Tax Implications Relating to Bonus Shares Free-Samples for Students

Questions: 1.Prepare a Letter of Advice to Serena Advise Serena about the tax implication soft sale of her business,includin gall exemptions/concessions available and conditions that she must meet in order to access them. 2.Discuss the tax implications of the issue of the Lithium Australian Lbonus shares to Serena. 3.Discuss the assessbility of Each receipt listed in the Information. Answers: 1.To, Mrs Serena, Serenas Sensational Shoes Subject:Advice on various income tax issues that have arisen during 2016 tax year as well as the issues which will arise in future. Dear Madam, As per our previous conversation in this letter, I am providing you advice relating to income tax issues relating to the sale of business, bonus shares and other receipts during the year. Tax implications of specified issues have been explained below: Sale of business Capital Gain tax is to be paid on arising of capital gain. It is part of income tax, and the same may arise in case we sell or dispose of assets or our business (Barkoczy, 2016). In the present scenario, as you are thinking of selling your business; you have to follow the following provisions relating to capital gain taxation. The amount of taxable capital gain in the present case will be: Consideration receivable for business $ 240000 Agent and legal cost relating to sale of business ($ 8700) Net consideration receivable is taxable $231300 As the present case relating to small business the following CGT exemptions can be availed: 15- Years asset exemption In case one is 55 years old and have owned business for at least 15 years then you are not required to pay CGT when you dispose of the asset by sale, gift or transfer (Lang, 2014). Presently you are not eligible for same; hence it is advised to delay the idea of selling the business until next year so that the specified exemption could be availed. 50% active asset reduction According to provisions of section 152-205 of Income Tax Assessment Act 1997, in case we owe an active business then you are required to provide tax on fifty percent of the capital gain in case we dispose of the asset. This exemption can be availed now if the decision of selling a business cannot be availed. 2.Tax implications relating to bonus shares Section 130-15 of ITAA 1997 specifies provisions relating to bonus shares. As per the specified provisions bonus shares are additional shares received for an existing holding of shares received and its cost depend whether the shares are assessable as divided or not. In case the shares are received in cash than the same are treated as a dividend and included in assessable income. Presently no tax will be paid as the bonus shares have not been availed in cash form but when these shares are sold the same will be liable for capital gain taxation. 3.Assessability of each receipt listed in the information Gross income: This income is assessable as it is covered under provisions of personal service income. Serena had earned this income through her personal skills and efforts. This income is inclusive of sales of goods and services, interest, royalties and she are allowed to subtract allowable deductions (Taylor and Richardson, 2013). Franked dividends from Commonwealth Bank: Dividend received by Serena is totally franked which mean entire amount carries the franking credit. Thus on the same tax liability does not arise. For this aspects, case facts of PERLS V securities can be considered. Income from army reserves: This income is exempted as it is received from government sources. Same has been covered under provisions of Sec 51-1. Cash received from grandfather: In accordance with the provisions of Australian taxation law gifts or cash received from relatives is exempt from tax, so it will not be assessable. Same has been covered under case study of Scott v FCT (1966) 117 CLR 514 (Barkoczy, 2016). Henceforth only gross income is assessable in present financial year. References Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue. Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue. Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH. Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalised tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25