Assignment 1 Instructions
Assignment marks: 95 | Referencing and presentation: 5 Total marks: 100
Total word limit: 3,600 words Weighting: 40%
| Download and use the Assignment 1 Answer Template provided in KapLearn to complete your assignment. |
| Your assignment should be loaded into KapLearn by 11.30 pm AEST/AEDT on the due date. |
| Refer to ‘Time remaining’ on the ‘Assignment 1’ page in KapLearn to ensure you submit your assignment by the specified due date and time. |
| Learning outcomes (LO) mapping | Marks | |
| LO1 | Explain the role of key stakeholders in the Australian taxation system. | 4 |
| LO2 | Classify and apply concepts of income, expenses, rebates and offsets in calculating tax outcomes. | 59 |
| LO3 | Interpret and communicate taxation issues and strategies in the provision of financial planning advice. | 28 |
| LO4 | Calculate and evaluate employee remuneration arrangements. | 4 |
| Referencing and presentation | 5 | |
| Total marks | 100 | |
| Assignment 1 details |
| This assignment covers Topics 1 to 6 and accounts for 40% of your final grade.There are three (3) sections in this assignment:Section A comprises two (2) short-answer questions worth a total of 41 marks.Section B comprises four (4) questions worth a total of 34 marks.Section C comprises one (1) question worth a total of 20 marks.Marks will be awarded for referencing and presentation.Your overall mark for this assignment will be rounded to the nearest whole number.Refer to the Criteria-Based Marking Guide for guidelines on what is expected for each question.Full workings must be shown for all calculations. Show all calculations in the text of your assignment and not attached as an appendix. Appendices to the assignment will not be read.Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and resources. The weightings indicate the relative importance of each question.State all assumptions used in providing your answer. |
| Policies |
| Marks will only be awarded for answers up to the word limit (plus 10%) for each question. Any material written after this will not be counted towards your mark for that question. Headings, quotes and references within the body of the answer are included in the word count. Numerical tables, calculations, and reference lists are not included. For more information on word counts and their rationale, go to Assessment à Assignment à Assessment Preparation Guide. The Assessment Preparation Guide contains information about format and presentation, word limits, citations and referencing, collusion, plagiarism and other policies, useful resources, submitting your assignment and accessing your results.Answers are to be in your own words. Reference and cite all your sources (within the text of your answer) when quoting or using material from external sources. Include a reference list at the end of your assignment.Use of the Harvard referencing style is recommended (as per Kaplan Australia: Harvard Referencing Guide, available from the ‘Referencing and Research’ section of the ‘Build Your Skills’ hub in KapLearn), but the consistent application of any other referencing style will also be accepted.Requests for special consideration or information pertaining to special consideration written in the body of the assignment will not be considered by the assessor. Refer to the ‘special consideration’ section of the Assessment Policy on Kaplan’s website for more information. |
Independent research
For some or all questions in this assignment, you will be required to complete independent research beyond the provided materials. You will also be expected to analyse this research and use it to support your own reasoned conclusions.
This includes:
- consideration of multiple sources beyond topic notes or other provided resources
- sources included are academically sound and credible
- analysing and understanding the argument or information the source presents
- using the material appropriately to directly support your conclusions.
Where significant independent research is required for a given question, it will be clearly indicated in the question instructions and the Criteria-Based Marking Guide.
Assignment 1 referencing and presentation (5 marks)
Your assignment should be presented in a clear and appropriate format, with all sources correctly referenced and cited.
You are required to:
- structure a clear response to each question, using headings if required
- number questions (including sub-questions) and pages
- use correct font style and size
- ensure tables or graphs are clearly labelled and readable
- clearly set out calculations or workings, where they are required
- adhere to the assignment word limit
- cite sources and provide a reference list at the end of your assignment. It is recommended to use Kaplan Professional’s preferred referencing style, Harvard (see Kaplan Australia: Harvard Referencing Guide, available from the ‘Build Your Skills’ hub in KapLearn), but the consistent application of any other referencing style will also be accepted.
Criteria-Based Marking Guide for referencing and presentation
The Criteria-Based Marking Guide (CBMG) provided at the end of each question is designed to assist you to understand what is expected of you in each question and to let you know how your performance will be judged. It provides advice about the criteria used in the marking of the question and what discriminates between an excellent, satisfactory and unsatisfactory answer.
The below CBMG outlines the expectations for referencing and presentation in this assignment.
| Excellent (Mark range: 4–5 marks) | Satisfactory (Mark range: 2.5–3.5 marks) | Unsatisfactory (Mark range: 0–2 marks) |
| clear response structured for each question, including use of headings where appropriateall page and question numbers includedcorrect font style and size used consistently throughoutall tables and graphs clearly labelled and readableclearly set out all calculations or workings, where requiredadheres to assignment and question word limitsexternal sources cited accurately throughout the assignment and included in reference list, using any consistent referencing style | adequate response layout and structure for each question, with some use of headings where appropriate most page and/or question numbers includedcorrect font style and size generally used, with some inconsistenciesmost tables and graphs clearly labelled and readableunclear layout of some calculations or workingsadheres to assignment and most question word limitsexternal sources mostly cited accurately throughout the assignment and in reference list using any referencing style; some errors | poor response layout and/or structure for each question with little to no use of headingsfew or no page and/or question numbers includedapplication of font style and size has significant inconsistenciestables and graphs have little to no labelling or are difficult to readunclear layout of most calculations or workingsassignment is significantly under or over the word limitno or inaccurate use of referencing throughout the assignment and reference list, and/or no reference list provided |
Case study
Flynn (aged 44) and Ali (aged 42) Jones are a married couple, living in Sydney, NSW. They have two dependent children, Beck (aged 12) and Channing (aged 9).
