Prepare formal written advice for quark pty ltd

Assignment Help Accounting Basics

Reference no: EM133612238

Case: Quark Pty Ltd.

500 Mowbray ROAD

LANE COVE, NSW 2066

8 Sept 2018

Greetings,

Quark Pty Ltd is a trader of machine parts. Its annual turnover in the last five years averaged A$1.5m and its CGT assets have a current value of A$5.5m. The company was established on December 1, 2005 and the company is equally owned by Robert Green and myself. I am employed as an executive director of the company.

On 1 July 2015, the company purchased 50% of the shares in a small manufacturer, Diggs Company Pty. Ltd, located in Malaysia. The remaining 50% of Diggs was purchased by Robert Green. Quark Pty Ltd instructed Diggs Company Pty. Ltd to supply machine parts at the cost of manufacture plus a mark-up of 30 per cent so that Diggs could utilise its tax losses carried forward. Previously, Quark purchased similar products from Digg's competitor in Sri Lanka for A$130 per unit.

From 1 July 2018, the company is offering me a new salary package of $120K per year. I am planning to forego my salary increase to obtain a new car, which will cost A$55,000.

The car will owned by the company and will be available for my private use only. The estimated travel kilometres will be 12,000 km per year.

In addition, I am planning to retire in a couple of years. The estimated current market value of the company is A$3.8M. The current market value for each asset and liability is:

Market Value	30^th of June 2017
Cash	$50,364
Debtors	$323,731
Inventory	$780,365
Warehouse	$3,500,000
Plant and Equipment	$458,679
Trucks	$920,000
Investment in Diggs	$100,000
Trade Creditors	($1,073,883)
Provision for Annual Leave	($36,860)
Loan Payable	($1,200,000)
Net Assets	$3,822,396

I am seeking your advice on:

the likely tax consequences of Transfer Pricing rules as they apply to the cost of goods sold of machine parts acquired from the company's subsidiary, Diggs.
obtaining the maximum CGT concession available to me if I was to sell my shares in the company to Robert Green.
the best salary package structure for me especially as it relates to the car situation.

(a) Prepare formal written advice for Quark Pty Ltd. including reasons for your recommendations. Ensure to include appropriate references to tax legislation and case law. Submit the Spreadsheet - Quark Financials and Working Papers as part of the response.

Reference no: EM133612238

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