Internal Controls for Optimal Cash Generation

The assignment content advises Darren and Samantha to introduce internal controls measures that oversee and guide each firm process from start to finish, ensuring efficient and effective operation of the business. It also suggests being cost-effective by using value-based analysis to determine which projects are worth investing in, and conducting regular audits to ensure the true financial state of the business. Additionally, it recommends investing in financial advisors to stay ahead of changing market conditions.

ESTATE PLANNING & TAXATION
DARREN AND SAMANTHA NET TAXABLE PAY AND TAX ADVISE
Name
Course:
Professor’s Name
Institution
City
Date

ESTATE PLANNING & TAXATION
Question 1;
Taxable income=Gross income less allowable deductions (expenses relating to the income)
Medical levy=2% of gross income
Darren and Samantha Net Tax Payable Statement
For FY 2017/2018.
Gross Income;
Darren Samantha Dar & Sam
Income Frm Asset= $450*52=$23,400
Jim & Gardening Income = $235,000
Tupperware Commission= $72,000
Term Deposit= 5%*$40,000=$2000
Share of Rental Income Interest
(And term deposit) $12,700 $12,700 ($25400)
=$23,400+$2,000=$25,400/2=$12,700
Total Gross Income = $247,700 $84,700 0
Less allowable deductions
Interest on Rental property 4.2%*$280,000= ($11,760)
Share loan interest on rental pro ($5,880) ($ 5,880) $ 11,760
Jims gardening expense ($39,000)
Expense on Tupperware ($9,000)
Expense on credit card 12%*$2,700= ($324)
Total Taxable Income =$247,700-$39,324-$5,880 =$84,700-$9,000-$5,880 0
Net Total Taxable Income = $202,496 = $69,820 = $0

ESTATE PLANNING & TAXATION
NB;
1. There is a contra of $11,760 and $25,400 on the equally distribution of revenue and expenses
from the rental property.
2. Since the dividend earned are franked in nature we’re not going to subject it to taxation.
Darren Samantha Darren Samantha
Medical Levy=2%*$247,700=$4,954 2%*$84,700=$1,694 0
Medicare Surcharge rate= 1% 0% 0%
Medicare surcharge for Darren=1%*$202,496=$2,024.96 this is because the taxable income of
Darren is within the tier one of $180,001-$210,000 that subjects to 1%,for Samantha and the
joint invest for Darren Samantha is not subjectable to any because it’s below the base tier of
$18,0000.
Medical Levy Surcharge=Medical Levy plus medical surcharge
Total Medical Levy Surcharge for Darren==$4,954+$2,024.96= $6,978.96
Total Medical Levy Surcharge for Samantha= =$1,694+$0==$1,694
Total Medical Levy Surcharge for Darren Samantha =0
Calculation of income tax for individuals uses the below tax brackets; Fletcher(2013 Pg.23)
0-$18,200 - Nil
$18,201-$37,000 - 19c for each $1 over $ 18,200
$37,001-$87,000 - $3,572 plus 32.5c for each $1 over $37,000

ESTATE PLANNING & TAXATION
$87,001-$180,000 - $19,822 plus 37c for each $1 over $87,000
$180,001 and over - $54,232 plus 45c for each $1 over $180,000
For Darren;
The taxable income for Darren is $202,496
This income therefore lies between the brackets;
$180,001 and over - $54,232 plus 45c for each $1 over $180,000
Tax payable on this is $54,232 plus 45/100*(202,496-180,000)
=$202,496-$180,000=$15,676
Plus 45c for each $1 over $180,000=$22,496*0.45=$10,123.2
Total Income tax payable for Darren=$10,123.2+$54,232=$64,355.2
For Samantha;
The taxable income for Samantha is $69,820;
Samantha’s income lies between brackets;
$37,001-$87,000 - $3,572 plus 32.5c for each $1 over $37,000
Tax payable on this, $3,572 plus the cover of $37,000;
The over=$69,820-$37,000=$32,820
=32.5/100=0.325
The over is=$32820*.325=10666.5
Total income tax payable for Samantha=$10,666.5+$3,572=$14,238
Total Net Tax Payable Income Tax plus Medical Surge Levy;
Samantha and Darren since they have private health insurance with HCF fund that is accredited
they are eligible to a rebate on family basis, Dennis (2005, Pg.23) therefore they entitled to
rebate offset.

