LAW6001 Taxation Law — Assessment 3: Case Study (Tax Planning Advice)

This Torrens University assessment requires you to research and develop a 3,000-word tax advice report addressing a client’s assessable income, allowable deductions, capital gains tax implications, and tax planning recommendations. You must apply the Income Tax Assessment Act 1936 (Cth) and 1997 (Cth), relevant case law, and ATO rulings to a practical scenario involving a small business owner. The report must follow business report format with APA 7 referencing, and you must reach clear conclusions with practical recommendations for the client.

Context and Purpose of the Assessment

This assessment forms part of LAW6001 Taxation Law at Torrens University Australia. The case study allows you to solve practical problems that arise from real-world tax scenarios and to give appropriate advice to clients. The task assesses your research skills, your ability to synthesise an original piece of work to specific content requirements, and your ability to produce a comprehensible piece of advice that addresses the client’s needs. Because clients approach advisors seeking specific information and advice on the tax implications of particular arrangements in the Australian tax jurisdiction, the ability to identify all the issues presented by an arrangement and to think about the potential consequences of different approaches is essential.

The assessment addresses three learning outcomes: identifying and analysing the tax treatment of various types of income and deductions; effectively applying taxation law in determining tax outcomes in various scenarios such as trust structures; and identifying and calculating capital gains tax, including CGT event A1 on disposal of an asset, the CGT discounts, the CGT consequences of death, the main residence exemption and its application to investment properties, the availability of CGT concessions for small business, roll-overs, deemed disposals, and gifts. Your report must not simply list answers. Your reasons for conclusions and recommendations must be based on research into relevant cases and legislation.

Task Description and Instructions

You are required to answer a case study scenario involving a client who has acquired a small business and needs comprehensive tax advice. The case study requires you to:

• Identify and discuss the tax implications of the various issues raised in the scenario
• Calculate the assessable income, allowable deductions, and taxable income of the taxpayer, identifying and discussing how each amount has been derived
• Explain the reasoning for non-inclusion of any receipts and payments that are not assessable or deductible, with reference to relevant legislation or cases
• Advise the best investment option for the client based on the facts provided
• Identify the appropriate legal principles that require discussion in the case study
• Apply the law to the facts of the case study
• Reach a relevant conclusion and provide practical advice to the client

The report must be approximately 3,000 words and submitted as a Word document. You must use APA 7th edition referencing style. The format of the report should be a business report.

Case Study Scenario

On 17 July 2020, Ken Fong acquired a restaurant as a going concern, paying $850,000 for the land and buildings, plant and equipment, and goodwill. Ken has operated the restaurant as a sole trader since acquisition. During the current income year, Ken disposed of several assets and received various amounts of income. The scenario provides details of Ken’s business income, personal income, capital receipts, and expenses. You must analyse each item, determine its tax treatment, and provide advice on how Ken should structure his affairs for the coming year. The scenario includes issues relating to trading stock, depreciation, capital works deductions, GST, and capital gains tax. Ken is considering whether to operate through a trust structure in the future and seeks your advice on the tax implications of that choice.

Marking Rubric and Grading Criteria

Sample Answer: Tax Treatment of Goodwill and Business Assets

When Ken acquired the restaurant as a going concern for $850,000, the purchase price must be allocated across the land and buildings, plant and equipment, and goodwill. Goodwill acquired after 20 September 1985 is a CGT asset under s 108-5 of the Income Tax Assessment Act 1997 (Cth). If Ken later sells the business, any capital gain on goodwill may qualify for the small business CGT concessions in Div 152, provided the basic conditions are met. These concessions include the 15-year exemption, the 50% active asset reduction, the retirement exemption, and the small business roll-over. The ATO’s Capital gains tax for small business guide explains that the net value of CGT assets must not exceed $6 million to access these concessions. The plant and equipment will be depreciated under Div 40, with the decline in value calculated using either the prime cost or diminishing value method. Because Ken operates as a sole trader, he is entitled to the 50% CGT discount under Div 115 for assets held for at least 12 months. The land and buildings may qualify for capital works deductions under Div 43, depending on the construction date and the purpose of the building.

