Calculating Adjusted Taxable Profit or Loss for Blackmores Limited

This article explains how to calculate the adjusted taxable profit or loss for Blackmores Limited, an Australian health supplements firm. It also provides recommendations on how the company can minimize its tax liability.

Running head: TAX 1
Income Tax Application
Student’s Name
Institutional Affiliation

TAX 2
Income Tax Application
Introduction
The company that I wish to perform tax returns on is Blackmores Ltd. Blackmores Ltd. is
an Australian Health Supplements firm that was founded in Queensland, Australia in the 1930s
(Blackmores, 2017). The firm was founded by Maurice Blackmore with a sole aim of offering
health products to the locals of Australia and worldwide. The company is traded on the
Australian Securities Exchange (ASX) with a ticker symbol BKL and it is one of the most
performing companies in the country. Based on its performance, Blackmores Limited has
managed to employ approximately 843 people who help the company to produce vitamins,
herbal and mineral supplements which are then sold to over 17 countries worldwide, especially
in the Asia Pacific region. Blackmores Limited Australia has been performing well and as at the
end of financial year 2017, the company was recognized and inducted into the Queensland
Business Leaders Hall of Fame. Additionally, its performance is depicted by the fact that the
company was able to grow from a naturopathic health food store in Brisbane, Australia to one of
the largest international business in the world. Currently, it is a $2 billion corporation which
reflects the pioneering foundations that were laid down by its founder, Maurice Blackmores, and
the outstanding entrepreneurship and leadership of his son. With Marcus Blackmores,
Blackmores Limited was able to gain certain values such as integrity, passion and respect which
enabled the company to achieve greater heights and a higher competitive edge worldwide. The
primary reason for researching this company is because it is one of the best-performing
companies in Australia.
Analysis

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In order to calculate the adjusted taxable profit or loss for Blackmores Limited Australia,
the correct legal entity tax data need to be collected. In this case, a tax consultant would look at
the statement of financial position and the statement of comprehensive income and profit and
loss of Blackmores Limited Australia in order to prepare the assessable taxable income or loss.
For this assessment, this information was readily available via the internet since the annual report
for Blackmores Limited Australia for the financial year ended 21st December 2017 could be
downloaded from the Internet. Through this information, the net profit reported could be easily
gotten from the financial statements as required by the Australian Taxation Office (ATO). The
procedure in preparing the assessable taxable income or loss of Blackmores Limited Australia is
that one would add the disallowable expenditures to the net profit which had been deducted from
the net profit and were not supposed to be deducted for taxation purposes as well as add the
taxable income which was recorded in the additional information or the notes to the financial
statements and they were not shown in the income statement of Blackmores Limited. The next
step is deducting the allowable expenditure which was shown in the additional information or the
notes to the financial statements, but they were not recorded in the profit and loss account as well
as deducting the non-taxable income which were added to the net profit but they did not
comprise part of the ordinary business activities such as unrealized foreign exchange gains or
losses or dividend income. Below is an assessment of the taxable income of the company for the
fiscal year ended 2017.
Blackmores Limited
Adjusted Taxable Profit or Loss Statement
For the year ended 31 December 2017
(In '000's)

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Net profit reported $ 58,028.00
Add: disallowable
Depreciation and amortization expenses $ 8,411.00
Operating lease rental expenses $ 7,942.00
Other expenses $ 14,466.00
Promotional and other rebates $ 143,547.00
Less: Allowable or non-taxable income
Other income $ (545.00)
Adjusted taxable profit $ 231,849.00
The adjusted profit of Blackmores Limited was computed by adding the depreciation and
amortization expenses of $8,411,000, the operating lease rental expenses of $7,942,000, other
expenses of $14,466,000 and promotional and other rebates of $143,547,000 to the net profit
reported of $58,028,000 and deducting other income of $545,000. From the adjusted taxable
profit or loss statement above, it was assumed that other expenses and other income are silent
which means that they should be treated as disallowable or non-taxable income respectively
(Becker, Reimer & Rust, 2015). It is, therefore, evident that Blackmores Limited would have a
taxable profit of $231,849,000. When considering Australia’s corporate tax rate of 30%,
Blackmores Limited would have a tax liability of $69,554,700 as shown below (Johnson, 2014).
Tax liability=30 % × $ 231,849,000=$ 69,554,700
In order to prepare the adjusted taxable profit or loss statement for Blackmores Limited,
the following checklist was prepared in accordance with ITAA 1997 (Mascaro, Goldman &
Laaser, 2016). A × in the tables below portray in agreement with the statement.

