Professional Example Letter of Advice for Taxation issues

ABC [Tax Agent / Graduate Tax Advisor name]

Tax Advisor Pvt Ltd.

XXX [address]

September 26, 2019

Carol McKendrick

Compass Airways Limited

XXX [address]

Sub: Information regarding Taxation issues and advices.

Dear Customer,

I hope you get this letter in best of your health. Tax Advisory Pvt Ltd. is glad to have your interest in our financial and tax advisory services. Our taxation advisory services are specifically for those employees and businessman who work in multiple workplaces or whose income generation sources are from more than one country. Taxation advisory services are especially beneficial for those who have limited information about taxes. But who want to stay safe from the legal consequences and taxation issues.

Just a few days back, the Tax Advisory Pvt Ltd. team has received your request from the financial advisory and taxation advisory team regarding your current bank statements and income. Taxes Advisory PVT Ltd. team has critically analyzed and checked all your attached documents to understand your case and recommend the most relevant solution fully. After reviewing your extract of bank statement, income statement from the compass, dividend statement from West plains Ltd, the extract of the contract of sales of real estate, and extract of exclusive distributor termination. The letter of advice is based on information collected from these analyses and reviews. We request you to read the stated below details about the outcomes of our identified taxation issues. These taxation issues are mainly raised by working and income in different countries.

According to section 3-5 of ITAA 1997, companies and individual entities working in local and international markets are required to pay their tax obligations, excluding the individuals and companies that have legal tax exemptions from the tax regulatory department or government of the country. Ordinary income and statutory income generated from the activities carried out by the individual or company in the local and international markets may be assessed and analyzed through following section 15.2. Ordinary income relates to 6-5 ITAA 1997, and statutory income will have taxation decisions on the basis of section 6-10 ITAA 1997. Further details can be obtained from section 15-2 and 6-5 in 19 ATR 247.

Tax Compliance and Obligations

Tax compliance is a term commonly used in the taxation process. It represents the meeting of tax obligations stated by the taxation department. It relates to the submission of tax returns in the specified and allocated time duration. Time duration varies for some special cases and tax treatment. Although, tax compliance is about correctly stating and deducting taxes from the income earned by the individual or a company. According to the tax regulations supported by the tax authorities in Australia, timely returns of file taxes and failing taxes will have the explosion to the penalties and interest for the business. However, entity structure and type change tax obligations.

Taxes on Foreign Sourced Income and Local Sourced Income:

Under international and local laws regarding income and income taxes, income generated by an individual or company from the investment made outside the domiciled country will be considered as foreign-sourced income. Individuals or companies having this kind of foreign-sourced income are liable to pay income taxes to foreign countries for the business operations executed in foreign countries. How much amount income an individual or company will pay as foreign-sourced income tax depends upon the size of generated income from operations executed in the foreign countries. For instance, if 70% of operations are executed in a foreign country, then 70% of income will face tax deduction by following the foreign (must be the country in which operations are executed) income tax rule. Although, income generated from the execution of operations in the domiciled country will have tax liability or exemption depending upon the percentage of operations or income generated from local sources.

According to the income law and acts currently employed in the United States, companies from other countries working and earning foreign-sourced income from the US are required to pay credit for taxes to the government on GILTI and subpart F income just like other US citizens.Considering this information, we can recommend contacting the Tax Advisory Pty Ltd. for further details about income taxes on foreign and local sourced income for the fiscal year. Analysis of your documents represents that your employment and work activities relate to different countries because of which you had to live in different countries. Such information predicts that you will have an issue related to income taxes in the future. The issues should have your top priority, as it would relate to the tax department of different countries although we recommend you to contact our taxation advisory exports by visiting our office personally and collect further details about strategies and methods to handle such issues. You may also avail of our special services to get full-time assistance from a financial and tax advisor to support you run our business or perform employment opportunities effectively.

Some other issues are also identified by our expert team from your presented documents for taxation issues. These issues are related to capital issues and ordinary income issues, which also relates to your case. The issues are whether the capital receipts of Compass Airways Limited or the disposal of income. We request you to read these issues thoroughly.