Trust Structures and Tax Planning for Small Business

A key issue in Ken’s scenario is whether he should continue operating as a sole trader or restructure through a discretionary trust. A trust structure can offer asset protection and income splitting opportunities, but it also introduces complexity. The trustee is liable for tax on trust income, but beneficiaries may be presently entitled to distributions and pay tax at their marginal rates. The ATO’s Taxation Ruling TR 2018/6 outlines the Commissioner’s approach to trust income and the distinction between trust law income and taxable income. For a small business owner like Ken, a discretionary trust can provide flexibility in distributing profits to family members on lower marginal rates. However, the recent amendments to Div 7A and the personal services income rules may limit the benefits in some cases. Students should also consider the impact of the small business CGT concessions when the business is eventually sold. If the business is held in a trust, the concessions may be available to the trust and its beneficiaries, but the trust must satisfy the basic conditions, including the maximum net asset value test. This comparison between sole trader and trust structures is a common exam and assignment focus, and markers reward students who can articulate the trade-offs clearly.

What Deductions Can a Small Business Claim for Depreciating Assets?

Students often ask which depreciation method gives the best tax outcome for a small business. The answer depends on the asset’s cost, effective life, and the business’s circumstances. Under Div 40 of the Income Tax Assessment Act 1997 (Cth), a taxpayer can choose between the prime cost method and the diminishing value method. The prime cost method deducts a fixed percentage of the asset’s cost each year, so the deduction is spread evenly over the effective life. The diminishing value method front-loads the deduction, because the decline in value is calculated on the opening adjustable value each year, which reduces as deductions are claimed. For most small businesses, the diminishing value method produces a higher deduction in the early years, which improves cash flow. However, if the asset is likely to be sold or disposed of within a few years, the prime cost method may result in a lower balancing adjustment. The ATO’s guide to depreciating assets provides worked examples and a depreciation calculator. Students should also consider the instant asset write-off thresholds, which have changed several times in recent years. For the 2024–25 income year, the instant asset write-off threshold was $20,000 for small business entities with an aggregated turnover under $10 million. Assets costing less than the threshold can be immediately deducted rather than depreciated over time.

Frequently Asked Question

How do I structure a tax advice report for the LAW6001 case study?

Structure your report as a business document with an executive summary, introduction, body sections addressing each issue, calculations, and a conclusion with recommendations. Use headings for each tax issue (assessable income, deductions, CGT, GST, trust structures). Present calculations in tables with clear headings showing the basis for each amount. Reference relevant legislation and case law throughout, using APA 7 style. The conclusion should summarise your key findings and provide practical, actionable advice for the client. Remember that the marker is assessing your ability to apply the law to the facts, not just to recite the law.

Why This Matters in Practice

The skills developed in this assessment mirror the daily work of tax accountants and advisors across Australia. Whether you are advising a small business owner on depreciation methods, calculating a capital gain on the sale of goodwill, or recommending a trust structure for asset protection, the ability to interpret legislation and apply case law to real scenarios is the foundation of professional tax practice. The ATO’s compliance focus on small business deductions and capital gains means that getting these issues right has direct financial consequences for clients. Mastering the interaction between Div 40, Div 43, Div 115, and Div 152 will serve you throughout your career, whether you work in public practice, corporate tax, or the ATO itself.

References and Learning Materials

Australian Taxation Office. (2024). Capital gains tax for small business. https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/capital-gains-tax-concessions-for-small-business

Australian Taxation Office. (2024). Depreciating assets. https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciating-assets

Barkoczy, S. (2023). Foundations of taxation law (15th ed.). Oxford University Press.

Income Tax Assessment Act 1997 (Cth). https://www.legislation.gov.au/Details/C2024C00039

Taxation Ruling TR 2018/6. https://www.ato.gov.au/law/view/document?docid=TXR/TR20186/NAT/ATO/00001

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2023). Australian taxation law (33rd ed.). Oxford University Press.

Next Assessment: Week 6 Case Study (Individual Tax Return)

Week 6 Case Study — LAW6001 Taxation Law

This assessment requires you to prepare a tax return for an individual taxpayer based on a detailed fact scenario. You will calculate the client’s taxable income, determine the tax payable, and identify any offsets or levies that apply. The task focuses on personal income tax, including salary, dividends, interest, and capital gains, along with deductions for self-education, gifts, and work-related expenses.

Your submission should be a business report of approximately 2,000 words with supporting calculations in tables. You must reference the relevant provisions of the Income Tax Assessment Act 1936 (Cth) and 1997 (Cth), and apply APA 7 referencing. The case study assesses your ability to apply tax law to practical individual taxpayer scenarios and to communicate your findings in a professional format.