Advanced Taxation: Roohealth Business Structure and Portfolio Analysis

This report provides a comprehensive analysis of business structures and portfolio investment strategies for Roohealth, a business owned by Anna and Eric. It begins with an executive summary and introduction to taxation, highlighting its importance in the economy. The core of the report is a letter of advice to Anna and Eric, evaluating various business structures including sole proprietorships, partnerships, trusts, and companies, considering their tax implications, legal requirements, and benefits. The report recommends a limited liability partnership due to its ease of setup and compliance. Furthermore, the report offers advice on portfolio structuring, investment in the stock market, and the management of funds, considering different investment options like equity, debt, and mutual funds to maximize profits. The analysis considers the legal and financial aspects of each entity type, and the portfolio mix is designed to align with the business's goals and risk tolerance. The report concludes with a summary of the key findings and recommendations.

ACCT3001
ADVANCED
TAXATION

Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
TASK...............................................................................................................................................4
Letter of advice to Anna and Eric along with recommendation outlining the impact on their
profit drawdown from Roohealth:..........................................................................................4
Advice to Anna and Eric that how each of their portfolio should be structured along with
analysis of appropriateness of each of the potential entity structures:...................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

EXECUTIVE SUMMARY
In this report the discussion has been carried out the selection of business structure in order
to start the business by Anna and Eric. The legal status has been discussed as to which type of
status has been beneficial for them so as to run the entity in the smooth manner for the long run.
The recommendation has been made to start the limited liability partnership firm as the
compliance requirement under this is very limited and function could be carried out easily
without must difficulty. Further in the below report the suggestion has been given to both of
them regarding the investment of funds in the stock market so as to earn the maximum profits as
they can.

INTRODUCTION
Taxation plays the vital role in an economy as the revenue that has been collected will be
used for the public welfare and providing salary to the government employees. With the help of
this tax collection the nation can be their infrastructure accordingly. The tax is collected on
goods or services provided known as goods and service tax. The tax that has been collected on
various group of persons are being income tax which is levied on group of individuals such as
individuals, partnership firm, sole proprietor, local authorities etc. This report shows the
recommendation that has been given to Anna and Eric as both wants to start the business but
does not know that what should be the legal status they should consider to start the venture.
Further an advice has been given to them regarding the portfolio investment they want to invest.
TASK
Letter of advice to Anna and Eric along with recommendation outlining the impact on their profit
drawdown from Roohealth:
To
Anna and Eric
Roohealth
June 3, 2022
130 Comer street, Cross Road, 245230
Dear Sir/Madam,
In the letter mentioned below the general discussion has been conducted regarding the selection
of the structure of your business that what could be its legal status. While selecting the structure
special consideration has been given to benefits and limitation of various entities considering the
future growth of the organisation, tax benefits they could get, legal compliances the business
could go through and so on. After considering all the above factor, the recommendation has been
given regarding the selection of business to Amma and Eric that how could they start their
business. In this letter a discussion will be carried out for the selection of your business structure
to start your business. On moving further in the statement the suggestion has been given to both

of them regarding the best investment option they have to make so that maximum profits they
could get through. The portfolio mix has been suggested considered the pros and cons of various
types of securities under which they could invest their funds such as equity, debt, mutual funds
and so on.
In order to operate any business, it is necessary for the owners or proprietor that that business to
get registration of such business that provide legal status to the activities that are being carried
out under such business. Such legal status could be in the form of sole proprietorship, partnership
firm, trust, company or superannuation fund. All these entities are governed with their respective
laws and regulation and it is mandatory to comply with the same accordingly. The details of each
type of structure along with recommendation for the selection to carry out the Roohealth
business are being explained below:
 Trust:
The formation of the trust has been made when the trustee holds the assets and run the
business, the distribution of income has been done to the beneficiaries and consider the
provisions of the trust deed (Section 97 of the Income Tax Assessment Act 1936)
Benefits:
 With the help of trust the protection to the assets can be made and the ownership
of the trust can be vested and not the beneficiaries. Creation of the trust would be
considered as the sage regime in case of the family and corporate assets.
 The benefits of making the trust could be such that as they could own the specific
assets such as land or the interest in the family business.
 Wealth of the family could be easily preserved when the business is carried out by
making the trust.
 The generation of the trust could be very effective for the organisation for
reducing the tax mitigation or hardship arrives on the tax payer as there are
numerous benefits that are being available to those entity working under the status
of trust.
 The taxation of the trust income has been made as income of the individual.
Limitations:
 The structure of the trust is very complex as compared.
 The trust can be expensive in order to maintain and establish.

