Taxation Law Case Study: Gold Coast, QLD, Taxation Advice for Clients

This case study analyzes the taxation implications of various financial decisions for Matt and Miranda Murphy, an Australian married couple. The assignment delves into share investments, rental property income and losses, and the optimal business structure for their situation. It explores the computation of tax payable, net rental income, and capital gains, including the application of CGT discounts. The solution recommends strategies such as transferring share ownership to minimize tax liabilities and suggests the use of a discretionary family trust for asset protection and tax advantages. The analysis considers the tax implications of different business structures, including sole trader, Australian private company, and partnership, ultimately recommending the discretionary trust. Furthermore, it addresses asset distribution in the event of a marriage breakdown, including rollover relief for capital gains tax. The case study utilizes relevant Australian taxation law principles, providing practical advice based on the facts presented.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to 1: Regarding Share Investment.................................................................................2
Answer 2: Regarding Rental Property:......................................................................................3
Answer A: Estimation of Annual net rental income or loss...................................................3
Answer B: Estimation of Net Capital Gains on sale in July 2022.........................................4
Answer C:...............................................................................................................................5
Answer 3: Regarding business structure:...................................................................................5
Answer 4: Regarding Trust and Asset Distribution:..............................................................6
References:.................................................................................................................................8

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Answer to 1: Regarding Share Investment
Computation of Total Tax Payable
In the books of Matt
For the Year ended 30th June 2019
Particulars
Amount
($)
Amount
($)
Assessable Income
Salary 150000
Australian sourced dividend income:
Fully franked (net) 14000
Gross up for franking credits (14000 x 30/70) 6000 20000
Net capital gain on disposal of shares:
Proceeds 120000
Cost base 110000
Gross capital gain (proceeds less cost base) 10000
50% CGT discount 5000 5000
Total Taxable Income 175000
Tax on Taxable Income 52247
Add: Medicare Levy 3500
Less: Franking Credits Offsets 6000
Net Tax Payable 49747
Computation of Total Tax Payable
In the books of Matt
For the Year ended 30th June 2019
Particulars
Amou
nt ($)
Amou
nt ($)
Assessable Income
Salary
15000
0
Australian sourced dividend income:
Fully franked (net) 14000
Gross up for franking credits (14000 x 30/70) 6000 20000
Net capital gain on disposal of shares:
Proceeds 12100
0
Cost base 11000
0
Gross capital gain (proceeds less cost base) 11000
50% CGT discount 5500 5500

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Total Taxable Income
17550
0
Tax on Taxable Income 52432
Add: Medicare Levy 3510
Less: Franking Credits Offsets 6000
Net Tax Payable 49942
It is recommended that Matt should sell the shares on 30th June 2019 and re-acquire
them on 30th June 2019 in the name of Miranda will help in lowering the tax liability $195.
As Miranda is falling in the lower tax bracket. Putting the investment in the name of Miranda
will simply spread out the investment income for the taxation purpose for Matt. Furthermore,
this will be regarded as the mere transfer of assets from one partner to another partner and
this will not be regarded as taxable income by the ATO (Woellner et al., 2016). As rightly
stated, Miranda will however be accountable for declaring any income that is earned from the
shares which is in her name.

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Answer 2: Regarding Rental Property:
Answer A: Estimation of Annual net rental income or loss
1 Single St, Brisbane property
Computation of Net Rental Income or Loss
In the Books of Matt
Particulars Amount ($) Amount ($)
Assessable Income
Annual Rental Income ($32,000 x 3 years) 32000
Total Rental Income 32000
Allowable Deductions
Annual maintenance fees ($3500 x 3 years) 3500
Annual council & water rates ($2000 x 3 years) 2000
Annual Mortgage Interest ($29000 x 3 years) 29000
Annual Depreciation ($8,000 x 3 years) 2000
Total Allowable Deductions 36500
Net Annual Rental Loss -4500
32 Pam Ave, Brisbane property
Computation of Net Rental Income or Loss
In the Books of Matt
Particulars Amount ($) Amount ($)
Assessable Income
Annual Rental Income 32000
Total Rental Income 32000
Allowable Deductions
Annual maintenance fees 3500
Annual council & water rates 2000
Annual Mortgage Interest 29000
Annual Depreciation 3000
Total Allowable Deductions 37500
Net Annual Rental Loss -5500

