Faculty of Business and Law
Swinburne Business School
ACC30005 Taxation
Semester One 2020
Group Assignment
Details
Due date Monday 18h MAY 2020
| Required: Length: Weighting: Submission: | Case Study 2000 to 2500 words Maximum. Any assignment exceeding this by greater than 10% (i.e. 250 words) will receive a zero grade. The assignment marks total 20 and it is worth 20% of the unit’s total assessment On-line via Canvas site (Late assignments –penalty 10% per day) |
Instructions
- The assignment must be prepared in groups of three students maximum. Keep a copy.
- Candidates must complete a Declaration and Statement of Authorship with their assignment agreed to by all group members.
- Assignments are to be written in the candidates own words. The use of unacknowledged directly copied material may result in zero marks. See Page 8 of the Unit Outline re Plagiarism.
- Marks will be awarded to the candidate based on the detail provided and correctness of their response.
- Candidates must apply the IRAC principle when addressing the relevant issues (i.e. I= Identify the key issues, R= Cite the relevant legislative provisions and case law (rules) where appropriate, A = apply the relevant rules to the facts presenting arguments for and against and C = form a conclusion based on your stronger argument).
- If candidates need to make assumptions when responding to any question, the assumption and the reason for the assumption must be clearly specified in their response.
GOOD LUCK
Business Overview
Australian Aviation Academy (‘AAA’) is a flying school that provides aircraft pilot training and specialist instruction services to individuals (‘clients’) which was incorporated in the State of NSW in 1980. Michael Nash and Mary Saunders are the Directors of AAA, in addition to being the Chief Flying Instructors accredited by the Australian Civil Aviation Authority (‘ACAA’).
AAA is located at Newcastle Airport, a private airport on the outskirts of Sydney. Each year Newcastle Airport is the location of the annual air-show and AAA is a key participant in the air-show’s program. Michael and Mary view the expense of the air show as a marketing exercise aimed to attract new prospective students.
AAA employs three Grade 1 Instructors and five Grade 2 Instructors, in addition to six administrative staff who manage the accounts receivables and payable functions, and student licensing confirmations with the ACAA. The instructors receive company benefits of “free” independent (non-instruction) flying time of 200 hours per year to any location in Australia; however, this flying time is the minimum required by the ACAA to maintain the Instructor rating licence.
AAA is generally a highly profitable business, however in the 2018/19 financial year student enrolments were at an all-time low and a tax loss of $220,000 was reported.
Strategic Business Transactions & Key Client Matters
The Directors have provided the following statement of the strategic business transactions and key client matters which have occurred over the 2019/20 financial year.
- To improve AAA’s profitability, AAA decided to diversify the scope of services offered to their clients and to widen their client base. After discussions with various international airlines, on 14 October 2019, Michael and Mary signed a pilot training contract with BBA Airways Inc. in London, United Kingdom. The contract provided for the exclusive training for all new Australian based and recruited flight crew. This cost BBA Airways AUD $1,500,000 per annum, payable to AAA in a lump sum on 1 November of each year for five years. It was agreed between the parties that the annual lump sum would be paid into a AAA’s Australian bank account.
- Owing to the potential expansion of AAA, on 11 November 2019 AAA purchased the adjoining three blocks of land from Newcastle Airport at a total cost of $9 million (each block had equal value). To finance the purchase AAA borrowed 85% of the funds from the Commonwealth Bank at an interest rate of 5.7% per annual repayable over 30 years. Due to the risky nature of the loan, security was provided by way of title to Michael Nash and Mary Saunders personal homes, both located in exclusive harbour side suburbs of Sydney.
AAA’s intention was to consolidate the land titles and build a large training facility, to train students to fly commercial aircraft using flight simulators. However, when the planning application to consolidate the land titles was lodged, AAA met heavy opposition from Newcastle Airport together with the ACAA. Both organisations argued that the airport facility was only suitable for training of pilots for light aircraft.
As a result, AAA incurred $440,000 in solicitor and court fees to assist with the application approval; however the Land Tribunal on the advice of the ACAA, ruled AAA unsuccessful and the Tribunal instructed the Council to reject the planning application. In light of this, AAA sold both recently purchased blocks of land back to Newcastle Airport for a total sum of $9.70 million on 8 February 2020, with settlement on 11 April 2020. A deposit of 10% was paid on contract date.
- AAA was approached by the Combined Airports Corporation (CAC) with the offer to lease a commercially zoned flight-training centre, located on the outskirts of Sydney’s international airport. CAC also offered a $70,000 cash incentive and twelve months rent-free valued at $120,000, if AAA relocated their entire business to the new facility. AAA accepted the offer and moved premises on 2 May 2020.