 The trustee’s powers are being restricted by trust deed as they governed by it.
 The problem is being run into the borrowing due to additional complexities of the
loan structures.
 Partnership Firm:
An association between two or more persons are known as Partnership. This type of
business is also started with carry out less formality. But the important consideration is
the partnership deep that needs to be entered before starting the same. The partnership
deep contains all the terms and conditions relating to business such as profit-sharing ratio,
the percentage of ownership, the terms of dissolution of partnership, right of management
carrying out the business and so on (Section 51 of the Partnership Act 1963).
Taxation
The partnership firm is an individual entity and they have separate legal status, therefore
need to file their return separately as compare to their partners. Profits and losses are
passed through the owners depending upon their profit and loss sharing percentage
depending upon the agreement that has been entered initially. It is necessary for each
partner to pay the taxes on their share of profit accordingly.
Formation
It is easy to start the business but the important thing is to enter the partnership deed and
the partner obligation arises based on deed itself. The business will be started will the
help of capital contribution, distribution of profit and losses, the responsibility of the
management, bookkeeping, banking and dissolution.
Benefits
It is very easy to create and maintain the partnership firm and profits & losses are passed
through owner’s personal tax returns.
Limitation
The partners are being personally liable to pay the debt with their personal property also
and can lead the management & oversight the issues which are being absent I partnership
agreement (Section 23 of the Partnership Act 1963).
 Sole Trader:

This type of business entity has been having been run by individual. Sole proprietor is
the most common forms of business. In the sole trader business, the business and the
trader are not the considered to be the separate person.
Taxation:
The sole proprietor has to file his tax return on regular course of interval, however the
business does not file their tax return. The income or loss generated in the business has
been pass through the personal income tax filling.
Liability:
The owner of the sole proprietor business has liability to the unlimited extend and they
need to sell it off their personal property too to repay the business losses. The risk that
they are exposed will only be mitigated with the help of insurance only.
Formation of Business:
There is the less requirement to start the business as sole proprietor and the cost incurred
to start such form of business is very lower (Online available on business.gov.au)
Benefits:
The business could be very easy to start as it not requires much formalities that are being
needed while starting a private limited company or any other organisation. The anather
benefit of creating the partnership firm could be that it is convenience to dissolve as
compare to companies which takes almost a year to get dissolve.
Limitation:
The owner of the business is exposed to unlimited liability and they are exposed to risk
also. Further the investors do not easily invest their funds on the business which has the
legal status in the form of Sole Proprietor.
 Company:
The company is the joint corporation or partnership firm. The owners of the company are
being called as members. The members are the owners of the company and it may
include individuals, corporations, foreign entities and so on.
Taxation:
The income earned in the business is passes through the business to the members of the
company who may show their income on personal income tax return. The members of the
company are not liable to use their personal assets to the company’s debts unless and

until requires by the court or any specific law established towards the company (Online
available through ABNaustralia.com.au)
Liability:
The shareholder and members are being protected from the personal liability as the
company is of the limited liability. If the company faces any law suit against them then in
that case only the assets of the business are at risk instead of the personal property.
Formation:
The formation of the company is difficult and time consuming as it requires various
forms and procedure which needs to be complied with. The articles of association and
memorandum needs to be specified in the relevant forms as it plays vital role for the
function of the company.
Benefits:
 The liability under the company is limited to company itself as both are separate
and work as separate legal status and therefore all the transactions entered
thereunder will be solely responsible for organisation. The liability of the owners
is being limited therefore the entity itself is responsible of the liability’s which are
being incurred by the organisation.
 The profits and losses are passed on the individual members and will be taxed in
their respective hands only.
 There is no limit on the number of members being retained by the company.
Limitation:
 Additional tax may be levied on the member on state wise dealings on behalf of
the company.
 The respective share of the members on the profits are being considered as
taxable income in their hands even though such profit is still pending for
distribution (As per Corporation Act 2001).
Recommendation:
On the basis of the above analysis with respect to different forms of business it has been
recommended to the Anna and Eric to opt for the partnership firm option and run their business
by establishing such firm as it requires less complication. With the help of partnership deed, the
transparency has been easily maintained between the two regarding the profits and losses gained

