1. Alpha Ltd is incorporated in Singapore and its shares are listed on the Singapore Stock Exchange. Alpha Ltd's board, by which the company is managed, is comprised of Australian citizens resident in Singapore. Board meetings are held in Singapore. The company manufactures plastic toys and has factories in both Singapore and Malaysia. 30 million shares have been issued of which 51% are held by Bravo Pty. Ltd., a company incorporated in New Guinea and carrying on business as a wholesaler in Port Moresby and in Townsville. Bravo Pty. Ltd. is a wholly owned subsidiary of Charlie Ltd., a company incorporated in Australia and controlled by Australian residents.

(a) Is Alpha Ltd an Australian resident company?

(b) What difference would it make if:

(i) Alpha Ltd. carried on trading activities in Australia; or

(ii) the Board of Alpha Ltd. was accustomed to voting as suggested by Echo, an Australian resident who is the managing director of Charlie Ltd. and who has power of appointment and dismissal of Charlie Ltd's board?

2. NFS Pty Ltd, a resident company, had a taxable income of $10,000 last tax year on which it paid tax at the applicable company tax rate. In the current tax year it distributed the balance of that income to its shareholders franking the dividends to the greatest extent possible. Its shareholders include:

(1) David - a resident individual;

(2) Bravo Ltd - a resident company; and

(3) Ethel - a non-resident individual.

Each owned 10% of NFS's issued shares and each was entitled to 10% of any dividend NFS paid.

Required:

(a) Calculate the amount of company tax paid by NFS Pty Ltd last tax year. (You may assume that there were no tax offsets not mentioned in the fact situation above).

(b) Calculate the tax payable by each of Bravo Ltd, David and Ethel on the dividends they received from NFS. (Assume that David and Ethel pay tax at the top marginal tax rate. Ignore the Medicare levy.))

(c) Explain how Bravo Ltd would have treated the franking credits that were attached to the dividend it received from NFS.

3. A family company XYZ Pty Ltd acquired an asset (with an effective life of 10 years) on 1 July tax year 1 for $100,000 (assume after 2006). It was depreciated using the diminishing value method.

On 1 July tax year 3 it was disposed of for $120,000. That was the company's only income generating transaction for that year.

On 30 June tax year 3 the company paid a fully franked $10,000 cash dividend to Alex, a shareholder. Alex's other income in that year was $180,000.

Calculate:

1. the depreciation deductions for the tax years 1 and 2;
2. the company's taxable income and income tax for tax year 3;
3. the amount of fully franked dividend the company could pay;
4. what tax Alex will have to pay on the $10,000 cash dividend he receives.

You may assume that:

1. the company has no carry forward franking account balance
2. the company's tax rate was 27.5%
3. the marginal rate of tax applicable to individuals with income

over $180,000 is 47% (inclusive of Medicare levy)

e. If Alex's wife Joan held a different class of shares in the company and her other income was only $10,000, what might be your advice, to the Board of Directors on 30 June and why? Would this advice differ if she was a non-resident?

Answer rating: 100% (QA)

1a No Alpha Ltd is not an Australian resident company It is incorporated in Singapore Place of incor... View the full answer