Flynn works as a sales and distribution manager for Whiners Pty Ltd, a wine importation company that specialises in Italian wine. Flynn has been with the company for eight years and is paid a base salary of
$145,000 per annum.
Flynn is also entitled to a 10% bonus per annum ($14,500) on top of his base salary if certain sales targets within the company are reached. Whiners Pty Ltd is currently in a strong financial position with consistent year-on-year sales growth and is on track to pay all bonuses this financial year. Bonuses are paid by the company in June of each year.
Ali works part-time for Atefull8, a catering company providing services to parties and events. Ali primarily works school hours, assisting with meal preparation and menu design, as well as service shifts at some of the functions catered for by her employer. Ali earns a part-time salary of $25,000 per annum.
In addition to her part-time employment, Ali earns $10,000 per annum from purchasing, repairing or improving, and then re-selling, various items on Facebook Marketplace. She loves to find a bargain and has turned her skills in this area into a lucrative side hustle.
Flynn and Ali own their home (with a mortgage) and have two cars, a 2021 Mazda BT-50 and a 2016 Mazda 3, and they wish to upgrade soon.
Flynn and Ali have both accumulated a variety of direct shares over the years. There hasn’t been a particular strategy to their acquisitions, with some holdings in their individual names and some held jointly, in a mix of franked and unfranked dividend-paying companies.
Flynn also previously received, as a gift, a managed fund investment (Wilson Investment Fund) from his mother around 10 years ago. He hasn’t paid much attention to this investment until now, as the holding has recently paid a predominantly realised CGT distribution to unitholders.
Additional details of the clients’ situation are listed below.
Personal details
| Family name | Jones | Jones |
| Given name | Flynn | Ali |
| Marital status | Married | Married |
| Home address | 4 Queen St, Newport, NSW 2106 | |
| Contact number | 0412 000 001 | 0413 000 002 |
| Current age | 44 | 42 |
| Health | Good | Good |
| Smoker | No | No |
| Expected retirement age | 65 | 60 |
Dependant details
| Name | Beck Jones | Channing Jones |
| Age | 12 | 9 |
| Remarks | Still at school (dependant) | Still at school (dependant) |
Employment details
| Flynn Jones | Sales and distribution manager for Whiners Pty Ltd |
| Ali Jones | General staff at Atefull8 Online marketplace trader (self-employed) |
Assets and liabilities
| Flynn | Ali | Joint | Loan | |
| Investment assets | ||||
| NAB Bank (transactions) account | – | – | $3,500 | – |
| NAB Bank credit card | – | – | $10,000^ | – |
| CBA online savings account | – | – | $30,000 | – |
| Direct Australian shares (ASX listed) | $150,000 | – | – | – |
| Direct Australian shares (ASX listed) | – | $100,000 | – | – |
| Direct Australian shares (ASX listed) | – | – | $50,000 | – |
| Managed fund (Wilson Investment Fund) | $200,000 | – | – | – |
| Lifestyle assets | ||||
| Family home (Newport) | – | – | $2,200,000 | ($450,000) |
| 2021 Mazda BT-50 | $70,000 | – | – | – |
| 2016 Mazda 3 | – | $13,500 | – | – |
| Home contents (insured value) | – | – | $150,000 | – |
^ $10,000 credit limit (cleared in full each month).
Investment assets – distribution details 2023/24 FY
| Holding | Income distribution | Dividend franking | |
| Flynn — Investment assets# | |||
| Direct Australian shares (ASX listed) — Company ABC | $50,000 | 3.5% | 100% |
| Direct Australian shares (ASX listed) — Company BCD | $60,000 | 3.5% | 50% |
| Direct Australian shares (ASX listed) — Company CDE | $40,000 | 3.5% | 25% |
| Direct Australian shares (ASX listed) — Company XYZ | $25,000^ | 3.5% | 75% |
| Managed fund (Wilson Investment Fund) | $200,000 | 4.0% | 55% |
| Capital gains distribution | |||
| Managed fund (Wilson Investment Fund) | $10,000* | ||
| Ali — Investment assets# | |||
| Direct Australian shares (ASX listed) — Company ABC | $100,000 | 3.5% | 100% |
| Direct Australian shares (ASX listed) — Company XYZ | $25,000^ | 3.5% | 75% |
^ 50% of joint portfolio holding.
* Gross capital gain distributed to unitholders (before discount). # Corporate tax rate of 30% applies to all companies listed.