in the business and sharing too in the profits. With the help of partnership firm, they can easily
grow their business with less compliance on the tax returns. Further by entering into limited
liability partnership the liability of the partners is restricted to towards the losses they earned in
their business.
Advice to Anna and Eric that how each of their portfolio should be structured along with analysis
of appropriateness of each of the potential entity structures:
Management of portfolio plays the vital role as the huge amount of funds is being invested in
the funds and if funds are not managed properly then the risk increase on account of the investor.
The business in the form of Roohealth are being running successfully and is being operating of 3
years. The business of Anna and Eric is being exceeding the expectations and they are regularly
selling their products globally. They are thinking to invest their valuable funds in Blue chip
company’s so that they can earned profits amongst them. The amount they had is around
$200000 each to invest in the market and in addition they can use $50000 a year for the same
purpose. In order to invest the funds in a more structures way the following options are being
available to them that provides flexibility, tax effectiveness, asset protection against legal
liability and ability to draw the funds:
 Bond: It may be described as a tool this is constant in nature it indicates the mortgage
taken through the borrower to the investor. The expenses of bonds are inversely
associated with the fee of hobby which include whilst fees increase, the expenses of the
bonds fall and vice versa. In the economic market, there are special styles of bonds which
include inflation-related bonds, perpetual bonds, bonds with 0% yield, company bonds,
floating-fee bonds, bearer bonds, convertible bonds, authorities’ bonds, and
inexperienced bonds
 Futures: In the economic market, it's miles a tool of derivatives that's a settlement for
obliging events to buy and promote the belongings at unique destiny dates and expenses.
It enables in hedging the motion of the rate of the underlying asset which protects from
surprising losses (Derivatives laws and regulations Australia).
 Stocks: It is likewise referred to as fairness which displays the share of the possession
withinside the enterprise. The inventory shopping for and promoting are achieved at the
inventory exchange. There are classes of stocks: not unusual place and preferred.

 Funds: The finances are derived from many buyers which assist to enhance the go back
on the quantity invested. There are special classes of funding finances which include
open-give up and close-give up, index finances, hedge finances, and exchange-traded
finances (Australian securities and investment commission act 2001). In current times,
Profit incomes isn't best the cause of the organisation however additionally to create the
wealth which maximizes the profits in step with percentage of the organization. In the
context of the above scenario, exceptional funding possibilities may be defined s given
below:
 Debt: It is taken into consideration the most inexpensive supply to make investments
which allows in lowering the legal responsibility of the tax. The hobby paid at the debt is
taken into consideration because the rate in opposition to earnings which allows in saving
the tax. It is straightforward to spend money on debentures due to the fact the hobby paid
isn't carried a large value to the individual. One of the maximum considerable factors in
making an investment in debt is that it does now no longer dilute the manipulate of the
organisation and decision-making electricity stays withinside the arms of the proprietor
best •
 Cryptocurrencies: In current times, cryptocurrency may be termed because the virtual
foreign money wherein traders can purchase and promote items through the usage of the
same. The exceptional cryptocurrencies are Bitcoin, Ethereum, Litecoin, and Ripple. The
fundamental gain of this foreign money is that it's miles decentralized because of this that
that the authorities isn't concerned withinside the system of cryptocurrencies. Another
importance is that there's no requirement to pay the charges and fee to any monetary
institution. The various factors consisting of inflation do now no longer have an effect on
the fee of cryptocurrencies. The go back of the melody may be maximized which allows
in enhancing the residing standard (Australian securities and investment commission act
2001).
On the basis of the above analysis on the various securities and risk involved upon it, it is
recommended to the Anna and Eric to diversify their portfolio as it helps in reducing their risk
accordingly. If they invest their funds only on the equity them their risk will increases. However,
if they make the investment in different sectors along with various securities such as bonds,
mutual funds etc then they will get the safe and regular flow of income on a particular course of

interval which supports their personal life also as they require funds for their children too.
Therefore, the portfolio is such that it consists of equity shares of various companies of different
sectors, mutual funds of various groups, debt or bonds that are being issued by the government
and so on that reduces their risk to the certain extent.

CONCLUSION
Tax is the amount of money that are required by the government which are being gathered
with the help of taxes that are being paid by the people from the income they have earned.
Imposing the taxation is very essential for the organisation as it regulates the expenditure that are
being made by the government. The above statement shows the types of business structure an
individual can use in order to start their business. The types of business could be sole proprietor,
partnership firm, trust or the company. This report also shows the recommendation that needs to
be made to the client regarding the selection of structure which are being best suited to them. At
the end of statement an advice has been given to Anna and Eric regarding the investment in the
portfolio they need to make which are being best suited to them according to risk and return.