FPC006 Taxation for Financial Planning - Case Study Assignment

Assignment 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 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 The weightings indicate the relative importance of each question.
• State all assumptions used in providing your answer.

Assignment 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 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.

Case study

Stephen (aged 44) and Madeline (aged 42) Allen are a married couple, living in Sydney, NSW. They have two dependent children, Andrew (aged 13) and Jenna (aged 10).

Stephen works as a sales and distribution manager for Brambilla & Ricci Pty Ltd, a wine importation company that specialises in Italian wine. Stephen has been with the company for eight years and is paid a base salary of $145,000 per annum.

Stephen 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. Brambilla & Ricci 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.

Madeline works part-time for Creations by Cate, a high-end catering company providing services to private dinner parties and small-to-medium-sized events. Madeline 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. Madeline earns a part-time salary of $25,000 per annum.

In addition to her part-time employment, Madeline earns $10,000 per annum from purchasing, repairing or improving, and then re-selling, various items on Gumtree and Facebook Marketplace. She loves to find a bargain and has turned her skills in this area into a lucrative side hustle.

Stephen and Madeline own their home (with a mortgage) and have two cars, a 2021 Audi Q5 and a 2016 Volkswagen Tiguan, and they wish to upgrade soon.

Stephen and Madeline 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.

Stephen also previously received, as a gift, a managed fund investment (Westgate 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.

Section A

There are two (2) short-answer questions in this section worth 41 marks. Answer all questions.

Question 1 Calculate Stephen’s current income tax position

(25 marks | Word limit: 300 words)

Stephen 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

Stephen’s income tax payable, plus total net income position for the 2022/23 FY.

All required facts are in the case study above.

• Calculate the dividend and franking credit Stephen must include in his 2022/23 FY income tax return for Company A. (3 marks)
• Calculate the dividend and franking credit Stephen must include in his 2022/23 FY income tax return for Company B. (3 marks)
• Calculate the dividend and franking credit Stephen must include in his 2022/23 FY income tax return for Company C. (3 marks)
• Calculate the dividend and franking credit Stephen must include in his 2022/23 FY income tax return for Company X. (3 marks)
• Calculate the dividend and franking credit Stephen must include in his 2022/23 FY income tax return for the Westgate Investment Fund. (3 marks)
• Calculate Stephen’s income tax position using the following table for the 2022/23 (10 marks)

Income tax position	2022/23 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	$
Total net income	$

Question 2 Calculate Madeline’s current income tax position

(16 marks | Word limit: 250 words)

Madeline 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 Madeline’s income tax payable, plus total net income position.

All required facts are in the case study above.

• Calculate the dividend and franking credit Madeline must include in her 2022/23 FY income tax return for Company A. (3 marks)
• Calculate the dividend and franking credit Madeline must include in her 2022/23 FY income tax return for Company X. (3 marks)
• Calculate Madeline’s income tax position using the following tables for the 2022/23 (10 marks)

Income tax position	2022/23 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	$
Total net income	$

Section B

There are four (4) short-answer questions based on the case study (Stephen and Madeline Allen) worth 34 marks. Answer all questions.

Stephen and Madeline 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 – Stephen 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

Each question in this section is designed to be answered independently. The broader recommendations

you may consider for the Allens’ situation will be discussed in Section C

Question 3 Superannuation contributions

(8 marks | Word limit: 400 words)

Stephen and Madeline 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 2022, Stephen had $490,000 in superannuation and Madeline had $150,000.

Their concessional contributions (CC) and non-concessional contributions (NCC) history is as follow.

Financial year	Stephen CC	Stephen NCC	Madeline CC	Madeline NCC
2018/19	$14,000	$0	$3,500	$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

Note to students: You are required to undertake independent research to answer the following questions.

• Compare and contrast the benefits and considerations of entering into a salary sacrifice arrangement with making personal superannuation contributions and then claiming a deduction for those (4 marks)
• Discuss a viable superannuation contributions strategy for both Stephen and Madeline, including determining the maximum amounts they each can contribute to superannuation. You should also discuss how this may improve their overall tax position, and your recommendation of how much they should each consider (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.

Question 4 Structuring insurances

(8 marks | Word limit: 450 words)

Both Stephen and Madeline 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 Stephen’s and Madeline’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 Stephen and Madeline 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.

Question 5 Gearing and wealth creation

(8 marks | Word limit: 450 words)

To help accelerate their wealth creation aspirations, Stephen and Madeline 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 (4 marks)
• Explain how Stephen and Madeline 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 either an investment property or portfolio of (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.

Question 6 Sell existing direct shareholding to fund a holiday

(10 marks | Word limit: 250 words)

Stephen and Madeline 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, Stephen has told you he intends on selling $25,000 worth of the shares from his holding in Company A, and a further $10,000 worth of shares from his holding in Company C.

Additionally, Stephen also has a carry-forward capital loss from a previous financial year of $5,000.

Stephen — Investment assets	Date acquired	Purchase price	Present value
Direct Australian shares (ASX listed) — Company A	12/10/2001	$18,000	$50,000
Direct Australian shares (ASX listed) — Company B	14/09/2013	$39,000	$60,000
Direct Australian shares (ASX listed) — Company C	03/12/2020	$33,000	$40,000
Direct Australian shares (ASX listed) — Company X	15/05/2016	$15,000	$25,000^
Managed fund (Westgate 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 (5 marks)
• Using the steps you have outlined in part (a), calculate the net capital gain Stephen must include as assessable income in the financial year in which he sells his proposed holdings in Company A and Company (5 marks)

Section C

There is one (1) short-answer question (with two parts) based on a case study (Stephen and Madeline Allen), 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), Stephen and Madeline 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

Stephen and Madeline 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
• They want to understand if Stephen’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
• 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.
• Stephen wants to understand if he should retain or sell his managed fund. Stephen and Madeline both wish to understand the benefits of retaining the fund, and the tax consequences if it was
• Madeline wants to replace her car and wants to understand if leasing or salary packaging the car would be a good
• They wish to understand if they can reduce or pay out their home mortgage while trying to achieve their other goals and

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.

Question 7 Strategy recommendations

(20 marks | Word limit: 1,500 words)

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 Stephen and Madeline’s stated goals and objectives. (12 marks)

• Use the current and proposed tax position templates in the appendix to demonstrate the change in position for Stephen and Madeline 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.