110.807 Taxation Final Examination Semester 1, 2024

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110.807 Taxation Final Examination Semester 1, 2024

Instructions:

You may take into the exam 5 double sided A4 pages of notes.

When giving answers, please provide reasons and (when required) statutory or case law references to support your answer. When calculations are required please show all your  workings to support your answer.

Please note that all characters are fictitious and any resemblance or similarity to any real person is purely coincidental. All amounts are in New Zealand dollars.

Case Study:

DBS Ltd, a family-owned company based in Otago (New Zealand) supplies Deep Brain Stimulation (DBS) devices it imports from STELS LLC, a manufacturer incorporated in the United States. DBS Ltd has secured a good discount from STELS LLC and became the largest supplier of DBS devices in New Zealand and Australia.

Bram Jansen and his wife Eva Jansen, both are New Zealand residents, have been equal shareholders in DBS Ltd since the company’s incorporation in 2001. Bram is the company’s non-executive director, and Eva is the company’s marketing manager.

In 2023/24 income year DBS Ltd:

-   paid for Eva and Bram’s grocery bills ($1,200 per person);

-   acquired two electric bicycles for Bram and Eva ($6,500 each);

-   acquired Volkswagen Transporter (a van) for $120,000 to use for business purposes;

-   paid a salary to Eva ($250,000 per year) and a director’s fee to Bram ($300,000)

-   declared $1,000,300 as a dividend;

-   offset a previous year’s loss of $200,000;

-   received  $15,000  net  interest  from  deposits  in  New  Zealand  banks  (a  tax  was withheld).

In December 2023, Eva won a Lottery prize of $105,000 and spent it all on a birthday present (a motorbike) for Bram.

Bram and Eva use DBS Ltd’s credit card to pay for their groceries of $1,200 per person per year.

In 2025, Bram and Eva are planning to:

-   transfer all their DBS Ltd shares into a discretionary trust, where Eva will be a trustee, and Bram, Eva, and their 23 years old daughter Sophie will be trust beneficiaries; and

-   reduce Eva’s annual salary to $25,000 and Bram’s annual director’s fee to $30,000; and

-   distribute all dividend and interest income received by the trust to Sophie, who has no other income;

-   distribute all imputation credits and Resident Withholding Tax (RWT) credits received by the trust to Bram and Eva.