Task: Greg and Renee McLaren and their son Alex have come to you seeking tax advice concerning succession planning. Greg and Renee are 62 and 58 years of age respectively have operated their farm in rural New South Wales as a partnership since 2000. They have three sons; John, Alex and Michael. John and Michael have each moved away from farming and are not keen to return to run the family property.

Alex, 32, spent 10 years after high school working on the farm and foregoing his wages as he expected to take over the running of the property when his parents retired. However Alex has recently taken a few years to live away from the farm to pursue a career in drafting in Sydney. Alex currently works as a drafter earning $55,000 per year. Greg and Renee's goal is to retire in the next 2-3 years so the family sat down recently to discuss the matter and worked out the following facts:

The farm is comprised of two separate properties. The first, Hillview is comprised of 500 acres and contains the family home built in 1958 by Greg's parents. The second property Rocky Ridge, contains no dwelling and is around 600 acres in size. Hillview was inherited in 2000 when it was valued at $50,000 and purchased Rocky Ridge in 2000 for $40,000.

Hillview is currently valued at $500,000 and Rocky Ridge at $600,000 and both are owned by the partnership. There is a mortgage of $390,000 combined on these properties . The mortgage was taken out over the properties to keep the business going during the drought and GFC and was recently extended to allow the purchase of new stock. There is currently stock on the properties (sheep and cattle) to a value of $100,000 and $75,000 of machinery and equipment is kept on Hillview.

The farm has not been running profitably for a few years but with the new stock it is expected the farm will make an annual profit of $30,000. Renee also works fulltime in the local bookshop earning $55,000 per year plus super. She has accumulated $50,000 in super. Greg has saved no super, nor has he ever drawn any wages from the farm. The couple live primarily on Renee's income.

Alex has not yet received any payment for his years of work on the farm. The family have agreed Alex's work is valued at $200,000. As he has not received these amounts and no tax has been paid by him on them. Alex is concerned about the tax implications if he were to ask his parents to pay his his back wages. He wonders if it might be better to inherit the amount as part of his parents' estate, but is concerned about how it would affect his brothers, who would be expecting a 1/3rd share each.

The family have discussed the following options for the future.

1. Selling the farm to a third party, so Greg and Renee can retire to a smaller home in a local town.

2. Selling the whole farm to Alex when they retire.
The family are open to any other arrangements you might suggest that will help them to minimise their tax and achieve their goals.
For your task, focus primarily the tax considerations (you may discuss other considerations to the extent they assist you to develop a tax optimised strategy that meets the clients goals).

Part 1: A business letter of approximately 2 pages. Identify and briefly explain the strategy that you believe best suits Greg, Renee's and Alex's requirements. Use plain English, with a minimum of legal jargon, as this is the letter that will be sent to Greg, Renee and Alex. There is no need to cite legal authorities in this section unless you feel it especially appropriate to do so. Note, also, that you may recommend a change in business structure if it assists your strategy.

Part 2: Prepare a file note justifying your recommendations in Part 1. This will be kept internal in your firm, so ensure that you consider alternatives, justify why you have chosen your recommendations and ensure you cite legal authorities as appropriate. You may assume that this record will be read only by parties (lawyers/accountants) who are familiar with taxation law, so you may (and are required to) use legal terms where appropriate to convey meaning.

Rationale: This assessment task covers topics 1 to 10 and has been designed to ensure that you are engaging with the subject content on a regular basis.

This assignment has been designed to assess your ability to:

• gather and integrate your knowledge on the topics covered thus far;

• investigate in depth the cases, rulings and legislation that are fundamental to taxation law;

• demonstrate your ability to apply that knowledge to a hypothetical, practical situation;

• exercise critical and reflective judgement;

• demonstrate your ability to conduct research using provided materials as well as other legal resources;

• develop your written skills; and

• demonstrate time management skills.

Learning Outcomes:

• be able to critically analyse the underlying concepts relevant to the treatment of financial products under the Australian income tax system;

• be able to assess the application of Australian taxation laws on financial products;

• be able to independently research and critically evaluate recent developments in taxation that are relevant to the financial services sector;

• be able to communicate the application of tax law to a range of stakeholders in the context of financial services.
Students should be able to identify and apply legislation and case law to the issues identified as well as demonstrate the ability to analyse the issues fully and discuss the application of taxation principles.

Marking criteria

In assessing your assignment the marker will expect you to:

• present an assignment that is readable and coherent;

• use appropriate language, correct spelling and grammar;

• identify and analyse relevant issues;

• explain and apply relevant cases, rulings and legislation;

• reach a sound and well-reasoned conclusion;

• use appropriate referencing; and

• demonstrate time management skills.

Your mark will depend upon the degree in which you demonstrate your understanding of the topics covered thus far, and the overall presentation of your essay.

Presentation: Style Guide: You must present your responses in the required formats using Arial Size 12 font and 1.5 line spacing. Part 1 must be a formal business letter. Part 2 must be a file note format.