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Conclusions and Recommendations
The analysis of the assessable taxable profit or loss above shows that Blackmores
Limited Australia would pay a tax of $69,554,700 for the financial year ended 31st December
2017. Blackmores Limited can use certain tactics to minimize its tax liability. From the above
tax analysis of Blackmores Limited, an advice would be to invest in tax havens in order to reduce
its taxable profit or loss (Murray, Lindquist & Whelan, 2014). Besides, the company could have
double taxation treaties with different countries and this could go a long way in reducing its
taxable profit (Pavlou & Mavros, 2017). Furthermore, Blackmores Limited could invest in
capital assets. Here, in the case of a loss from the capital asset, Blackmores Limited would be
given the opportunity to offset the loss from the taxable income or from any other gains from
capital assets realized by the company. Lastly, Blackmores Limited should look for ways to earn
tax free income. For example, the company could invest in a foreign company and receive
dividends every year. In such a case, foreign dividends are usually exempt and thus they are not
subject to taxes. In doing so, the firm could be in a position to minimize its tax liability at the end
of the period.
Entity's Name: Blackmores Limited
Prior year tax return considerations Ye
s
N
o
N/
A
Has last year's tax return been checked for reversing time differences (e.g.
accruals and provisions)?
×

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Has last year's tax returns been checked for recurring time differences that
may need considering in the current year (e.g. amortization of computer
software and black-hole expenditure deductible in accordance with section 40-
880 of the Income Tax Assessment Act 1997)?
×
Has last year's tax return been checked for tax losses and capital losses carried
forward to the current income year?
×
Have you checked the prior action sheet for the prior year carrying forward
issues?
×
Comments
The previous year’s tax returns for Blackmores were checked for all the above
(Saad, 2014).
Statement of financial position (balance sheet) Yes No N/A
General
Have all balance sheet items been reviewed (e.g.
deductibility of consumable stores, write-offs,
assessability of deferred income, the tax treatment of
bills exchange e.t.c.)?
×
Have all movements in provision been adjusted for (e.g.
provision for annual leave, provision for long service
leave, provision for obsolete stock, provision for
doubtful debts e.t.c.)?
×

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Have sundry creditors been reviewed for accruals/
provisions which have not been legally incurred by year-
end and for non-deductible accrued expenditure (e.g.
accrued audit expenditure and accrued superannuation
expenditure)
×
Have sundry debtors been reviewed for prepayments and
accrued income (e.g. interest receivable)?
×
Does accrued FBT represent the FBT installment
payable by the company in the month preceding year
end (which is therefore deductible as per Taxation
Ruling TR 95/24)?
×
Division 7A
For private companies, have loans, payments and debt
forgiveness to shareholders or their associates been
considered in the light of section 109 and division 7A
(deemed dividend)? If division 7A applies, please refer
to CPA Australia's 2015 division 7A checklist for further
information.
×
Prepayments
Have all prepayments of less than $1000 been claimed
as an immediate tax deduction?
×

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Have all prepayments required to be made by law or
under an order of a court (e.g. prepaid Workcover
expenditure) been claimed as an immediate tax?
×
Have all prepayments of more than $1000 which were
not required to be made under a law or a court order
been capitalized and apportioned over the eligible
service period to which the prepayment relates?
×
Trading stock
Does the company have trading stock? ×
Does the opening balance of the trading stock for tax
purposes agree with the closing balance of trading stock
in last year's income tax return?
×
Is the closing stock valuation method adopted by the
company acceptable for both accounting and tax
purposes?
×
If not, can the tax valuation be justified and is it
adequately documented?
×
Has the company disposed of any trading stock outside
the normal course of business? If so, has the market
value of the trading stock on the day of the disposal been
included in the company's assessable income in
accordance with section 70-90 of the income tax
×

