Assessment Part A - Written Report
The Ethical Trading Group has continued to grow and become a more complex organisation. You (the learner) are the CFO of the Ethical Trading Group Pty Ltd. The Managing Director has requested your assistance in relation to a few important matters. As the group has continued to grow, the Managing Director has asked you to present to the Board a written report about the tax plan (a plan to optimise the tax position of Ethical Trading Group)and an upcoming ATO audit. The Ethical Trading Group has received a notification from the ATO in regards to a scheduled audit. You (the CFO of the Ethical Trading Group) are to prepare a report to the Board to discuss the tax plan and the ATO audit.
In your report on the tax plan and ATO audit for Ethical Trading Group Pty Ltd, address the matters raised in the Questions1 to 4 below.
a) Provide information on the different types of taxes that may be payable by the company.
b) Include a tax calendar highlighting key taxation lodgement due dates(for taxes identified in question 1a above) and any penalties to be levied for late lodgement. Please use a table format to display this information.
c) Discuss the appropriateness of the use of the accruals basis of accounting for the company.
Conduct research to identify updates or any potential changes to tax compliance requirements relevant to maximising Ethical Trading Group's taxation benefits. (Hint: consider any changes Ethical Trading Groupcould make based on any ATO or recent Federal Budget Announcements.)
Your report should include the following;
a) Three separate updates which impact the taxation obligations of Ethical Trading Group(ie report on three  different taxes Ethical Trading Group pays).
b) Note in your report, three(3) separate sources used to research for the updates and changes (such as names of websites and publications).
c) For these three updates, document the potential record keeping and reporting requirements that Ethical Trading Group will need to implement to reflect these changes.
Explain how your tax plan could optimise the organisation's tax position by:
a) Noting which financial records or statementsEthical Trading Group can use to ensure it is able to meet their taxation obligations. Consider two (2) key financial records Ethical Trading Group would already produce or any other external tools which could assist.
b) Note how Ethical Trading Groupcan use the taxation schedule and calendar developed in Question 1b above, to assist in preparation of a budgeted cash flow.
c) Using the Income and Expenditure statement fromtheEthical Trading Group, estimate the following;
i) Budgeted GST payable for the year ended 30/6/17. (Assume GST is collected at 10% of sales revenue and GST is paid at 10% of applicable expenses).
ii) Budgeted Income tax payable by the company, using the standard rate of company tax. (Assume all income is assessable and all expenses are deductible).
d) Analyse differences between budgeted GST payable and budgeted Income tax payable (as you calculated in your answer in question 3c) and the actual GST payable and Income tax (obtain actual balances from the 2017 Actual income and expenditure statement for 2017,
In your analysis discuss possible issues with financial management strategies (ie budgeting) or other processes and controls, taking into consideration the facts discovered from a recent internal audit review of the company.
Internal audit findings include;
- Issues have arisen with invoicing of sales where GST has not been correctly coded and processed.
- A review of income and expenditure identified $300k of legal expenses which had been incorrectly coded as deductible for tax purposes.
e) As a result of the variances between actual tax balances payable and the tax plan estimates noted in 3 d. above, what changes (2 changes) would you suggest have to be made to the budgeting and tax plan process and other management processes.
The ATO has written to the Ethical Trading Groupinforming them about an audit they will be performing of GST, FBT and CGT. For the audit, the ATO has requested the information noted in questions a - e below.
Taking into consideration the activities of the Ethical Trading Group, identify:
a) the source documents used to verify GST collected or paid, including;
i) what information should be shown on tax invoices (at least 5 pieces of information).
ii) what is thedollar threshold amount for which you are required to issue a tax invoice.
b) Information and/or reports required to assist in preparing the FBT return for thecompany.
c) Recordsand/or resources which could be used to assist in calculating and recording capital gains tax. (Hint: Do not provide details on how to calculate CGT.)
d) Details of processes and controls toprepare and lodge GST/ FBT returns, including;
i) Review and sign off of returns
ii) Where and how tax records are stored and filed
iii) Audit trail requirements
iv) How long tax records are kept
e) Note three (3) relevant sections from theEthical Trading Group Policies and Procedures, whichwould assist them being compliant with their taxation obligations.
