Your case study needs to presented in the form of a written report to a client. An executive summary...

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Your case study needs to presented in the form of a written report to a client. An executive summary is not required. The report should use appropriate subheadings and appropriate referencing techniques. Your case study needs to identify and discuss the tax implications of the various issues raised. As an end goal you need to provide specific advice to your client as to how you think the client should structure their affairs in order to manage their tax risks in the Australian jurisdiction. Your advice must be consistent with the ethical requirements of the Tax Agent Code of Conduct. In order to produce your case study, you will need to review relevant case and legislation. The subject manual and set texts are starting points only, and you will be expected to use these initial materials to identify potential useful resources. You will then need to review your selected resources to see if they value add to your analysis. Your case study is not just a list of answers. You must address each issue and come to an integrated analysis as to the structure you would recommend. Your reasons for your conclusions and recommendations must be based on your research into the relevant cases and legislation. It is expected that you will survey the relevant literature, including decided cases, and select appropriate additional resources. Additionally, at least two (2) decided cases should be referenced and at least three (3) other resources. Refer to the Assessment 2 Case Study document attached in the assessments area.
	
Document Preview: Masters Case Study  
The T and A Repurchase Proposal 
Taite Moneybags and his business colleague Aramis Lotsamoney are residents of the UK for 
tax purposes.  They have approached you, as their tax advisor, with some questions about 
starting a business.  They have an interesting business concept involving land development 
activities.  
The two plan to set up a parent company, borrow money through the company structure, 
and loan the money at a commercial rate to a 100% owned subsidiary company. Their initial 
thoughts are the undertaking will encompass a 2 year planning phase, 5 years of business 
operation and then the sale of the subsidiary company.  During the 5 years of operation the 
subsidiary will buy and develop land for subdivision and sale. 
There are no planned changes in the shareholdings in either company in this 7 year time 
period.  It is planned the subsidiary will pay interest and dividends to the parent company. 
The business model involves the sale of the subsidiary company by shares to the least 
competent tender applicant and its subsequent repurchase at a significantly lower price than 
sale price after 2 – 3 years, refinancing the company’s existing loan if necessary.  This plan 
requires significant initial borrowings with associated expenses including interest 
The business model involves the sale of the subsidiary early in the relevant financial year 
after five years of operation.  It is expected the sale will generate losses due to the 
continuing interest expenses in the year of sale and the relevant years following the sale as 
the loans will not be paid out, only the necessary loan commitments will be paid. The losses 
will then be utilised to maximise the time before the repurchased subsidiary has a taxable 
income.    
Formulate, with reference to appropriate legislation and case law, a concise explanation in 
the form of a report utilising sub headings which specifically addresses the following points: 
1. Whether Taite and...

David · Accepted Answer

Concept of Residence and Permanent Establishment- 
To determine the tax liability in Australia on the income that is earned by an individual or a 
company the most important factor to be determine is if that person is an Australian or foreign 
resident for tax purposes. The income earned by an individual is liable to be taxed as per the 
Australian tax laws. There are laid down laws that define the manner of taxation of the income of 
the person or entity assessed to tax.  
It is a complicated task to understand the issue of residency. There is no strict mark to identify a 
resident and moreover is on each individual's circumstances. The issue is of extreme importance 
and even a small mistake in determination of residency status can lead to costly consequences. 
Although in the given case Taite Moneybags and his business colleague Aramis Lotsamoney are 
residents of the UK for tax purposes, there is no liability to have their business taxed in Australia 
due to their residency. But the factor of their business being a permanent establishment in 
Australia has to be checked.
Permanent establishment is a fixed place of business from where an enterprise can carry on 
business either partially or wholly. Permanent establishment can be any like a branch, an outlet 
for facilitating sales, places of management, offices, workshops, the business places of agents 
having authority to enter contracts on behalf of enterprise and exercise their authority. 
Permanent Establishment is not just a domestic tax law but an international one. It was first 
propounded in 1946 when the tax treaty was signed with United Kingdom. The essentials of 
permanent establishment have certain degree of permanence, along with facilities such as 
premises and more importantly some business is carried on from such premises. Article 5 of the 
OECD Model Tax Convention has laid down few such conditions which would be tested to 
check if a premise is or is not a permanent establishment. The first condition is “existence of a 
place of business”. This can be tested by the fact that whether or not there is a facility such as a 
premises, machinery or equipment, etc. The second conditions states that such place should be 
fixed i.e., there should be a distinct place with some degree of permanence. And the last 
condition is that some business must be carried on from such place of business. 
Tax implications of a place of business qualifying as a Permanent Establishment in Australia-
The income earned from the business operations carried out from the permanent establishment in 
Australia is subjected to Australian income tax if the person carrying on business is from a treaty 
country. The assets owned which are parts of permanent establishment are subjected to 
Australian CGT they are sold or otherwise disposed of. Such person is also liable to file an 
Australian Tax Return. 
To file an income tax return in Australia, individuals and organizations are issued a unique Tax 
File Number (TFN) for record keeping and identification purposes. Further, the Australian 
business may also need an ABN (Australian Business Number). While registering for ABN the 
business may also apply for a TFN. Companies, partnerships and trusts are given there on TFN. 
Permanent Establishment Test -  
Having a close look at the nature of transactions that will be carried out at such establishment in 
Australia i.e., during the 5 years of operation the subsidiary will buy and develop land for 
subdivision and then selling it further. It is worthy to state that the given establishment qualifies 
the necessary test that it is required to pass for being called as a permanent establishment since 
some sort of business activity is definitely carried out from this address even when the operations 
are carried out through a subsidiary company.
General Principles with respect to deductibility of interest as laid down in Tax Ruling TR 95/25-
Deductibility of interest under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) 
is driven by the following principles propounded under the ruling i.e., the funds for which 
interest is to be paid are incurred in earning or producing taxable income or assessable income 
under the tax laws. Further such the payment made, or the loss incurred is not in the nature of 
capital, domestic or private use.

Your case study needs to presented in the form of a written report to a client. An executive summary is not required. The report should use appropriate subheadings and appropriate referencing...

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