Investment assets — cost base details
| Date acquired | Purchase price | Present value | |
| Flynn — Investment assets | |||
| Direct Australian shares (ASX listed) — Company ABC | 12/10/2001 | $18,000 | $50,000 |
| Direct Australian shares (ASX listed) — Company BCD | 14/09/2013 | $39,000 | $60,000 |
| Direct Australian shares (ASX listed) — Company CDE | 03/12/2020 | $33,000 | $40,000 |
| Direct Australian shares (ASX listed) — Company XYZ | 15/05/2016 | $15,000 | $25,000^ |
| Managed fund (Wilson Investment Fund) | 23/03/2013 | $80,000 | $200,000 |
| Ali — Investment assets | |||
| Direct Australian shares (ASX listed) — Company ABC | 3/06/1996 | $9,000 | $100,000 |
| Direct Australian shares (ASX listed) — Company XYZ | 15/05/2016 | $15,000 | $25,000^ |
^ 50% of joint portfolio holding.
Estimated annual gross income details
| Flynn | Ali | |
| Gross salary income | $145,000 | $25,000 |
| Bonus income | $14,500 | – |
| Self-employed income | – | $10,000 |
| Interest income^ | $165 | $165 |
| Direct Australian shares (ASX listed) (Flynn)* | $5,250 | – |
| Direct Australian shares (ASX listed) (Ali)* | – | $3,500 |
| Direct Australian shares (ASX listed) (Joint ownership)* | $875 | $875 |
| Managed fund income# | $8,000 | – |
| Total | $173,790 | $39,540 |
^ Interest income from online savings account at 1.1%. Transaction account interest 0%.
* Dividend income at 3.5%, excluding any franking credits.
# Managed fund income at 4%, excluding fully franked credits.
Annual expenses
| Flynn | Ali | Joint | |
| General living expenses | – | – | $80,000 |
| Mortgage repayment | – | – | $21,000 |
| Personal insurance premiums | $2,200 | $1,100 | – |
| Work-related expenses | $1,000 | $250 | – |
| Work-related expenses (deductible) | $2,500 | $1,500 | – |
| Children’s school fees | – | – | $12,000 |
| School indoor swimming pool fund (donation) | – | $1,000 | – |
| CanTeen Foundation (donation) | – | $500 | – |
| Total | $5,700 | $4,350 | $113,000 |
| Combined total | $123,050 | ||
Insurances
Flynn and Ali currently hold the following insurances.
| Amount insured | Premium p.a. | Policy owner | |
| Life & TPD cover | $1,500,000 | $2,200 | Flynn |
| Life & TPD cover | $1,000,000 | $1,100 | Ali |
| Salary continuance | $145,000 p.a. | $950 | Super (Flynn) |
| Salary continuance | $25,000 p.a. | $430 | Super (Ali) |
Initial goals and objectives
Flynn and Ali are seeking your advice on the following items (Section A and Section B):
- They both wish to better understand their current income tax position, including how the franking credits attached to their portfolio of various shares save them tax.
- They wish to consider ways to maximise their superannuation contributions.
- They both want to understand if they can better structure their insurances to be more tax effective.
- They wish to consider strategies such as gearing to accelerate their wealth creation outcomes.
- Flynn has some shares he wishes to sell to fund an overseas holiday and wants your help to understand the CGT implications of selling the shares.
Other information
Both Flynn and Ali have appropriate private health insurance cover to avoid paying the Medicare levy surcharge (where applicable).
Section A
There are two (2) short-answer questions in this section worth 41 marks. Answer all questions.
Flynn wants to understand his current income tax position. Firstly, calculate the franking credits on each of his investment holdings. Then use this information to complete the income tax table to establish Flynn’s income tax payable, plus total net income position for the 2023/24 FY.
All required facts are in the case study above.
Calculate the dividend and franking credit, demonstrating all workings and the formula each time, that Flynn must include in his 2023/24 FY income tax return for:
(a) Company ABC. (3 marks)
- Company BCD. (3 marks)
(c) Company CDE. (3 marks)
- Company XYZ. (3 marks)
(e) the Wilson Investment Fund. (3 marks)
- Calculate Flynn’s income tax position using the following table for the 2023/24 FY. (10 marks)
| Income tax position | 2023/24 FY |
| Salary income | $ |
| Bonus income | $ |
| Self-employed income | $ |
| Interest income | $ |
| Dividends/Distributions from portfolio | $ |
| Franking/Imputation credits | $ |
| Net capital gains (after discount) | $ |
| Total assessable income | $ |
| Less allowable deductions | ($) |
| Taxable income | $ |
| Tax on taxable income | $ |
| Medicare levy | $ |
| LITO | ($) |
| Total tax payable | $ |
| Franking credit tax offset | ($) |
| Net tax payable | $ |
Criteria-Based Marking Guide for Question 1(a)–(f)
| Excellent (Mark range: 19–25 marks) | Satisfactory (Mark range: 12.5–18.5 marks) | Unsatisfactory (Mark range: 0–12 marks) | |
| (a)–(e) | clear understanding of the application of franking credits in calculating a shareholder’s assessable distributionformulas and calculations are clear and completeunderstanding of and adjustments made for partially franked dividends | satisfactory understanding of the application of franking credits in calculating a shareholder’s assessable distributionformulas and calculations are partially complete, with only minor errorssome adjustments made for partially franked dividends | minimal to no understanding of the application of franking credits in calculating a shareholder’s assessable distribution formulas and calculations not used, unclear and/or incompleteminimal or no adjustments made for partially franked dividends |
| (f) | comprehensive understanding of calculating an individual’s income tax positioncorrect figures identified, including correct application of the franked dividends from parts (a)–(e)minimal errors in figures presented | general understanding of calculating an individual’s income tax positionmostly correct figures identified, including correct application of the franked dividends from parts (a)–(e)moderate errors in figures presented | minimal to no understanding of calculating an individual’s income tax positiongenerally incorrect figures identified, including correct application of the franked dividends from parts (a)–(e)significant errors in figures presented |
Ali also wants to understand her current income tax position. Firstly, calculate the franking credits on each of her investment holdings. Then, use this information to complete the income tax table to establish Ali’s income tax payable, plus total net income position.