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assessment act 1997 (the ITAA 1997)?
Where stock is valued at cost price, is a full absorption
costing basis being used?
×
Has the treatment of goods in transit and consignment
stock been considered in the valuation of trading stock?
×
Has a deduction been claimed for consumable stores on
hand at balance date?
×
Intellectual property
Have you considered the depreciation rules for
intellectual property under division 40 of the ITAA
1997?
×
Debt/Equity
Has the application of the Debt/Equity rules been
considered for all related party loan interests and hybrid
securities issued by the company?
×
Note: The transition period for at-call loans expired on 1
July 2005 but a carve-out from these rules applies to
small businesses with an annual turnover of less than
$20m. A company must satisfy this turnover test each
year.
Statement of comprehensive income (profit or loss) Yes No N/A

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General
Have you considered whether accounting profit or loss
before tax (item 6 label T) reconciles to the profit/loss
statement? If these do not reconcile, determine the nature
of the difference.
×
Have expenses been reviewed generally for non-deductible
items (e.g. non-deductible entertainment, private expenses,
donations made to the entities who are non-deductible gift
recipients, subscriptions to private publications, capital
legal expenses etc.)?
×
Have operating and/or finance leases and hire purchase
agreements been properly treated for tax purposes?
×
For interest claimed, has the deductibility of the interest
been considered in the light of the use of the borrowed
funds?
×
If the ATO notified you of a SIC or GIC liability, has this
been claimed as a deduction?
×
Have penalties paid (excluding SIC or GIC) to the ATO or
as otherwise charged under the Australian or foreign law
been treated as non-deductible and interest received from
the ATO brought to account as assessable?
×
Has the treatment of discounts on short-term securities
(e.g. bills of exchange, promissory notes) been considered?
×

TAX 11
Has interest received been grossed up for any TFN
withholding tax deducted and a claim made for the amount
of tax deducted?
×
Has the entity derived income that is exempt from tax or
which is non-assessable non-exempt income (e.g. portfolio
dividends received or exempt foreign branch income)?
×
Have you considered if any of the income recorded in the
accounts could be regarded as unearned income in
accordance with the principle of Arthur Murray and
therefore should not be included in income for the current
year?
×
For travel expenses, have travel diaries been kept (where
applicable) along with other supporting documentation?
×
Has the timing of income and expenditure been considered
for long-term construction contracts?
×
Has the potential deductibility of expenditure which has
been capitalized for accounting purposes (e.g. capitalized
interest) been considered?
×
Are management/ consultancy fees paid to related entities
commercially realistic and supported by appropriate
documentation?
×
Decline in value(depreciation)

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Have you ensured this year's tax opening balance agrees to
last year's closing balance?
×
Has the effective life of new acquisitions been reviewed? ×
Has the balancing adjustment for disposed or scrapped
assets been reviewed?
×
Have repairs expensed for accounting purposes, but
capitalized for tax purposes, been treated as additions to the
tax fixed assets schedule and depreciated?
×
Have additions to buildings and construction-in-progress
been reviewed to ensure depreciation has been claimed on
units of the depreciable plant?
×
For the construction of new income-producing buildings or
for extensions, alterations or structural improvements, is a
capital works deduction available under Division 43?
×
Has scrapped plant and equipment (for which a deduction
has been claimed) been physically scrapped or set aside for
scrapping during the year?
×
Has the motor vehicle depreciation cost limit of $57,466
been applied when calculating depreciation?
×
Has a profit on the sale of previously leased motor vehicles
been brought into account?
×
Have plant conversion and relocation cost been capitalized
and depreciated?
×

TAX 13
For companies that are small business entity taxpayers,
have assets acquired prior to 12 May 2015 and cost less
than $1000 been written off immediately. Have any assets
acquired on or after 12 May 2015 and costing less than
$20,000 been written off immediately?
×
For taxpayers that are not small business entities, have
assets costing less than $1000 been included in a low-value
depreciation pool?
×
Have the black hole expenditure rules in subdivision 40-I
of the Income Tax Assessment Act 1997 (e.g. section 40-
880) been considered for black hole capital expenditure?
×
Note: Disclosures are required to be made at item 9 and
item 10 in relation to depreciating assets and depreciation
claim in relation to small business entities.
Non-resident companies
Has income from only Australian sources/ permanent
establishments been included in assessable income?
×
Have applicable double tax treaties been considered,
particularly the articles dealing with business profits and
permanent establishments?
×
For companies that do not have a permanent establishment
in Australia- have interest, amounts attributable to MIT
fund payments and dividends (that are franked or subject to
withholding tax) been excluded from the calculation of
×

