Tax Analysis and Calculations for Ruby Delights Pty Ltd

ACCT 3001 Advanced
Taxation

TABLE OF CONTENT
Letter of Advice...........................................................................................................................3
REFERENCES................................................................................................................................8
APPENDIX......................................................................................................................................9
Calculation of net tax payable of Ruby delights Pty Ltd.............................................................9
Preparation of franking account for Ruby Delights Pty Ltd for 2020/2021 year........................9
Calculation net tax payable on dividend income from Ruby delights Pty Ltd..........................10

Letter of Advice
Accountant
Ruby Delights Pty Ltd
98 Shirley
PIMPAMA QLD 4209
Australia
12th May 2022
To
Mr Colin Rudman and Mrs Elana Rudman
Ruby Delights Pty Ltd
98 Shirley
PIMPAMA QLD 4209
Australia
Dear Mr Colin and Mrs Elana
It is to inform you that I have received your email and I have completed Ruby Pty Ltd. tax
analysis and calculations. On the basis of calculation and analysis of taxation position of Ruby
Pty Ltd, the following points are advised to you:
1. After computing the net tax payable of Ruby Pty Ltd, it has been identified that in the year
2021, the company need to pay net tax of $524040 (see appendix for detail calculation). It
means when the 2020/2021 tax return is lodged, the company need to pay the tax amount of
$339040 to Australian Tax Office (ATO). In Australia corporate tax is second largest tax
revenue for government after personal taxes. All the companies are subject to corporate tax rate
of 30% except small and medium business. Basically, there was no corporate tax issue for the
company because they are paying the corporate tax with basic tax rate i.e., 26% (INCOME TAX
ASSESSMENT ACT 1997 - SECT 165.210). Also, the prior year loss of the business is set off
against the current year corporate taxable income of the company. However, one of the
corporate tax issue with the company is that they have no interest expenses because of no loan
and debt (Taxation ruling 98/1 Income Tax assessment Act, 1997). The interest expenses on

business loan and debt is tax-deductible in Australia that reduces the taxable income of the
company. Hence, it is advised to Ruby Pty Ltd that they should borrow money from the market
in order to expand business and also proper tax planning. It is because the interest income on
debts will reduce the taxable income of corporate.
2. Basically, there are no income or capital tax consequences for the company whose
shareholders sell its shares again to company. However, a buyback of shares might result into
the franking credit debit arising. It is generally to the extent the company franks its dividend
component. In Australia family trust pays zero tax on income that they generated within the
trust because they distributed all dividend income among beneficiary. In this sense, it can be
said that the sale of Masters Family Trust to Rudman Family trust will not affect the tax of
Ruby Delight Pty ltd. On the other hand, the tax consequence of this sale of shares in Ruby
Delight Sty Ltd over shareholders of the company is such that their shareholdings will increased
by 50%. It means previously, Rudman Family trust has shareholding of only 50% but now they
became the sole shareholder of company (C of T (SA) v Executor Trustee (Carden's Case)
(1938) 63 CLR 108). The impact of this action over Master Family trust is that they have earned
capital gain which leads to higher capital gain taxes. On the other hand, the impact of this action
over Rudman Family trust is that their dividend income will increase.
3. After preparing franking credit account for Ruby Delight Pty Ltd, it is identified and analysed
that the closing balance of company franking credit account is $317789.20 after PAYG
payment. A corporate tax entity in Australia is allowable to allocate the franking credits among
the shareholders of company via attaching credits to the distribution the company will make.
The company basically allocate maximum franking credits on the basis of applicable corporate
tax rates. For example, in the case of Ruby Delight Pty Ltd, they are passed the basic corporate
tax rate test which indicate that the company need to pay corporate tax at the rate of 26% only.
Hence, the company has allocated the franking credit at the rate 26% among the shareholders. A
franking credit is also known as imputation credit paid by the companies to their shareholders
along with the dividend payments in order to eliminate the issue of double taxation for investors
(ATO Tax Ruling 1999/9). Hence, in the given case it is advisable to Ruby Delight company
that they also need to provide or allocate the franking credit amount to each investor along with
the dividend payment of $600000.
4. On the basis of calculation of each beneficiary net payable amount, it has been identified that