Furthermore, taxes will also apply on the purchase and sales of goods, assets, stock, and other credit card transactions. Most of the transactions in your Income statement, Bank Statement, and Dividend statements indicate towards tax expenses. Some of these taxes can be handled with GST and tax exemption claims in specified time duration.  

The ordinary income is defined under the limits, and it can be assessed on the basis of gross values. The capital receipts are not for ordinary income. The limited values are subjected to the capital gains for different net basis and tax values.

The argument for ordinary income

It is important to identify your ordinary income and statutory income. Under the 15.2 section, statutory income is different from ordinary income. Therefore, the treatment of taxation is different for both kinds of income. From smith v FCT (1987) the 19 ATR 247, there is the suggestion that the test required for section 15-2 is easier to meet than for section 6-5. In case, employer of an employee pay additional benefits such as bonus on excellent performance, then it is considered as ordinary income. While on the other hand, the situation will be different in case the employer had no specific reason for the payment given to the employee. In such a situation, the amount of bonus or additional payment will be treated under section 15-2 [6.220]. In case it is proved that income is ordinary income by any means and it had the specific purpose as a bonus to the employee for excellent performance, then it would be treated as ordinary income under section 6-5. Considering this situation, income taxes related to ordinary income will only apply, and the employee would not have to pay taxes related to the 15-2 section.

Compass Airways Limited has purchased the land, and according to the dividend statement, the value of ordinary shares was $300. The resale of profit is a speculator for the real estate and proceeds to ordinary income. The upfront cash payment incentive was highly paired with the offers of a commercial lease. The flight training center of Compass Airways Limited is assessable at the normal taxable income. The fixed asset register shows a description of assets including computers, printers, and furniture. The Mascot Business center provided a complete free fit-out. The time limit of the fit-out was two months, and the rent-free value was $12,000. Compass Airways Limited can relocate complete setup for the new facilities. The incentives were offered by the landlords to the company. Besides the other non-cash benefits, the consideration is about the discounted periods, rent-free periods, non-cash benefits.

The assessable income is in the hands of the lessee in the case of Compass Airways Limited. The amount can be considered as assessable income in the current market value of the rent. It can be incurred by Compass Airways Limited. The advertising contract payment and income conditions were defined in the contract.   The flying school provides training to aircraft pilots, and specialist instruction services are provided to the individuals. The contracts are under the normal process, and they were used in the business of Compass Airways Limited. The high's decision was to terminate the contract with Compass Airways Limited. The effective discussions were done for compensation for breaching the contracts. The contracts were assessed for the ordinary income, and the loss was high for the ordinary income.

Arguments for the capital receipts

The intention of Compass Airways Limited was to consolidate titles of the land and to build the large training facilities. The program was designed to train the students to fly the commercial aircraft. The commercial aircraft can make flights by using the flight simulators. The sale of land was at $440,000 with the legal cost of $990, building inspection of $550, with an upgrading cost of $6,600. The sale services are for the sale of the land under the capital values. According to the income statement, the cash lease incentive payment records are assessable, and the gain of capital account was higher only if the payment is received through the new business of Compass Airways Limited.

The business of Compass Airways Limited approached the potential criteria of selection. The compensation amount mentioned in the statement of Compass Airways Limited can be considered as a payment of the contract. The payment of the contract can be delivered according to the fundamental structure of the business.  The compensation cost is considered as the capital sum for the payment. The fundamental structure is designed to provide flight training in the contract to improve the business. The flight training contract of Compass Airways Limited is to improve the business, and without the contract, there are no other available methods to generate income for the business. The supplier agrees with the distributor for the settlement sum as 49,950,00 Australian dollars. The contract was signed between distributors and suppliers.

The extract of the contract of sale of real estate was between the purchasers and coral McKendrick. According to the   agreement, the exclusive distributor termination agreement was between Compass Airways Limited and Coral McKendrick. The scope of engagement was between the coral McKendrick and tax advisors Pty Ltd. According to the income statement of individual non-business, the gross payment was measured as $82,252 and reportable fringe benefits amount under FBT year 1 was measured as $22,581. The report shows total allowances comprising of laundry and uniform. The total allowance was about $3,321 with a laundry cost of $2,080, and the uniform cost was $1,241.