ESTATE PLANNING & TAXATION
The collective income from the two of $ 272,316 from the combination of $202,496 and $69,820
classifies the tier 3 family threshold in which rebate ought to be calculated from
Burkhauser(2015,Pg .200)
It’s therefore clear that the threshold lies between $210,000-$280,000 hence subject to 8.644%
rebate premium.
Rebate =8.644%*$272,316 = $23,538.99
They are therefore entitled for an offset of $23,538.99
Darren’s;
Total Tax Payable=
Income Tax Payable +Medical Levy Surcharge
= $64355.2+$6978.96 =$71,334.16
Tax Payable=$71,334.16
Samantha’s;
Tax Payable=
= Income Tax Payable +Medical Levy Surcharge
= $14,238+$1,732 =$15,970
Tax Payable=$15,970
Therefore the Total Tax Payable=$71,334.16+$15,970=$87,304
Less/offset rebate= = ($23,703.23)
Darren & Samantha Net Tax Payable =$63,600.77

ESTATE PLANNING & TAXATION
The above calculations are done based on the following assumption;
1. Damarren and Samantha are both residents for tax purposes.
2. Based on the revenue generation unit rental property an assumption of 52weeks making a year
is made.
3. Since there is no revenue generated via the motor vehicle an expense relating to it is not
allowable in nature.
4. it’s therefore clear that any expense incurred that don’t relate to revenue is therefore not
allowable.
5. An assumption that Darren and Samantha are carrying the rental property as business is made
and therefore since there is no declaration on how to share gain on this have shared revenue and
expenses equally.
Question 2;
Partnership businesses basically involves profits and losses hence tasking the venture to declare
tax return. Unlike individual income tax where prescribed tax bracket is outline hence creating
guaranteed tax obligation, in partnership the latter depend on the performance and operation of
the business according to Regan(2010,Pg.7)
If Darren and Samantha decide to merge and form partnership form of business of course
a different approach on taxation has to be trailed. It’s therefore expected to see Darren and
Samantha declaring to have agreed to do business as partner via partnership agreement that
dictates on the sharing of profit and losses respectively as well as in other occasions of
dissolution, recruiting as well as conversion. Sharing ration has to be outlined depending on the
capital contributed or other investment stands made.

ESTATE PLANNING & TAXATION
Assume that Darren and Samantha are in a partnership business we therefore expect to
see income generated less deductible expenses so as to inform on loss or profit made. In reality
the higher the higher the profit the greater the portion of profit Samantha and Darren share while
the lower the profit the lower the share. On the other hand in case of loss suffering the loss has to
be shared depending on the agreement.
For taxation basis we expect partnership profit and losses to be the one subjected to tax,
it’s there clear that tax burden depends on the declaration hence flexible in nature thus if the
profit is less we expect low capture on tax while when its high the vice versa takes stand. The
worst of all is when losses is suffered there is no tax that is being charged. It’s therefore the
discretion of Darren and Samantha to declare the profit or loss depending on the performance for
tax purposes.
From question one when individual i.e. Darren and Samantha are taxed depending on the
incomes each of them gets they are not subjected to offsets or rather don’t enjoy fringe benefits
tax reliefs as well as tax credits as it is in businesses that have many parties in control
Vegh,2015.
It’s clearly showing that Darren’s net taxable pay is =$71,334.16 while that of Samantha
is =$15,970 if we sum these two incomes==$71,334.16+$15,970=$87304.16 whereas that of
Darren and Samantha after joined they get offsets and totals to =$63,600.77 depicting that there
are factors that minimizes tax burden in partnership unlike in sole traders.
It’s further clear that since in partnership we only expect to pay tax after a profit has been made,
on occasions that the latter doesn’t occur there is no tax charge to be claimed, hence creating an
avenue for the reporters of the accounts to always overstate the deduction and expenses so as to
minimize profit and create loss for purposes of tax avoid Cnossen(2010,Pg.3)

ESTATE PLANNING & TAXATION
Darren and Samantha ought to know that if they operate a partnership business there is no
separation of legal entity sense instead each partner will be enjoying the paying tax on their share
of net partnership income. Therefore through this they will be able to use partnership losses to
reduce respective income for taxation purpose.
Gains and losses from the the partnership business is mostly retrieved back to individual
partners tax status. There are other tax incentives and gains that are enjoyed by partners in a
partnership business the likes of capital gains which is mostly not taxed. Darren and Samantha
likewise ought to know that while operating a business as partnership they’ve access to 50% on
any capital gain especially on the gain on the rental property whereby instead of it being summed
up as taxable income for further taxation its yet to be subjected only up to 50% thus reducing the
taxable income by half;
i.e. Darren Samantha Dar & Sam
Income Form Asset= $450*52=$23,400
=$23,400*50%
=$11500, thus we are only to subject $11,500 of the rental revenue for tax
purpose.
Likewise if the business was that of partnership form we expect each partner to just declare rent
share and respective expenses in the tax return. Partnerships passes income tax to respective
individual and not business hence no taxation at all in this level.
Partnerships that are family based in nature a good example being this one of Darren and
Samantha greatly the benefit of tax avoidance on gifts and estate Monroe(2012,Pg.4)
Darren and Samantha in case they are willing to do contributions as well as distribution
and withdraws them can do so without any oncome tax burden. In business there exists