By completing this assessment the learner will gather evidence of their ability, knowledge and skills to:
- complete lodgements and returns for legal entities
- assess taxation liabilities, optimise tax positions, establish processes and plans, evaluate tax policies and review tax compliance for legal entities.
Report Section 1: Luxury Hybrid Fuel efficient Cars
1. Due to the ethical nature of the business, Ethical Trading Group offers senior managers an opportunity to use a luxury hybrid car. Provide some advice on the benefits of purchasing a luxury hybrid fuel efficient vehicle, relative to a standard luxury car.
2. The Managing Director is currently driving a hybrid vehicle that cost $66,000 including GST. Running costs on the vehicle were $12,000 plus depreciation of $16,500. The car was acquired on 1 April 2016. He has a log book showing 60% business usage. He is considering replacing this car and salary packaging a bike for $2,200 (including GST) to get him to and from work. Discuss the FBT consequences of the two means of transport.
3. The Ethical Trading Group has now acquired two additional hybrid motor vehicles, A Toyota Hilux ute, designed to carry up to 1 tonne for $44,000 including GST and a Lexus Hybrid for $48,500 including GST. Both vehicles were acquired on the 1 April in the current FBT year. In addition the following details have been provided:
- The 1 tonne ute travelled 55,000 kilometres. A log book has been maintained and noted a business usage of 90%.
- The total running costs of the ute were $15,000 (excluding depreciation).
- The employee did not make any contribution towards running costs of the ute.
- The ute was available for use for 360 days.
- Jeff used the Lexus Hybrid and travelled 32,000 kilometres of which 8,000 kilometres were private. A log book has been maintained noting business usage of 75%.
- Running costs were $12,000 (excluding depreciation).
- The car was involved in an accident and spent two weeks at the smash repairers. Jeff paid $2,000 out of his own pocket for the accident.
a) Consider both vehicles. Determine any FBT consequences and then calculate the taxable value (TV) of the benefit using both methods for car fringe benefit calculations - the statutory formula and operating cost methods. (Note: please show all workings or calculation steps in your answer). Which method provides the best result for Ethical Trading Group?
b) There are two gross up rates used when calculating an employer's liability for FBT. What are these rates? Why are there two rates? Provide an example of where each rate would be used.
Report Section 2: GST and Imports
4. Ethical Trading Group is importing goods on a monthly basis from India, Sri Lanka and France and selling these items both in Australia and overseas. Discuss any specific GST consequences to be aware of. Hint: Consider the rules around taxable importations.
Report Section 3: Franking accounts and dividends
5. Part (a) Discuss the requirement for the Ethical Trading Group of franking accounts. Why is it required and when can dividends be paid? What is the process that Ethical Trading Group should follow in regards to coming to the decision to pay a dividend?
Ethical Trading Group had a credit franking account balance of $8,500 at the beginning of the financial year (1 July).
The following transactions occurred during the year:
- A fully franked interim dividend of $10,000 was paid on 2 July.
- During the year, PAYG instalments of $3,000 were paid on the 28 July, 28 October, 28 February and 28 April of the current income tax year.
- The company received a fully franked dividend of $5,000 on 1 September and a further $2,000 in fully franked dividends on the 31 March.
- On 1 April they paid a fully franked final dividend of $7,500.
- On 20 February they received a tax refund of $4,500 for last financial year.
- On 28 July of the next financial year, a PAYG instalment of $4,000 was paid.
Based on the information provided, prepare a franking account for ETHICAL TRADING GROUP. Show any workings (where relevant).
Part (b) Identify and discuss a key Franking account issue for the Ethical Trading Group if it was a small business entity (SBE)
Report Section 4: BAS
6. Review the information in regards to one of Ethical Trading Group's GST branches for the stores for the March Quarter Business Activity Statement (BAS). Complete the relevant fields on this form as indicated. For this part of the assessment, you need to go to the ATO website to download a copy of the BAS sample form.