All required facts are in the case study above.
Calculate the dividend and franking credit, demonstrating all workings and the formula each time, that Ali must include in his 2023/24 FY income tax return for:
(a) Company ABC. (3 marks)
- Company XYZ. (3 marks)
- Calculate Ali’s income tax position using the following table for the 2023/24 FY. (10 marks)
| Income tax position | 2023/24 FY |
| Salary income | $ |
| Bonus income | $ |
| Self-employed income | $ |
| Interest income | $ |
| Dividends/Distributions from portfolio | $ |
| Franking/Imputation credits | $ |
| Net capital gains (after discount) | $ |
| Total assessable income | $ |
| Less allowable deductions | ($) |
| Taxable income | $ |
| Tax on taxable income | $ |
| Medicare levy | $ |
| LITO | ($) |
| Total tax payable | $ |
| Franking credit tax offset | ($) |
| Net tax payable | $ |
Criteria-Based Marking Guide for Question 2(a)–(c)
| Excellent (Mark range: 12–16 marks) | Satisfactory (Mark range: 8–11.5 marks) | Unsatisfactory (Mark range: 0–7.5 marks) | |
| (a)–(b) | clear understanding of the application of franking credits in calculating a shareholder’s assessable distributionformulas and calculations are clear and completeunderstanding of and adjustments made for partially franked dividends | satisfactory understanding of the application of franking credits in calculating a shareholder’s assessable distributionformulas and calculations are partially complete, with only minor errorssome adjustments made for partially franked dividends | minimal to no understanding of the application of franking credits in calculating a shareholder’s assessable distribution formulas and calculations not used, unclear and/or incompleteminimal or no adjustments made for partially franked dividends |
| (c) | comprehensive understanding of calculating an individual’s income tax positioncorrect figures identified, including correct application of the franked dividends from parts (a)–(b)minimal errors in figures presented | general understanding of calculating an individual’s income tax positionmostly correct figures identified, including correct application of the franked dividends from parts (a)–(b)moderate errors in figures presented | minimal to no understanding of calculating an individual’s income tax positiongenerally incorrect figures identified, including correct application of the franked dividends from parts (a)–(b)significant errors in figures presented |
Section B
There are four (4) short-answer questions based on the case study (Flynn and Ali Jones) worth 34 marks. Answer all questions.
Flynn and Ali now wish to understand several additional items when it comes to their initial key goals and objectives.
They initially indicated they wished to:
- consider ways to maximise their superannuation contributions
- understand if they can better structure their insurances to be more tax effective
- consider strategies such as gearing to accelerate their wealth creation outcomes
- understand CGT implications – Flynn has some shares in mind he wishes to sell to fund an overseas holiday and wants your help to understand the CGT implications of such a sale.
Each question in this section is designed to be answered independently. The broader recommendations you may consider for the Joneses’ situation will be discussed in Section C.
Flynn and Ali want to consider maximising their contributions to superannuation in the most tax-effective manner possible.
Both of their employers pay superannuation guarantee on their behalf to their nominated superannuation funds. As of 30 June 2023, Flynn had $490,000 in superannuation and Ali had $150,000.
Their concessional contributions (CC) and non-concessional contributions (NCC) history is as follow.
| Financial year | Flynn CC | Flynn NCC | Ali CC | Ali NCC |
| 2018/19 | $16,000 | $0 | $2,000 | $0 |
| 2019/20 | $16,000 | $0 | $2,000 | $0 |
| 2020/21 | $17,000 | $0 | $2,500 | $0 |
| 2021/22 | $17,000 | $0 | $3,000 | $0 |
| 2022/23 | $17,000 | $0 | $3,000 | $0 |
Note to students: You are required to undertake independent research to answer the following questions.