Lump-sum Payment and Character of Capital

Lump-sum payments received or paid to any entities also require GST. GST payment can be earned back from the government in case you are a filler. We advise you to check your status. Whether you are a filler or a non-filler person. You can only take advantage of GST payments if you are a filler in such a situation GST will be considered as an advanced tax asset. Unless your GST paid on transactions will be considered as the tax expense.

Property Sales Taxes

According to law, property sold after three years of purchase is considered as long term investment. While the amount gained from this property will be treated as long term capital gains. Under property tax regulation, the minimum percentage of taxation after indexation is around 20 percent. The tax department will deduct this amount after the indexation process of calculating the amount reduced because of inflation during that period. In your case, the sold property will also require tax liability in case the holding period is more than or equal to 3 years. After reviewing your property related details presented in Bank statement and income statement we recommend you to have original documents with transaction details about property sold (72,000 and agent commission $18,000) and office rent (1,500) to avoid taxation issues later. These documents will help you tackle possible issues regarding property taxes and taxes on asset purchase or sale.  

State taxing authorities and IRS has the responsibility of tax levy collection. It works as a legal seizure for the individual or company who has a tax liability but inability to pay off that taxes due in the specified period. Under the law, the tax regulation department actually seizes property or a plant asset as tax levy in case tax is not paid by the taxpayers in the given time. Although, the tax levy is quite different from tax lien which is only a claim on the ownership of a property or fixed asset of an individual taxpayer or a company. We advise you to ensure tax payments of all taxable properties and business operations within the specified time duration in order to avoid the tax levy of your property or assets.

Surcharges also concern with the taxes department. According to the Texas Department of Public Safety, drivers are required to pay off their surcharges in order to avoid punishment. Surcharges amount is levied once a year and benefit last for the next three years. The accumulated payment for the surcharge is around $2100 annual, which includes prices for traffic tickets ($2000) in case of driving in a fully drunk condition. Under Indigency programs, surcharges are reduced to some extent while in incentive programs, these surcharges can be totally waived off by the applicant. Some additional charges may require for this payment. Please directly contact your tax advisory team if you need more information about surcharges or the elimination of this liability. From bank statement, some traffic related surcharges and amounts are traffic infringement office speeding fee of 220 (balance 50,374). Here we recommend you to grab important documents about this speeding fine to deal with taxation issues in future.  

Credit Card Surcharges

According to the article 19 [regulation implement], the directive of consumer rights in European Union has announced that consumer is allowed to ensure prices comparison more easily while supporting competition in the areas where surcharges for payment are quite common. Under this article, operations activities charges will be calculated separately to ensure appropriate cost borne calculations. However, surcharges will be imposed legally for the utilization of particular forms of payments. Somehow, the amount of the surcharges will be charged for the trader’s cost only. Although, under the regulation of UK [for England, Scotland and Wales] ban on surcharges does not apply to the commercial credit cards or debit cards. In the bank statement some transactions are made with debit card. For instance, Norman Harvey Ltd (7,293.00), Maze Restaurant (450), and Skin care Australia are related to the debit card. For these transactions you must have information that support in the taxation process.    

Offer and Substantiation requirements

According to the legal requirements, you have to provide information with proof and evidence that the expenses and transactions made by the HRA and FSA were related to the medical expenditures. Otherwise, the tax liability will be increased. Detailing on HRA, we can say that HRA covers all those expenditures, coinsurance, copays, and deductibles which relate to the medical expenditures other than health insurance. For this purpose, you must have receipts and solid evidence that proves that these expenditures were covered by HRA plans. Although, if you are planning to claim for the tax deduction for the contribution of money or cash payments or gifts given to a deserving person, then you must need to have charity recipes or written communication in the bank records. Similar to this, redundancy payment for employees also requires proper documentation and bank records in case you are interested in avail tax leverage and exemption.

We hope that all discussed issues and possible recommendations will help you get to benefit by avoiding tax issues and follow up appropriate strategies to deal with these taxation issues. In case of any difficulty or issue, you can contact our tax advisory support team at any time. Our support team is always there to support you in dealing with any issues related to taxation.

I am looking forward to hearing from you soon.

Regards,

ABC.

September 26, 2019