- For the effective training of commercial pilots for in-the-air “emergency” scenarios, AAA leased a special flight simulator from Flight Services Ltd. The lease agreement contracted AAA for the period of four years for a cost of $180,000 per annum.
- Earlier Michael Nash had travelled to London for three months to attend the BBA Airways training program for English and European based flight crew. Whilst overseas, Michael decided that his passion was to fly light aircraft for private purposes. He realised that the direction AAA was heading no longer left a place for him in the company. As a result, Michael tendered his resignation to Mary effective 20 June 2020. Mary worried about the intellectual property Michael had gained whilst training with BBA Airways, entered into a restrictive covenant agreement with Michael which prohibited Michael from training commercial pilots in Australia for the period of 5 years at a cost of $550,000.
- After heavy marketing, Mary managed to secure a training contract with an Australian based commercial airline, Wings Ltd. The contract provided for AAA to train their first officers for a period of six years, commencing 2 May 2020 at a cost of $700,000 per annum. However, on 10 June 2020, Wings Ltd decided to terminate their contract, effective immediately due to undisclosed reasons. Wings Ltd refused to compensate AAA and AAA engaged their solicitors to recover the loss in revenue. On 30 June 2020, Wings Ltd agreed to pay compensation of $1,000,000 after lengthy legal discussions.
Please note that the list above only contains information of AAA’s strategic transactions which have occurred in the 2019/20 financial year. Other transactions are detailed below in the Statement of Cash Receipts and Payments and the notes.
Statement of Cash Receipts and Cash Payments for AAA Pty Ltd
| Cash Receipts | Note | $ AUD |
| BBA Airways Contract | No Note | 1,500,000 |
| Other Client Fees | 1 | 1,115,800 |
| Sale of Land – Receipt of Deposit of 10% | No Note | 970,000 |
| Cash Payments | Note | $ AUD |
| Australian Taxation Office | 2 | 1,250,000 |
| Bank Charges | 3 | 466,650 |
| Car Expenses | 4 | 191,300 |
| Education Expenses | 5 | 110,000 |
| Employee Remuneration | 6 | 2,350,000 |
| Entertainment | 7 | 8,700 |
| Flight Simulator Lease | No Note | 180,000 |
| Furniture | 8 | 35 350 |
| Fuel, Aircraft Maintenance & Other Aircraft Costs | 9 | 471,000 |
| Land Purchase – Payment of Deposit of 10% | No Note | 970,000 |
| Marketing Costs | 10 | 26,600 |
| Solicitors Fees | 11 | 449,600 |
| Telephone | 12 | 34,355 |
| Travel Expenses | 13 | 49,250 |
Notes Regarding AAA Pty Ltd
| Note | Description / Further Information | $ AUD |
| 1 | Wings Ltd settlement Outstanding debtors at 30 June 2019 Debts written off after 6 months (client refused to pay) Debts written off > 12 months old | 1,000,000 115,800 8,750 12,500 |
| It is the policy of AAA Pty Ltd to have provision for doubtful debts equal to 2% of outstanding debtors at the end of the financial year. | ||
| 2 | PAYG instalments (quarterly equal payments) GST | 800,000 450,000 |
| 3 | Bank interest charges on property purchase Card transaction fees (charged at 2.0% on credit card sales) | 436,050 30,600 |
| 4 | Vehicle purchases: BMW for Mary Saunders Acquired 10 December 2018; Business use: 80% Running costs: BMW (acquired 10 December 2018) | 180,000 11,300 |
| 5 | Instructor’s professional training costs as required by ACAA Professional development courses for administrative staff | 90,000 20,000 |
| 6 | Directors / Chief Flying Instructors salaries Michael Nash’s Restrictive Covenant Payment Instructor: Grade 1 Salaries Instructor: Grade 2 Salaries Administrative Staff Salaries Note: the mandatory minimum superannuation contribution is included in the salaries noted above. Annual ACAA Flight Instructors Rating Licences for Instructors Value of Instructor “free flying” time (refer Business Overview) | 750,000 550,000 500,000 400,000 150,000 15,000 120,000 |
| 7 | Staff lunches and staff Christmas party | 8,700 |
| 8 | Opening written down value Acquisition of Furniture & Office Equipment – 2019/20 Desks and Chairs (acquired 1 July 2019) Computers (acquired 20 July 2019) Partitions (acquired 18 July 2019) | 315,000 9,850 15,000 10,500 |
| 9 | Fuel – Aircraft Aircraft Maintenance Costs | 160,000 311,000 |
| 10 | Marketing costs for the annual air-show Advertising costs in magazines | 17,400 9,200 |
| 11 | Solicitors fees incurred in relation to: Application approval for land at Newcastle Airport Resignation of Michael Nash from AAA Pty Ltd Lease agreement review for flight simulator | 440,000 2,300 7,300 |
| 12 | Office telephone lines and fax line Mobile phones for Instructors | 13,455 20,900 |
| 13 | Business class airfare for Michael Nash to London three-month lease of apartment for Michael Nash in London Meals and incidentals for Michael’s trip | 15,150 21,600 12,500 |
Note: All amounts include Australian GST where applicable.
