Fresh Pty Ltd Fresh a Jones Family Company Tax

Assignment Task

Question

1. Fresh Pty Ltd (Fresh), a company owned by the Jones family, amongst other investments, owns and operates a profitable supermarket in Newtown. Fresh’s supermarket is independent of, and is not associated with, the major supermarkets such as Coles and Woolworths. Fresh also has a small number of investments. Fresh is an Australian resident company that is used for tax purposes.

(a) Fresh owns commercial premises in a busy retail shopping mall. The premises are currently leased out to a company that operates a computer store. The tenant has complained for a while about how hot it becomes in the summer period in the store, and that this has adversely affected sales in summer. The tenant has regularly requested Fresh to install air-conditioning. Fresh eventually agreed and on 30 November 2022, a new single-room air-conditioning unit is installed at the premises at a cost of $1000.

(b) Fresh has a 50% interest in a partnership with an unrelated party, PartnerCo. The partnership carries on the business of providing travel consulting services. Due to the recent rise in the incidence of natural disasters at popular travel destinations, there has been a decline in demand for travel consulting services. The partnership made a partnership loss of $60,000 for the 2022/23 income year. The Partnership Agreement provides that Fresh and PartnerCo are each entitled to 50% of any profits. Fresh also received its 50% of the profits for the previous income year 2021/22, on 5 December 2022. The amount received was $70,000.

(c) During the 2022/23 income year, Fresh incurs advertising expenditure of $50,000 in placing advertisements on digital screens displayed in public (this is consistent with the advertising expenditure in previous years)

(d) Fresh is also the trustee of a family discretionary trust which carries on a Page 4 of 8 business of providing nutrition advice to various clients. In the 2022/23 income year, the trust estate earned income calculated under trust law principles of $100,000. The net income of the trust estate, calculated under s 95 ITAA36 was $97,000. On 29 June 2023, the directors of Fresh resolved to distribute the trust law income as follows:

• $20,000 to Bob, who has been a resident throughout the 2022/23 income year and who is not under a legal disability.
• $20,000 to Buck who has been a foreign resident throughout the 2022/23 income year and who is not under a legal disability
• $10,000 to Brian who has been a resident throughout the 2022/23 income year and is aged 12 years (the directors have resolved to hold the remaining $10,000 in the trust, until Brian turns 18 years of age)

(e) Fresh owns 20% of the shares in a medium-sized (Australian resident) company that refurbishes old car engines and sells them at a profit. Fresh received two dividends from the company during the 2022/23 income year. The first dividend was $40,000 and it was franked 60%. The second dividend was $60,000 and it was franked 70%.

(f) During the 2022/23 income year, Fresh also made three frankable distributions. The first distribution ($1 million) is franked at 50%, the second distribution ($2million) is franked at 70%, and the third distribution ($1 million) is franked at 40%. (Assume a corporate tax rate for imputation purposes of 30%).

2. Katie is a full-time management consultant employed by a large management consulting firm ManageCo Ltd. She is an Australian resident for tax purposes. Katie’s main duties are to provide advice to clients in relation to corporate strategy. ManageCo Ltd pays Katie a salary of $150,000 per year.

During the week Katie commutes to ManageCo Ltd’s office in Sydney CBD. Katie is often required to attend client premises as part of her employment duties and during the 2022/23 year of income, she incurs travel expenses of $900 in traveling from the office to client premises, and back to the office. Katie’s employer generally expects her to wear suits to client meetings and during the 2022/23 income year, Katie spends $1200 on the purchase of designer suits which she wears at work.

In August 2022, in an effort to improve her prospects for promotion, Katie attends a seven (7) day conference on management consulting in Queensland, organised by the Management Consultants’ Association of Australia. Katie has discussed the idea beforehand with her employer who encourages her to attend the conference. Katie pays $1,000 for the conference registration fee, $500 for airfares and $1,500 for accommodation and meals. One day of the conference involves a cruise in a glass boat around the Great Barrier Reef with spectacular views.

Katie is also a potential beneficiary of the Perry Family Trust (PFT), a discretionary trust. The beneficiaries are Bob and his wife Jane, and their two children, Katie (30 years) and Emily (25 years). The trustee is a close family friend, Steve. For the 2022/23 income year, the trust estate earned income calculated under trust law principles of $300,000. Steve, the trustee, allocated the trust law income, under a trustee resolution made on 7 July 2023, as follows:

Katie admires fine art and in December 2022 she purchased an artwork for $7000 at an exhibition. Later, in March 2023, Katie sold the artwork for $4000. In December 2022, Katie also purchased a parcel of shares in a prominent technology company for $40,000. However the company recently announced the departure of several directors with key expertise in the industry. Katie subsequently sold her shares in the company for $25,000 in February 2023.

A few years ago, in August 2020, Katie purchased a vacant block of land, near the beach, for $1 million. Katie paid $20,000 in stamp duty and $3000 in legal fees in relation to the purchase. In January 2022, Katie incurred $3000 in legal fees in settling a legal dispute with a neighbour regarding title to the land. In December 2022, Katie decided that she wanted to sell the land due to increased risk of flooding in the area. She spent $700 on advertising the land for sale. On 1 June 2023 Katie entered into a contract to sell the land to a developer for $3 million, and settlement occurred on 15 July 2023. Katie incurred $2900 legal fees in relation to the sale. Aside from the above facts, assume Katie had no other income or deductions during the 2022/23 income year.

Advise Katie regarding the income tax implications to her, arising from the above facts, in relation to the 2022/23 year of income. In your answer, make sure you include the calculation of Katie’s taxable income or tax loss for the 2022/23 year Page 7 of 8 of income and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.

This Accounting and Finance has been solved by our PHD Experts at My Uni Paper.