (10 marks)
Claude and Lilou’s company (MariSole) supplies pearls to Pearlane Pty Ltd (Pearlane) for $165,000 including GST.
Pearlane uses the pearls to make jewellery and sells to Jewalie Pty Ltd (Jewalie) for $350,000 including GST.
Finally, Jewalie sells pearl jewellery to consumers for $900,000.
Assume, MariSole, Pearlane and Jewalie made a profit of $65,000, $90,000 and $300,000 respectively.
Criteria-Based Marking Guide for Question 3(a)–(c)
Excellent (Mark range: 16-20marks) Satisfactory (Mark range: 10-15.5 marks) Unsatisfactory (Mark range: 0–9.5 marks)
(a) correct GST determination of the transaction comprehensive explanation of the relevant classifications. correct GST determination of the transaction adequate explanation of the relevant classifications. incorrect GST determination of the transaction inadequate/no explanation of the relevant classifications.
(b) correct GST determination of the transaction comprehensive explanation of the relevant classifications. correct GST determination of the transaction adequate explanation of the relevant classifications. incorrect GST determination of the transaction inadequate/no explanation of the relevant classifications.
(c) correct figures calculated and explained, including correct application of the input credits minimal errors in figures presented mostly correct figures calculated and adequately detailed, including correct application of the input credits moderate errors in figures presented generally incorrect figures calculated with no explanation, including correct application of the input credits significant errors in figures presented
Claude and Lilou (Marisol Pty Ltd) provided a $35,000 interest-free loan to James on 1 April 2024, which will not been repaid at the end of the financial or FBT year. James used the money to buy a new jet ski for
$25,000 and $10,000 on diving gear.
Explain how this loan is captured under the fringe benefits regime and calculate the amount of fringe benefits tax payable. (10 marks)
Compare and contrast the tax outcome for James as a result of the loan fringe benefit on the assumption his annual base salary is $120,000. (8 marks)
James is not happy with how his fringe benefit is assessed by the ATO. Explain if he is able to challenge this assessment and what the requirements are. (7 marks)
Criteria-Based Marking Guide for Question 4(a)–(c)
Excellent (Mark range: 20-25marks) Satisfactory (Mark range: 12.5–19.5 marks) Unsatisfactory (Mark range: 0–12 marks)
(a) correct fringe benefit determination of the transactions reported comprehensive explanation of the relevant classifications. minimal errors in figures presented mostly correct fringe benefit determination of the transactions reported adequate explanation of the relevant classifications. moderate errors in figures presented incorrect fringe benefit determination of the transactions reported inadequate/no explanation of the relevant classifications. significant errors in figures presented
(b) correct figures calculated, including correct application of the fringe benefit mostly correct figures calculated, including correct application of the fringe benefit generally incorrect figures calculated, including correct application of the fringe benefit
(c) comprehensive explanation of the possibility and process of challenging the ATO assessment adequate explanation of possibility and process of challenging the ATO assessment inadequate/ no explanation of possibility and process of challenging the ATO assessment
Ready to submit?
ü I have completed my assignment using Word.
ü I have completed my assignment using Calibri, Arial, Times New Roman or Verdana fonts and a minimum font size of 10 points.
ü I have added my Student No. and word count on the Assignment 2 Answer Template.
ü I have answered all questions (and clearly labelled any parts) under each question heading provided in the Assignment 2 Answer Template.
ü I have saved the file to be uploaded as: StudentNo_FPC006_AAT2_v12.
ü Each question of my assignment is within the word limit for that question and adheres to the guidelines in the Assessment Preparation Guide.
ü My assignment file size is no larger than 20 MB.
ü If tables were required, they are visible as text, not as links or images.
ü If calculations were required, I have shown all workings and calculations as instructed.
ü I have referenced and cited all source materials using the recommended Harvard referencing style (or the consistent application of any other referencing) and, if required, included a reference list at the end of my assignment.
ü I have submitted my assignment as one (1) Word or PDF file as per the instructions in KapLearn.
