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Assignment No 1 1 BULAW5916 Taxation Law & Practice Assignment Topic – Semester 1, 2018 Purpose To extend familiarity with locating legal decisions and undertaking research into an aspect of currently...

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Assignment No 1

BULAW5916 Taxation Law & Practice
Assignment Topic – Semester 1, 2018
To extend familiarity with locating legal decisions and undertaking research into an
aspect of cu
ently debated taxation law and practice.
It is important for you to have time to think through how to structure and present your
esponses, and to review and discuss what the law is in a particular area. Whilst
discussion with others is encouraged, the final piece of work must be your own.
Word Limit
Estimated 2,500 in total. Please be aware that assignments less than the required
length will risk not covering tasks A, B and C adequately. .
Note: All Federation University Australia rules relating to referencing, citation and
acknowledgement must be complied with.
Due Date
By 11.00 p.m. Friday in Week 9 – submission through Moodle.
It is recommended that you process your assignment through TURNITIN before
Note: Please refer to the Course Description for further details of the assignment
(Assessment Task 2), and for acceptable referencing styles.
Read the Topic and then complete tasks A (40 marks), B (40 marks) and C (20 marks).
Your overall mark out of 100 for this assignment will then be converted to a result out
of 30, as this assignment is worth 30% of your total marks for this course.

Tax reform continues to remain an ongoing topic of debate in Australia. During March
the dividend imputation debate being held both in Parliament and throughout the media
ecame increasingly heated.
In a recent political update from the Australian Labor Party the Leader of the Opposition,
the Honorable Bill Shorten MP, said “Here are the simple facts: Labor’s reforms to
excess dividend imputation credits will crack down on a tax loophole that mainly
enefits millionaires who don’t pay income tax……..”.
The Liberal National Coalition government disagrees. The article ‘The real story of
Labor’s dividend imputation reforms’ reproduced by the Grattan Institute on March
2018, noted “The government claims that 54 per cent of people affected by Labor’s
policy — some 610,000 individuals — have taxable incomes of less than $18,200. And it
says that 86 per cent of the value of all franking credits refunded are received by those
with taxable incomes of less than $87,000 a year.”
Task A
Describe how the existing system of dividend imputation operates, and the reason for its
introduction in the 1980s. Then identify and explain Labor’s proposed reforms to the
dividend imputation system. (Labor’s Policy)
In your response you should refer to relevant legislation and tax rulings, and identify
which taxpayers benefit under the cu
ent system; and whether (and if so, how) these
taxpayers will be affected under Labor’s Policy
Task B
With reference to appropriate legal sources, evaluate the advantages and disadvantages
of Labor’s Policy, coming to a conclusion about whether this is “good policy”. In your
esponse you should identify generally accepted attributes of a good tax policy.

Task C
Sigma Pty. Ltd. (Sigma) is a private company with Australian residency. It has 10
shareholders. In the 2015/2016 year Sigma’s aggregated turnover was $12 million; and
in 2016/2017 it was $9 million.
Sigma had taxable income of $1 million at the end of the 2015/2016 financial year. In
August 2016, Sigma’s directors passed a resolution to pay a fully franked dividend (of its
etained earnings) of $100,000 to each of its shareholders.
Yolande is an Australian resident who holds shares in Sigma. She is on the highest
marginal tax rate for the year ending 30 June 2017.
Complete the following questions and tasks.
1. What is Sigma’s corporate tax rate for each of the 2015/2016 and 2016/2017 tax
years? (2 marks)
2. Is this different to the corporate tax rate for imputation purposes for each of these
years, and if so why? (2 marks)
3. Based on the information above, and refe
ing to relevant tax rate tables,
calculate the tax payable by Sigma – and Yolande – for the year ending 30 June
4. Would your answer be different if Yolande had purchased her shares in Sigma
Pty. Ltd. on 30 May 2017? If so, why? (2 marks)
5. Would there be a difference in the overall tax payable by Yolande and Sigma IF
Sigma’s aggregated turnover for the 2016/2017 financial year was $20 million
ather than $9 million? Why? Calculate any difference in the overall tax payable.
( 7 marks)
Answered Same Day May 13, 2020 BULAW5916


Pulkit answered on May 21 2020
129 Votes
‘Dividend Imputation System’ refers to the system to avoid double taxation of same taxed income on corporate profits. It was introduced in Australia by Hawke/Keating government in 1987. In any other country corporate dividends are taxed twice when both the shareholder and company have to pay tax on the same amount. This double taxation involve corporate have to pay tax on profits and the shareholder have to pay tax on dividend received.
Due to double taxation of income, company prefer debt over equity make companies more likely to prefer debt over equity which make companies more likely to retain their earnings and drags down economic growth. Dividend imputation involves “Franking credits” are attached dividend paid to shareholders which is passed on the shareholder to offset their personal income tax.
Suppose the company makes profit of $10 and pays company tax of $3 and records the $3 in franking account and it is paid to tax office. The company has option of paying dividend either in the same year or future year and the company will attach the amount of franking credit of $3 when it pays the dividend amount and the company will debit the franking credits of $3 in its books.
The shareholder declares the dividend amount and the franking credit attach to it as its income and will be chargeable according to shareholders rate and is credited with franking credit against their final tax bill. The effect of this involves by reversing the corporate tax by giving back $3 to the shareholder and had them treat the original $10 of profit as income in the shareholders hand.
Thus the net profit of the company which is distributed to the shareholders is to be taxed only once. There are two options either the Profits are either retained by the company and taxed there at the corporate rate, or paid out later as dividends and instead they're taxed at the shareholder's rate.
The dividend paid by company which is making losses and it has no franking credit and it is called as un-franked dividend. The term partly franked dividend involve there is franked part and un-franked part attach to the dividend and the un-franked part is normally attach to shareholders income.
For availing the benefit of franking credit there is condition imposed to prevent trading of franking credit among taxpayers. A shareholder who is eligible to utilize franking credit are-
1. In case of equity share to avail the benefit of franking credit holding period must be of 45 days while in case of preference share holding period must be of 90 days. OR
2. who has total franking credit of less than $5000 during the year and has not a
anged to pass on benefit to another shareholder.
A company is not at all under a legal obligation to go with the rules and regulations of the dividend imputation policy which means it is at the discretion of the company to attach to the franking credit scheme. However for the benefit of the shareholders and members of the company it cost nothing to attach to the dividend imputation policy. Before 2002 the dividend imputation policy was applicable only to the shareholders of the Australian company and not to the other shareholders of the other company. Thus in order to avoid the malfunctioning of the trade practices the same was abolished by allowing the dividend imputation policy for all the types of shareholders of all the types of company whether Australian or international.
Labor policy reforms were introduced to abolish refund of unused imputation credit. Labor claim that due to policy reform the person affected are wealthy retirees are not paying their fair of tax. On the other hand Scott Morisson counters that abolishing refund will affect lower income people as they are not eligible to claim refund of unutilized imputation credit. Personal income tax return does not show the true picture of tax return as many of the fund become tax free which includes superannuation fund and other savings like shares, bank deposits or investment property are not declared as income.
On the other hand Government claims that 54 % of people will be affected by labor policy some 610000 individuals have taxable income of less than $18200 and it claim that the person most benefited out of this are that have taxable income less than $87000 a year.
This claim misleads the original financial position of taxpayers as it ignores the source of income of wealthy retirees superannuation fund which has become tax free. This provided dual benefit to shareholder by claiming benefit of unutilized dividend credit along with their superannuation fund become tax free.
There are two type of investors who will be affected by most by these reforms. Firstly...

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