- Compare and contrast two (2) benefits and considerations of a salary sacrifice arrangement and two
(2) with making personal deductible superannuation contributions. (4 marks)
- Discuss a viable superannuation contributions strategy for both Flynn and Ali. In your answer determine the maximum amount they each can contribute to superannuation. Recommend how much they should each contribute and discuss how this may improve their overall tax position. Please show all your calculations and workings in your answer. (4 marks)
Note to students:
- Where applicable, cite and reference tax rulings, sections of relevant case law, administrative tribunal decisions, ATO interpretative decisions or other reliable sources to support or justify your answers.
- Ensure your answers relate to the facts in the case study and give practical examples where appropriate.
- Clearly state your assumptions.
Criteria-Based Marking Guide for Question 3(a)–(b)
| Excellent (Mark range: 6–8 marks) | Satisfactory (Mark range: 4–5.5 marks) | Unsatisfactory (Mark range: 0–3.5 marks) | |
| (a) | benefits, factors and considerations of entering into a salary sacrifice agreement clearly explained, stated and understoodbenefits, factors and considerations when claiming a deduction for a personal superannuation contribution clearly explained, stated and understood | benefits, factors and considerations of entering into a salary sacrifice agreement somewhat explained, stated and understoodbenefits, factors and considerations when claiming a deduction for a personal superannuation contribution moderately explained, stated and understood | benefits, factors and considerations of entering into a salary sacrifice agreement poorly explained and/or not stated nor understoodbenefits, factors and considerations when claiming a deduction for a personal superannuation contribution poorly explained and/or not stated nor understood |
| (b) | viable superannuation contributions strategy clearly identified and matched to the clients’ expectationsmaximum contribution amounts identified and calculatedclear explanation and workings of how contributions would improve the clients’ overall income tax position contribution amount recommended and supported by appropriate discussionreference to appropriate case law, rulings and determinations | viable superannuation contributions strategy somewhat identified and matched to the clients’ expectationsmaximum contribution amounts partially identified and calculatedadequate explanation and workings of how contributions would improve the clients’ overall income tax position (and only partially complete)contribution amount recommended is incomplete or not supported by appropriate discussionsome reference to appropriate case law, rulings and determinations | viable superannuation contributions strategy not identified nor matched to the clients’ expectationsmaximum contribution amounts incorrectly identified and/or incomplete calculationsexplanation and workings of how contributions would improve the clients’ overall income tax position is incorrect or incomplete contribution amount recommended is incomplete and not supported by appropriate discussionno reference to appropriate case law, rulings and determinations |
Both Flynn and Ali want to better understand tax-effective ways to structure their insurance cover. They currently hold life, TPD and salary continuance cover either personally or through superannuation.
- Identify Flynn’s and Ali’s current insurance cover. Identify whether each policy’s premiums are deductible and whether the proceeds from each of the policies are assessable and at what rate. (4 marks)
- You are considering recommending a restructure to the way Flynn and Ali hold their existing insurance cover, to improve their tax outcomes. What would you recommend to achieve this outcome, and what additional considerations are needed when undertaking your recommended strategy?
(4 marks)
Note to students: Where applicable, cite and reference tax rulings, sections of relevant case law, administrative tribunal decisions, ATO interpretative decisions or other reliable sources to support or justify your answers.
Criteria-Based Marking Guide for Question 4(a)–(b)
| Excellent (Mark range: 6–8 marks) | Satisfactory (Mark range: 4–5.5 marks) | Unsatisfactory (Mark range: 0–3.5 marks) | |
| (a) | clients’ current insurance cover correctly identified and appropriately presenteddeductibility of premiums, and to which entity or individual, correctly identifiedassessability of proceeds, and to which entity or individual, correctly identifiedcorrect rate of taxation used where included and correct discussion presented on these issues | clients’ current insurance cover mostly identified and appropriately presenteddeductibility of premiums, and to which entity or individual, mostly identified and correct assessability of proceeds, and to which entity or individual, mostly identifiedmostly correct rate of taxation used where included and general discussion presented on these issues | clients’ current insurance cover not identified and/or inappropriately presenteddeductibility of premiums, and to which entity or individual, is incorrect assessability of proceeds, and to which entity or individual, is incomplete incorrect rate of taxation used, and/or incorrect discussion presented around these issues |
| (b) | appropriate discussion and recommendations of how the clients should restructure their insurance coverdetails and comprehensive discussion of the additional considerations that need to be taken into account, in relation to the recommended strategyreference to appropriate case law, rulings and determinations | adequate discussion and recommendations of how the clients should restructure their insurance coversome additional considerations that need to be taken into account, in relation to the recommended strategy identifiedsome reference to appropriate case law, rulings and determinations | incomplete discussion and/or inadequate recommendations of how the clients should restructure their insurance coverminimal to no additional considerations that need to be taken into accountno reference to appropriate case law, rulings and determinations |
To help accelerate their wealth creation aspirations, Flynn and Ali wish to consider gearing as a wealth
creation strategy. At this stage they have not decided on the type of investment, be it an investment property or portfolio of shares; however, they wish to better understand a gearing strategy before proceeding.
Note: You are required to undertake independent research to answer the following questions.
