Question

In: Accounting

3) Regarding Business structure (18 Marks) Dan Murphy is considering a change of his business structure...

3) Regarding Business structure

Dan Murphy is considering a change of his business structure from the sole trader to another structure commencing on the 1st of July 2019 (starting from a new financial year).
He has provided you with the following financial and other family details.

Dan is earning $150,000 (net of deductions) per annum from his engineering business. Judith earns $10,000 (net of deductions) from her teaching job.
They have the following family members living with them.

  •  Robert Murphy: Dan’s father who is 70 years old. He has retired from his job as chief executive officer of Suncorp Ltd on the 15th of July 2019 (gross income was $2,000) and has not been earning any income since retirement. Judith takes care of him as his health has deteriorated recently.

  •  Jean Murphy: 19-year-old son. He is a full time university student, currently no income.

  •  Xavier Murphy: 15-year-old son, full time high school student

  •  Megan Murphy: 2-year-old daughter.

    Dan is considering the following options.

  •  Remaining Sole trader stucture

  •  Partnership with Judith in equal profit sharing ratio

  •  Australian registered private company

  •  Discretionary Family Trust

    Required

    Please advise which business structure would you recommend in order to minimise tax on the client’s income.
    Comment on the tax implications of each business option considered.

Solutions

Expert Solution

Discretionary Family Trust is good option for Dan .

Discretionary trusts are set up to allow the person or people managing the trust to choose:

  • who can benefit from the trust; and
  • how much money beneficiaries will receive.

Family trusts as generally understood are discretionary trusts that hold a family’s assets or run a family business. Usually, one or more family members will manage the trust assets for the benefit of their family as a whole.This person sets up the trust. Usually, the settlor will be a lawyer or accountant. Once the settlor does their part in creating the trust, they generally have no further involvement. The settlor cannot benefit from the trust.

This person is the legal owner of the trust property. The trustee decides how to manage the trust assets. However, even though the trustee makes all decisions, choices and transactions relating to managing the property, they do so in the interests of those benefiting from the trust. The trustee must act in the best interests of these people.

This is the legal document that formally creates the trust and outlines how it will work. It will usually set out:

  • the objectives of the trust fund;
  • who the beneficiaries are;
  • who the trustee is; and
  • how payment will be distributed from the trust.

Discretionary trusts are a great way of providing income to beneficiaries who may be dependent or otherwise unable to manage their assets.

Tax Implicatons:-

A family trust typically pays zero tax on income from within the trust. Instead, the income is distributed to the beneficiaries, who are taxed at their personal tax rates. ... They are free to distribute the income to as many beneficiaries as they see fit.


Related Solutions

COMPREHENSIVE CASE DAN KIM: PART 3 Dan is quite proud of his business plan and realizes...
COMPREHENSIVE CASE DAN KIM: PART 3 Dan is quite proud of his business plan and realizes that he has learned a lot in preparing it. He also realizes, however, that for the business to get off the ground, he needs financing. Suzie will only let Dan use $20,000 of their savings for the venture, but Dan is of the opinion that this will at least help them get started. Once the business is up and running, additional funds will be...
3. Global Communications is considering making a change to its capital structure to reduce its cost...
3. Global Communications is considering making a change to its capital structure to reduce its cost of capital and increase firm value. Right now, Global has a capital structure that consists of 20% debt and 80% equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6% and the market risk premium, rM − rRF, is 5%. Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is...
Write pseudocode (3 Marks) and program structure (4 Marks) for the problem given below; In a...
Write pseudocode and program structure (4 Marks) for the problem given below; In a college, students are awarded a pass grade if their total mark is between 50-59, credit grade if the mark is between 60-69, distinction for marks between 70-79. High distinction if the mark is above or equal to 80 and fail if the mark is below 50.
QUESTION 3 (20 MARKS) QUESTION 3 (20 MARKS) An analysis of the Business School graduates found...
QUESTION 3 QUESTION 3 An analysis of the Business School graduates found that 210 out of 318 randomly selected graduates used An analysis of the Business School graduates found that 210 out of 318 randomly selected graduates used  a statistical inference technique during their first year of employment.a statistical inference technique during their first year of employment. (a) Calculate a 90% confidence interval for the proportion of graduates who used a statistical inference (a) Calculate a 90% confidence interval for the...
QUESTION 3 (12 marks) On March 18, 2019, the world was shocked by the news that...
QUESTION 3 On March 18, 2019, the world was shocked by the news that 49 people were killed and dozens wounded in mass shootings at two New Zealand mosques. It has had a big impact on New Zealand in general and members of the Muslim community at a Christchurch in specific. Due to that, the country had raised its security threat level to the highest. Based on this situation, comment on the actual and perceived risks.
Detail how Qualification of Change practices support change management.    (3 marks) PLEASE TYPE ANSER
Detail how Qualification of Change practices support change management.    PLEASE TYPE ANSER
Fraser Co. is considering a change to its cost structure. Below is the data relating to...
Fraser Co. is considering a change to its cost structure. Below is the data relating to the current structure as well as the proposed change. Current Structure Proposed Structure Unit Sales 20,000 Unit Sales 20,000 Sales Price Per Unit $100 Sales Price Per Unit $100 Total Variable Costs (based on 20,000 units) $400,000 Total Variable Costs (based on 20,000 units) $700,000 Total Fixed Costs $900,000 Total Fixed Costs $600,000 1.) Prepare a CVP Statement for each cost structure. Incorporate cell...
Question 3: [18 marks] You need to prepare the budget for Yellow tree for the quarter...
Question 3: [18 marks] You need to prepare the budget for Yellow tree for the quarter ending June 2018. The budget must be prepared monthly. The quarter consists of 13 weeks. The forecasted sales are as follows: April 4 weeks May 5 weeks June 4 weeks July 4 weeks Sales Units 1,250 1,500 1,750 1,800 The company’s policy changed the inventory policy to keep closing inventory of completed units at 25% of the following month’s sales. Opening inventory on the...
Q54 (a) Describe the benefits of regarding internal colleagues as customers and/or suppliers. [3 Marks] (b)...
Q54 (a) Describe the benefits of regarding internal colleagues as customers and/or suppliers. [3 Marks] (b) Explain why it is important to develop positive relationships with other internal managers in the organisation. [1 Mark] (c) Describe the factors you would take into account to ensure constructive discussions with an internal managerial colleague whose team’s performance is preventing your team from achieving its goals. [2 Marks] Please give complete answers.
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its...
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15 million, and it faces a 25% federal-plus-state tax rate. The market risk premium is 5%, and the risk-free...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT