PoTL_2017_Chapter_21_Answers_(Final).docx

PoTL_2017_Chapter_21_Answers_(Final).docx - Principles of...

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Principles of Taxation Law 2017 Answers to Questions CHAPTER 21 — COMPANIES AND SHAREHOLDERS Question 21.1 A resident company pays a fully franked dividend of $700 to a resident shareholder. Advise the income tax implications of the shareholder if it is: (a) an individual subject to the top marginal tax rate; (b) an individual with marginal tax rate of 15%; (c) a company with other assessable income of $8,000, and a carried forward loss of $12,000; (d) a company with other assessable income of $9,000 and deductions of $16,000; and (e) a partnership with two resident individual partners sharing equally partnership profits or losses. Answer Imputation system: tax implications of resident shareholders: (a) Resident individual at top marginal rate: assessable income = $700 (s 44 ITAA36) + $300 (gross up) = $1,000 tax @ 45% = $450 tax offset = $300 net tax payable on the dividend = $150 (b) Resident individual with marginal tax rate of 19%: same amount of assessable income as in (a) tax @ 19% = $190 excess tax offset = $110, being t0ax offset of $300 less tax payable of $190. The excess is refundable from the ATO (c) Resident company with carried forward loss: assessable income = $700 + 300 + 8,000 = $9,000 the company can choose the amount of carried forward losses to use in this income year the range of losses to choose is $0 to a maximum of $8,000 if choose $0: tax @ 30% = $2,700; net tax payable = $2,700 – 300 (tax offset) = $2,400 if choose $8,000: tax = $1,000 x 30% = $300 which is fully offset by the imputation credit credit to the franking account of the company = $300 (d) Resident company with current year loss: tax loss = $700 + 300 + 9,000 – 16,000 = ($6,000) additional tax loss converted from excess tax offset = $300 / 30% = $1,000 total tax loss carry forward to next year = $7,000 1 © 2017 Thomson Reuters (Professional) Australia Limited
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(e) Partnership with resident partners: net income of partnership from the dividend = $700 + 300 = $1,000 each partner shares (i) assessable income of $500; and (ii) tax offset of $150 Question 21.2 A resident company pays a dividend of $1,400 (franked to 60%) to a non-resident shareholder. Advise the Australian income tax implications of the shareholder if it is: (a) an individual living in the US; (b) a US company holding 20% shares in the resident company; and (c) a US company holding all the shares in the resident company. Answer Imputation system: tax implications of non-resident shareholders: (a) Non-resident individual: no gross up or tax offset dividend: non-assessable non-exempt income franked portion: exempt from withholding tax unfranked portion ($1,400 x 40%, ie $560): subject to withholding tax at 15% assuming the Australia- US treaty is applicable (b) US company holding 20%: same as (a), except withholding rate = 5% (assuming the company satisfying the conditions for this reduced rate under the treaty) (c) US company holding 100%: same as (b), except withholding rate = 0% (assuming the company satisfying the conditions stipulated in the treaty) Question 21.3 A resident company, owned by two resident individuals, has an opening credit balance of $7,000 in its franking account in this income year. It has the following transactions in the year: %
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