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Answer B: Estimation of Net Capital Gains on sale in July 2022
Computation of Capital Gains
Particulars Amount ($) Amount ($)
Sale of 1 Single St Property
Sales Proceeds 700000
Less: Cost of Acquisition 480000
Add: Construction Cost 37000
Add: Cost base Element - 3 Cost of Ownership)
Maintenance fees 10500
Council and water rates 6000
Interest on mortgage 87000
Total Cost Base 620500
Gross Capital Gains 79500
50% CGT Discount 39750
Taxable Capital Gains 39750
Computation of Capital Gains
Particulars Amount ($) Amount ($)
Sale of 32 Pan Ave Property
Capital Gains 700000
Less: Cost of Acquisition 480000
Add: Cost base Element - 3 Cost of Ownership)
Maintenance fees 10500
Council and water rates 6000
Interest on mortgage 87000
Total Cost Base 583500
Gross Capital Gains 116500
50% CGT Discount 58250
Taxable Capital Gains 58250
Answer C:
The 1st Single St Brisbane Property will minimize the taxable income from the
investment property. This is because the total amount of taxable capital gains earned from the
1st Single St Property is $37,750 while the capital gains produced under the Discount method
from the sale of 32 Pan Ave Property stood 58,250. As the capital gains made from the 1st

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Single St Property is lower under the discount method this will be helpful for Matt in
reducing the taxable income from investment.
Answer 3: Regarding business structure:
As Matt is considering to change his business structure it is recommended that he
should use the Discretionary Family Trust as the suited business structure. Under this
business structure, Matt will have the power of determining which beneficiary will receive
the property or assets that is distributed from the trust and the amount they will receive. The
discretionary trust is usually established for the purpose of protecting the asset and tax
purpose (Murphy, 2019). The property that will be held in the trust will be lawfully protected
from the creditors. In case Matt faces bankruptcy or liquidation, a creditor will not be able to
take the trust property in such a situation. Furthermore, Matt as an individual tax payer will
be entitled to a 50% capital gains tax exemption under the trust.
Tax implications on each business options:
Sole Trader:
If Matt decides to continue as a sole trader he will be eligible for getting a tax free
threshold for individuals of $18,200. As a sole trader business structure the sole trader here
Matt will only be taxed on the part of his personal income (Sadiq, 2019). Matt being the sole
trader will only have to pay tax on the individual income rate.
Australian Private Company:
If Matt decides to change the business structure to Company then he will not be able
to get the benefit of tax free income threshold (Barkoczy, 2016). Furthermore the tax rate will
be greater than the individual tax rate as business in Australia is required to pay tax at a rate
of 27.5% which is greater than the individual rate.

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Partnership with Miranda in equal profit sharing:
A partnership cannot be regarded as the separate legal entity under the general law
and it is not required to pay tax. Instead it is the partners that will be required to pay taxes on
the profits that is distributed from partnership to them (Morgan et al., 2018). The partnership
will be required to lodge the income tax return to show the amount of profit is distributed to
the partners under the sec 91. Evidently in case of Matt, if he is considering to change the
business structure to partnership then the partnership will not be filing any tax return, rather
Matt and Miranda will be required to share the profits equally among them and include in
their tax return for individual tax return.
Conclusively, it is recommended that Matt should consider using Discretionary trust
as the structure of business because Matt will be entitled to a 50% capital gains tax exemption
under the trust.
Answer 4: Regarding Trust and Asset Distribution:
Normally the CGT is applicable to any kind of changes in the ownership of the asset.
In case, if someone transfers the assets to their spouse due to the breakdown of their marriage
or relationship, the taxpayer might be considered eligible for rollover of asset (Taylor et al.,
2017). The term “rollover” is applied when the transferor spouse disregards the capital gains
or loss which would otherwise happen. The person that receives the asset will be making
capital gains or loss when the asset is subsequently sold by them.
Similarly in case the marriage between Matt and Miranda breaks down and if any
asset is transferred to Miranda due to the breakdown of marriage, Matt will be considered
eligible for the rollover of the asset.

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Furthermore the trust asset will form the part of asset available for distribution
between the parties to the trust as the person that will receive the asset will be able to make
any capital gains or loss subsequently following the sale of the asset.

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References:
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Murphy, K. (2019). Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University.
Sadiq, K. (2019). Australian Taxation Law Cases 2019. Thomson Reuters.
Taylor, J., Walpole, M., Burton, M., Ciro, T., & Murray, I. (2017). Understanding Taxation
Law 2018. LexisNexis Butterworths.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.