REQUIRED:
You have been approached by Mary Saunders and Michael Nash in your capacity as their tax agent. They have asked you to prepare the necessary documentation to meet the tax compliance obligations for AAA for the income year ending 30 June 2020.
Prepare a letter of advice which identifies all relevant tax issues, critically analyses and applies the taxation treatment to the issues, i.e., you will need to argue and support your view and consider differing views (if applicable), and finally, indicate your recommended action based on your better view, i.e., your conclusion (IRAC principle).
You must ensure that your analysis used to determine your recommended action is fully supported with relevant authority, for example, tax legislation and case law.
The letter must not exceed 2,500 words,excluding footnotes and the reference list. The referencing style is the Australian Guide to Legal Citation, version 4. See the library website for a short overview. Assignments exceeding 2,750 words (10%) will not be assessed and you will receive zero marks (fail grade). You must indicate your word count on front of the assignment.
[Total 20 marks]
* * * * * *
Please note in the interests of equity to all students, academic staff will not be able to provide any assistance with this assignment.
Your work will be assessed using the following marking rubric:
Criteria: | Nopass | Pass 50-59% | Credit60‐69% | Distinction70‐79% | HighDistinction80‐100% |
| Contract/ Agreement (10%) | Did not meet criterion. | Met Criterion | |||
| Presentation (5%) | Did not meet criterion. | Satisfactory format and layout, grammar, spelling and footing referencing. | Good format and layout, grammar, spelling and footnoting and referencing. | Very good format and layout, grammar, spelling and footnoting and referencing. | Excellent format and layout, grammar, spelling and footnoting and referencing. |
| Identification of key issues (20%) | Did not meet criterion. | Identified some issues. | Identified some issues although gave incorrect weight to minor and major issues. | Identified most issues and gave both correct and incorrect weight to minor and major issues. | Identified all issues and gave correct weight to minor and major issues. |
| Correct citation of relevant legislation and case law (25%) | Did not meet criterion | Cited some incorrect legislation and case law | Cited some relevant legislation and case law | Cited most relevant legislation and case law | Cited all relevant legislation and case law and rulings where appropriate |
| Appropriate application of the relevant law to the facts presenting opposing arguments and analysis (35%) | Did not meet criterion | Satisfactory application of the law to the facts | Good application of the law to the facts and presented only one sided arguments | Very good application of the law to the facts and presented both sides of the argument with sound analysis | Excellent application of the law to the facts and presented both sides of the argument with through analysis |
| Summary and conclusion based on the stronger argument (5%) | Did not meet criterion | Satisfactory conclusion but was vague did not follow analysis | Good conclusion based on one side of the argument | Very Good summary and conclusion based on the stronger argument | Excellent summary and conclusion based on the stronger argument |
Declaration and Statement of Authorship
All students must agree to the following declaration when submitting assessment items
- I/we have not impersonated or allowed myself/ourselves to be impersonated by any person for the purposes of this assessment.
- This assessment is my/our original work and no part of it has been copied from any other source except where due acknowledgement is made.
- No part of this assessment has been written for me/us by any other person except where such collaboration has been authorised by the lecturer/teacher concerned.
- I/we have not previously submitted this work for a previous attempt of the unit, another unit or other studies at another institution.
- I/we give permission for my/our assessment response to be reproduced, communicated, compared and archived for plagiarism detection, benchmarking or educational purposes.
I/we understand that:
- Plagiarism is the presentation of the work, idea or creation of another person as though it is your own. It is a form of cheating and is a very serious academic offence that may lead to exclusion from the University.
- Plagiarised material may be drawn from published and unpublished written documents, interpretations, computer software, designs, music, sounds, images, photographs, and ideas or ideological frameworks gained through working with another person or in a group.
- Plagiarised material can be drawn from, and presented in, written, graphic and visual form, including electronic data and oral presentations. Plagiarism occurs when the origin of the material used is not appropriately cited.
I/we agree and acknowledge that:
- I/we have read and understood the Declaration and Statement of Authorship above.
- I/we accept that use of my Swinburne account to electronically submit this assessment constitutes my agreement to the Declaration and Statement of Authorship.
- If I/we do not agree to the Declaration and Statement of Authorship in this context, the assessment outcome may not be valid for assessment purposes and may not be included in my/our aggregate score for this unit.
Penalties for plagiarism range from a formal caution to expulsion from the university, and are detailed in the Student Academic Misconduct Regulations 2012.
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