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taxable income?
For companies that have a permanent establishment in
Australia- have interests, amounts attributed to MIT fund
payments, dividends and their franking credits (that are not
subject to withholding tax) been included in the calculation
of taxable income?
×
Have the capital gains tax implications of a sale of taxable
Australian real property been considered?
×
Superannuation
Have all superannuation contribution claimed for the year
been paid to the fund before year end? If not, have accrued
superannuation contributions been added back?
×
Has the entity providing the prescribed level of
superannuation for each employee pursuant to the
Superannuation Guarantee Scheme?
×
Has a Superannuation Guarantee charge amount been paid
by the entity? If so, has the amount been added back as
non-deductible? If a late superannuation contribution was
offset against the superannuation guarantee charge, the
offset amount is not deductible.
×
Note: From 1 July 2012 directors of a company can be held
personally liable for unpaid employee superannuation
amounts.

TAX 15
Capital gains
Have any capital gains calculations been reviewed for their correctness? ×
Have the necessary adjustments been made where the accounting gain/loss does not
equal the capital gain/loss for tax purposes?
×
Have you considered the unrealized loss rules in subdivision 165-CC of the ITAA
1997 in relation to the disposal of CGT assets that were held at a charge over time
(i.e. change in the ownership or control of the company)?
×
Have you considered whether capital gains may be able to be reduced or eliminated
in accordance with the small business CGT concessions?
×
Have you considered whether capital gains made in relation to shares in foreign
companies can be reduced or eliminated under subdivision 768-G of the ITAA 1997?
×
Repairs and maintenance
Have repairs and maintenance claims been reviewed to ensure they are of a revenue
nature and contain no capital items?
×
Taxation of financial arrangements
Have you considered the application of TOFA rules to the company? ×
Has the disclosure at item 6K and 6L been reconciled to the financial and other
income disclosures at item 8L and 8U?
×
Bad debts
Have bad debts written off during the year been claimed as a tax deduction? ×
For bad debts claimed as a tax deduction during the year has: ×

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1. The bad debt has been physically written off prior to balance date or is there a
Board of minute authorizing the writing off of the bad debt prior to year-end?
×
2. The debt either previously been returned as assessable income by the company or
does it represent a loan made in the ordinary course of a money lending business?
×
3. The company satisfied the continuity of ownership test or alternatively the same
business test (SBT) during the period from when the debt was created to when the
debt was proposed to be written off?
×
Comments
There were no bad debt expenses for the company and therefore this is not applicable
(Steinmüller, Thunecke & Wamser, 2018).

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References
Becker, J., Reimer, E., & Rust, A. (2015). Klaus Vogel on Double Taxation Conventions. Kluwer
Law International.
Blackmores (2017). Blackmores Limited Annual Report for 2017. PDF. [Online]. Available at
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BKL_2017.pdf
[Accessed on 30th August 2018].
Johnson, S. R. (2014). Loving and Legitimacy: IRS Regulation of Tax Return Preparation. Vill.
L. Rev., 59, 515. [Accessed on 30th August 2018].
Mascaro, M., Goldman, J. R., & Laaser, W. T. (2016). U.S. Patent Application No. 14/508,861.
[Accessed on 30th August 2018].
Murray, D. K., Lindquist, S. A., & Whelan, C. C. (2014). U.S. Patent No. 8,812,380.
Washington, DC: U.S. Patent and Trademark Office. [Accessed on 30th August 2018].
Pavlou, P. T., & Mavros, N. M. (2017). U.S. Patent No. 9,760,915. Washington, DC: U.S. Patent
and Trademark Office. [Accessed on 30th August 2018].
Saad, N. (2014). Tax knowledge, tax complexity, and tax compliance: Taxpayers' view.
Procedia-Social and Behavioral Sciences, 109, 1069-1075. [Accessed on 30th August
2018].
Steinmüller, E., Thunecke, G. U., & Wamser, G. (2018). Corporate income taxes around the
world: a survey on forward-looking tax measures and two applications. International Tax
and Public Finance, 1-39. [Accessed on 30th August 2018].