ESTATE PLANNING & TAXATION
booms/recess or rather high/low seasons times hence leading to loss and profits. With this in
mind partnership business is always lucky since the loss incurred can be claimed for deduction
purposes in the partner share of loss.
Darren and Samantha can control the loss by increasing allowable deductions (expenses)
hence making the income being less than the expenses causing loss hence claim deduction
guaranteed.
If Darren and Samantha operates the business as partnership we would further subject all the
expenses to be allowable with no sidelines on whether it has any direct relation to the income
hence the expenses the likes of motor vehicle loan interest would be considered hence reducing
the taxable income unlike the way we’ve failed to allow the expense with the presumption that
it’s not relating to direct income generation.
Less allowable deductions
Motor Vehicle Loan Interest Payable=7%*$18000=$1260(this is if the business was
partnership), hence we expect the total taxable income of $202496 to be subjected to a deduction
of 1260 before being taxed bracket wise Willis (2006,Pg 7)
I therefore wish to strongly advise Darren and Samantha to merge so as to enjoy the flexible
legal way of tax avoidance especially when the economic factors is not favoring the market.
Question 3;
Financial planning forms the basis of every success on matters concerning business
operation it starts from good recording keeping, tax planning, set up of internal controls,
budgeting as well as cost control.

ESTATE PLANNING & TAXATION
Darren and Samantha are expected to be cautious on their day to day management of the
business. Poor management mostly leads to business closure, losses, low profits among others
the likes of provision of services and sale of goods that do not meet customer satisfaction.
They are therefore required to ensure there is proper book keeping and recording that
captures each and every transaction however small it is for purposes of accountability and trail.
This will greatly facilitate back up and record keeping. Proper book keeping will help Darren and
Samantha track each and every move that may be of any help to the business or that which
retards operation hence creating an avenue of decision making.
For instance if there is records indicating all the expenses and gains relating to the two
motor vehicles from acquisition in my own view would analyze the gain on that motor vehicle
and if there is nothing that the two generates or contribute directly or indirectly at all, would
rather advise for disposal or alternative measures of probably making it for commercial purpose
rather than private.. However this is only possible and applicable if there is proper book keeping.
By budgeting and provision of prudent management skills is an action Darren and
Samantha will not run from especially on expenditure and operations if they are to be successful
financially, basically if they budget and allocate resources wisely the usage of credit cards to sort
manageable expenses would not happen. Budgeting will also facilitate investing on generating
units that yields returns in time so as to curb the monster of spending money on funds that do
not pay back in time thus doing away with the project i.e. the two funds that do not yield
anything at all would have been considered whether option wise or via alternative swaps.
Tax planning is also a task that Darren and Samantha has to put into consideration for successful
financial planning. This is an obligation that the states requires from every individual or partners
in business or employed hence if you are not able to meet the aforesaid state obligation expect
closure, prosecution ,freezing of accounts and assets Richter(2006,Pg.691)

ESTATE PLANNING & TAXATION
All this consequences retards operation and of course shake the financial stand and
position of the firms. Darren and Samantha should be advised to never buoy cot any obligation
that relates to day to day operation of the firm.
Darren and Samantha should introduce internal controls measures that oversees and
guides each and every firm processes from primary point to the optimal point of cash generation.
This internal controls should be seen to serve, protect and manage the operation of the business
hence minimizing inefficiency and malpractices that would befall operations.
Finally I advise Darren and Samantha to be cost effective thus introducing cost based
analysis via the value of money concept this will control investing on projects that are expensive
in nature and don’t pay back in time. Likewise it serves the purpose of ensuring that there is no
misappropriation and misallocation of resources to respective cost centers. I therefore advise
them to be engaged in audit exercise for determination of true and fair state of the business in
operation.
I further advise Darren and Samantha to invest in financial advisors now and then for the
market is dynamic and keeps on camouflaging with the prevail economic factors.

ESTATE PLANNING & TAXATION
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