The branch is paying PAYG Instalments at a rate of 10%. The information provided for the company is as follows:
Review the following link for the ATO Business Activity Statement Requirements:
a) Then download a copy of the BAS sample form from the ATO website and use it as a reference to help you complete the relevant fields for the March quarter.
Refer this link to obtain a PDF copy of the BAS form:
b) Assume the form has been fully completed and reviewed by the taxation manager. Sign the relevant parts of the BAS sample form, so it is ready for submission to the ATO.
Report Section 5: Trust income
7. The Ethical Trading Group likes to invest in different types of assets, so they can use any excess profits made to reinvest in sustainable activities. Assume Ethical Trading Group has the Ethical Trading Group Discretionary Trustsand it has sold the following assets on 1 June 2017 and made a capital gain of $20,000 as follows:
a) A gain of $5,000 on shares purchased in January 1984
b) A gain of $7,000 on a Unit Trust investment purchased in April 1998
c) A gain of $6,000 on shares purchased in July 2008
d) A gain of $4,000 on shares purchased on 1 October 2016
e) A loss of $2,000 made on a painting acquired on 1 November 2016
For each of the above transactions, discuss whether or not the gain is taxable and what concessions, if any, are available to the Trust. Include a calculation of the correct capital gain.
Report Section 6: Superannuation
8. The Ethical Trading Group has established the Ethical Trading GroupSuperannuation Fund to invest in sustainable and environmentally friendly investments. The fund had the following receipts and payments for the current tax year:
Calculate the taxable income and the tax payable of the fund for 2017. (Note: show your workings and provide some explanations for any exclusions from your calculation).
Report Section 7: Technology systems
9. Discuss how the use of systems and digital technology will assist Ethical Trading Groupmeet its taxation compliance obligations. Discussion could include information on the use of accounting software and other systems or technology.
Part B- Presentation
You are now to present a summary of your written report at the Board meeting of Ethical Trading Group using PowerPoint (maximum of 6 slides). Also present at the Board meeting will be a Board Member and Senior Tax Agent. The presentation will need to be recorded as audio or video recording and must be approximately 5- 7 minutes in length. Please access the Case Study PowerPoint Template to help you complete this assessment. This file is also available in the Ethical Trading Group folder in the Additional Resources for this course.
You will require the help of two people to complete this assessment, one to play the role of the ‘Senior Tax Agent' and another to play the role of a‘Board member'. These two people can be drawn from colleagues, family or friends. You will be interacting with both people in this presentation, so they will be working from ‘Briefing notes' which can be found inAppendix Aof this assessment. Each of the participants must ask the questions that have been allocated to them (i.e. different questions have been allocated for Participant 1 and Participant 2).
At the conclusion of your presentation, each of the participants must then complete the feedback form which can be found in Appendix B. This provides feedback on how clearly you have conducted the presentation. You must also ensure you obtain appropriate approvals to conduct and record a presentation in this setting so meeting participants must sign the Audio/Video recording consent form (please see Appendix Cfor a template you can use for this).
Before you commence your presentation, review the ‘briefing notes' to ensure you will have the appropriate information to provide in your verbal responses to the participant questions.
The responses you provide to the participants' questions in the briefing notes must be completed and submitted as part of the assessment evidence for this activity.
When you have finished your audio or video recording, you will need to upload your file to OpenSpace. Click on the ‘Support' tab - then ‘Assessment' and instruction on how to do this are within the ‘Frequently Asked Questions'.
In your presentation, you need to:
1. Summarise the main issues from your written report (in Part A). This summary will be documentedin the slides. Use headings and bullet points to format and present your summary of the main issues.
2. Answer the questions asked by the Board Member and the Senior Tax Agent (see Appendix A). These questions can be asked at the end of your Presentation.
Attachment:- Assessment 4.rar