- Explain the general deductions provisions of the Income Tax Assessment Act 1997 (Cth) (ITAA 97), including the basic principles, the positive limb that applies to the non-business taxpayer, plus the negative limbs and their effect on the ability to claim a deduction. (4 marks)
- Explain how Flynn and Ali could use negative gearing as a strategy to assist in their wealth creation goals. Your response should briefly illustrate how negative gearing works, including reference to an appropriate asset class and two (2) conditions for the interest expense to be deductible. (4 marks)
Note: Where applicable, cite and reference tax rulings, sections of relevant case law, administrative tribunal decisions, ATO interpretative decisions or other reliable sources to support or justify your answers.
Criteria-Based Marking Guide for Question 5(a)–(b)
| Excellent (Mark range: 6–8 marks) | Satisfactory (Mark range: 4–5.5 marks) | Unsatisfactory (Mark range: 0–3.5 marks) | |
| (a) | general deduction provisions in ITAA 97 correctly identified and discussedbasic principles correctly identified and discussedpositive limb applying to non-business taxpayers correctly identified and discussed negative limbs that affect a taxpayer’s ability to claim a deduction correctly identified and discussed | general deduction provisions in ITAA 97 mostly identified and discussedbasic principles mostly identified and discussedpositive limb applying to non- business taxpayers mostly identified and discussednegative limbs that affect a taxpayer’s ability to claim a deduction mostly identified and discussed | general deduction provisions in ITAA 97 not identified and/or incompletebasic principles not identified and discussed, or inaccurate and incompletepositive limb applying to non-business taxpayers not identified or discussed, or inaccurate and incompletenegative limbs that affect a taxpayer’s ability to claim a deduction not identified or discussed, or inaccurate and incomplete |
| (b) | comprehensive discussion of how negative gearing can be used as an effective wealth creation strategy, with reference to the Australian income tax systemaccurate and clear explanation of how negative gearing works, with reference to an appropriate asset class and two relevant conditions for interest to be deductiblereference to appropriate case law, rulings and determinations | moderate discussion of how negative gearing can be used as an effective wealth creation strategy, with reference to the Australian income tax systemmoderate explanation of how negative gearing works, with reference to an appropriate asset class and one relevant conditions for interest to be deductiblesome reference to appropriate case law, rulings and determinations | poor discussion around how negative gearing can be used as an effective wealth creation strategy, with reference to the Australian income tax systempoor explanation of how negative gearing works, with reference to an appropriate asset class and no relevant conditions for interest to be deductibleno reference to appropriate case law, rulings and determinations |
Flynn and Ali wish to take a trip to the United States to visit friends and attend a wedding in a couple of months time.
To help fund this trip, Flynn has told you he intends on selling $25,000 worth of the shares from his holding in Company ABC, and a further $10,000 worth of shares from his holding in Company CDE.
Additionally, Flynn also has a carry-forward capital loss from a previous financial year of $5,000.
| Flynn — Investment assets | Date acquired | Purchase price | Present value |
| Direct Australian shares (ASX listed) — Company ABC | 12/10/2001 | $18,000 | $50,000 |
| Direct Australian shares (ASX listed) — Company BCD | 14/09/2013 | $39,000 | $60,000 |
| Direct Australian shares (ASX listed) — Company CDE | 03/12/2020 | $33,000 | $40,000 |
| Direct Australian shares (ASX listed) — Company XYZ | 15/05/2016 | $15,000 | $25,000^ |
| Managed fund (Wilson Investment Fund) | 23/03/2013 | $80,000 | $200,000 |
^ 50% of joint portfolio holding.
Note to students: You are required to undertake independent research to answer the following questions.
- Outline in order the five (5) steps for calculating a net capital gain. (5 marks)
- Using the steps you have outlined in part (a), calculate the net capital gain Flynn must include as assessable income in the financial year in which he sells his proposed holdings in Company ABC and Company CDE. (5 marks)
- Criteria-Based Marking Guide for Question 6(a)–(b)
| (a) | Excellent (Mark range: 7.5–10 marks) | Satisfactory (Mark range: 5–7 marks) | Unsatisfactory (Mark range: 0–4.5 marks) |
| the five (5) steps for calculating a net capital gain correctly identified and presented in the correct ordercorrect reference to the section of the ITAA 97 | the five (5) steps for calculating a net capital gain partially identified and generally presented in the correct ordercorrect reference to the section of the ITAA 97 | the five (5) steps for calculating a net capital gain not/or incorrectly identified and/or presented incorrectlyno reference to the section of the ITAA 97 | |
| (b) | client’s net capital gain correctly calculated using the five steps from part (a) | client’s net capital gain partially correctly calculated using the five steps from part (a) | client’s net capital gain incorrectly calculated |
Section C
There is one (1) short-answer question (with two parts) based on a case study (Flynn and Ali Jones), worth 20 marks. Answer all parts to the question.
Case study
After reflecting on your initial findings (including your responses in Sections A and B), Flynn and Ali would like your advice on the following goals and objectives going forward.
Based on your understanding of their current financial position, you are now required to provide
recommendations to address the following issues and meet your clients’ goals and objectives.
Clients’ goals and objectives
Flynn and Ali are seeking your advice on the most tax-effective income planning strategies, including:
- They want to maximise their superannuation contributions in a tax-effective manner, including suggested ways they could utilise their free cash flow to make additional contributions and the merits of doing so.
- They want to understand if Flynn’s bonus should be taken as cash, or if he should use the amount to
contribute to superannuation (or a combination).
- They both want to understand how to better structure their insurances to be more tax effective, both from a premium deductibility and policy payments perspective.
- They wish to consider strategies to use the equity in their family home, or additional borrowings, to make an investment of up to $400,000. They are open to this being a property investment or portfolio of shares.
- Flynn wants to understand if he should retain or sell his managed fund. Flynn and Ali both wish to understand the benefits of retaining the fund, and the tax consequences if it was sold.
- Ali wants to replace her car and wants to understand if leasing or salary packaging the car would be a good option.
- They wish to understand if they can reduce or pay out their home mortgage while trying to achieve their other goals and objectives.
As part of your response, look to discuss the advantages and disadvantages of your recommendations, identify any risks and justify your outcomes.
You will also be recalculating their tax position to demonstrate the clients’ goals have been met.
Note: You are required to address and support with relevant referencing where appropriate, the recommendations you would make on the above client issues. You are not required to undertake projections, a risk profiling assessment or provide the clients with a formal statement of advice structured response.
Note: You are required to undertake independent research to answer the following questions.
- Discuss and justify the recommendations you would make, and considerations which would need to be taken into account, to address Flynn and Ali’s stated goals and objectives in the areas of:
- Superannuation; maximising contributions and using Flynn’s bonus (2 marks)
- Insurance cover; better structure and premium deductibility (3 marks)
- Gearing strategy; using home equity or borrowings to invest (3 marks)
- Managed funds; benefits of maintaining the fund versus selling (2 marks)
- Ali’s new car; leasing or salary packaging (1 mark)
- Mortgage; ability to make additional repayments (1 mark)
(total, 12 marks)
- Use the current and proposed tax position templates in the appendix to demonstrate the change in position for Flynn and Ali based on your recommendations. Include any assumptions you have used in making your recommendations. (8 marks)
Note: No projections or risk profiling is required. Extra tables or details can be included to support your response.
Criteria-Based Marking Guide for Question 7(a)–(b)
| Excellent (Mark range: 15–20 marks) | Satisfactory (Mark range: 10–14.5 marks) | Unsatisfactory (Mark range: 0–9.5 marks) | |
| (a) | appropriate recommendations made, and relevant to all the clients’ goals and objectives clear and skilful integration of specific information about the clients’ situation and consideration of key issuescomprehensive reasoned plan which thoroughly considers effects of recommendationsplan comprehensively addresses all goals and objectives, or reasonably explains why notappropriate referencing to support recommendations outlined | some recommendations are relevant to all the clients’ goals and objectives some degree of integration of specific information about the clients’ situation and consideration of key issuesmoderately reasoned plan which considers some effects of recommendationsplan generally addresses all goals and objectives, or reasonably explains why notsome referencing to support recommendations outlines | inadequate recommendations, failing to address the clients’ goals and objectivesminimal to no integration of specific information about the clients’ situation and consideration of key issueseffects of recommendations inadequately consideredplan inadequately addresses goals and objectivesminimal or no referencing to support recommendations outlined |
| (b) | current and proposed tax tables accurately completedproposed tax table outcome comprehensively demonstrates an improvement in the clients’ position after addressing their key goals and objectives | current and proposed tax tables somewhat complete with most key aspects capturedproposed tax table outcome generally demonstrates an improvement in the clients’ position after addressing their key goals and objectives | current and proposed tax tables inaccurate or incomplete, with key aspects not captured or addressedproposed tax table outcome does not demonstrate an improvement in the clients’ position, and failure to address their key goals and objectives |
SOA Appendix 1: Current tax position
Note: The items listed below are indicative only and students must adapt them to the clients’
personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.
Income, tax and cash flow
| Tax calculation | Flynn | Ali | Comments |
| Income from employment | |||
| Salary | |||
| Salary sacrifice | |||
| Bonus | |||
| Self-employed income | |||
| Salary after salary sacrifice | |||
| Interest income | |||
| Dividends | |||
| Direct Australian shares (ASX) | Flynn | ||
| Direct Australian shares (ASX) | Ali | ||
| Direct Australian shares (ASX) | Joint holding | ||
| Managed fund distributions | |||
| Capital gains < 1 year | |||
| Capital gains > 1 year | |||
| Other | |||
| Assessable income | |||
| Deductible expenses | |||
| Other deductible expenses | |||
| Taxable income | |||
| Tax on taxable income | |||
| Non-refundable tax offsets (e.g. LITO/SAPTO) | |||
| Medicare levy | |||
| Medicare levy surcharge | |||
| Franking rebate | |||
| Total tax |
| Cash flow | Flynn | Ali | Comments |
| Earned income less any salary sacrificed amount | |||
| Non-taxable income | |||
| Interest income | |||
| Direct Australian shares (ASX) | |||
| Managed fund income | |||
| Total income received before tax | |||
| Investment expenses | |||
| Expenses | |||
| General living expenses | |||
| Mortgage repayments | |||
| Personal insurance premiums | |||
| Personal insurance | |||
| Work-related expenses | |||
| Work-related expenses (deductible) | |||
| Children’s school fees | |||
| School swimming pool fund | |||
| CanTeen Foundation | |||
| Other | |||
| Total expenses | |||
| Total income received before tax less total expenses | |||
| Total tax payable from tax table above | |||
| Total net cash flow |
Current assets and liabilities
Students need to provide a table to fit the clients’ situation. Look for clarity in the table presented and consistency between the case study and the answer.
Below is a sample table:
| Assets and liabilities | |||||
| Asset | Owner | Value | Liabilities | Net value | Notes |
| Personal assets | |||||
| Family home | |||||
| 2021 Mazda BT-50 | |||||
| 2016 Mazda 3 | |||||
| Home contents | |||||
| Total | |||||
| Investment assets | |||||
| NAB (transaction) account | |||||
| NAB credit card | |||||
| CBA online savings account | |||||
| Flynn’s superannuation | |||||
| Ali’s superannuation | |||||
| Direct Australian shares (ASX listed) | |||||
| Direct Australian shares (ASX listed) | |||||
| Direct Australian shares (ASX listed) | |||||
| Direct Australian shares (ASX listed) | |||||
| Managed funds | |||||
| Total | |||||
| Net worth | |||||
1BSOA Appendix 2: Proposed tax position
Note: This will depend on the strategies recommended but should include any cash directed towards investments or loans, and different interest and dividend amounts earned, reflecting the revised portfolio. The revised position may include repayment of debt.
The items are indicative only and must be adapted to the clients’ personal circumstances.
There may be other relevant income or expense items that are not included below.
Income, tax and cash flow
| Tax calculation | Flynn | Ali | Comments |
| Income from employment | |||
| Salary | |||
| Salary sacrifice | |||
| Bonus | |||
| Self-employed income | |||
| Salary after salary sacrifice | |||
| Interest income | |||
| Dividends | |||
| Direct Australian shares (ASX) | Flynn | ||
| Direct Australian shares (ASX) | Ali | ||
| Direct Australian shares (ASX) | Joint holding | ||
| Managed fund distributions | |||
| Capital gains < 1 year | |||
| Capital gains > 1 year | |||
| Other | |||
| Assessable income | |||
| Deductible expenses | |||
| Other deductible expenses | |||
| Taxable income | |||
| Tax on taxable income | |||
| Non-refundable tax offsets (e.g. LITO/SAPTO) | |||
| Medicare levy | |||
| Medicare levy surcharge | |||
| Franking rebate | |||
| Total tax |
| Cash flow | Flynn | Ali | Comments |
| Earned income less any salary sacrificed amount | |||
| Non-taxable income | |||
| Interest income | |||
| Direct Australian shares (ASX) | |||
| Managed fund income | |||
| Total income received before tax | |||
| Investment expenses | |||
| Expenses | |||
| General living expenses | |||
| Mortgage repayments | |||
| Personal insurance premiums | |||
| Personal insurance | |||
| Work-related expenses | |||
| Work-related expenses (deductible) | |||
| Children’s school fees | |||
| School swimming pool fund | |||
| CanTeen Foundation | |||
| Other | |||
| Total expenses | |||
| Total income received before tax less total expenses | |||
| Total tax payable from tax table above | |||
| Total net cash flow |
Proposed assets and liabilities
Students need to provide a table to fit the clients’ situation. Look for clarity in the table presented and
| Assets and liabilities Asset Owner Value Liabilities Net value Notes Personal assets Family home 2021 Mazda BT-50 2016 Mazda 3 Home contents Total Investment assets NAB (transaction) account NAB credit card CBA online savings account Flynn’s superannuation Ali’s superannuation Direct Australian shares (ASX listed) Direct Australian shares (ASX listed) Direct Australian shares (ASX listed) Direct Australian shares (ASX listed) Managed funds Total Net worth |
consistency between the case study and the answer. Below is a sample table:
| I have completed my assignment using Word. |
| I have completed my assignment using Calibri, Arial, Times New Roman or Verdana fonts and a minimum font size of 10 points. |
| I have added my Student No. and word count on the Assignment 1 Answer Template. |
| I have answered all questions (and clearly labelled any parts) under each question heading provided in the Assignment 1 Answer Template. |
| I have saved the file to be uploaded as: StudentNo_FPC006_AAT1_v12. |
| Each question of my assignment is within the word limit for that question and adheres to the guidelines in the Assessment Preparation Guide. |
| My assignment file size is no larger than 20 MB. |
| If tables were required, they are visible as text, not as links or images. |
| If calculations were required, I have shown all workings and calculations as instructed. |
| I have referenced and cited all source materials using the recommended Harvard referencing style (or the consistent application of any other referencing) and, if required, included a reference list at the end of my assignment. |
| I have submitted my assignment as one (1) Word or PDF file as per the instructions in KapLearn. |
END OF ASSIGNMENT 1 INSTRUCTIONS
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