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Advice to MPC, Jack and Fred
Advice to MPC, Jack and Fred
Name of Student
Name of Institution
Introduction
There exist a number of tax forms in Australia. In this regard, companies and individuals may be legally obligated to pay taxes to all government levels, that is, local, state, and federal. Income taxes form the bulk of Australia taxation. The federal government collects this through the Australian Taxation Office. Others include capital gains tax and value added tax (Woellner, Barkoczy, Murphy, Evans & Pinto, 2014). The following scenarios explain the various modes of taxations and the underlying principles.
Response to Question (a)
It is a general recognition under Australian Taxation Law that tax exempt organizations have to be taxed on the income they obtain from business or trade activities that have no bearing to those regularly undertaken by the organization. In this case, the Rugby World Cup is an exempt organization. However, the promotion of private companies could attract taxes. Where the recognition given to sponsors qualifies as advertising, the payment made thereof could be taxed, in which case the payment will not be deemed public support or public charity.
Businesses have to use money to make more money. Where a business spends money to generate assessable income, the business is, under Australian law, entitled to a tax deduction. Of course, there exist certain kinds of deductions in which businesses are seriously interested. However, there are also certain legitimate, unforgettable deductions on which businesses can capitalize. As a caveat, businesses should show that the expense was incurred to run the business. Sponsorship expenses incurred to publicize the brand are a deduction. One can claim the expenses in that regard. The only caution is that the expenses should not be deemed “entertainment” as defined in the Act in which case they will be non-deductible.
Overall, payments accepted without the likelihood of the sponsor accruing benefits are deemed “taxable advertising.” On the contrary, the use of the sponsor’s name, product lines or logo in connection with the ongoing activities do not bring substantial return benefits hence cannot make the sponsorship payment a taxable advertising income.
In the present scenario, MPC sponsored the Rugby World Cup event to the tune of $1 million to get the entitlement of displaying its name at the football grounds during the Cup and to associate with the Cup and the Sponsorship in its advertising. These objectives do not bring any substantial return benefits to MPC and, therefore, cannot make the payment a taxable advertising income. MPC did not intend the sponsorship to fall under the realm of taxable advertising; hence, the payment made is deductible.
Response to Question (b)
There has been a wide range of cases revolving around service station proprietors who sign agreements with oil companies in which agreements the service proprietors agree to deal exclusively in the oil company products (trade ties). Each of these agreements is distinct from the rest and deserves separate treatment based on the merits. As a general rule, however, where a service station provider ceases to be a multi-brand trader and becomes an exclusive product retailer, with this conversion involving significant changes in the nature of business or profit-making structure, any lump sum received by the station service proprietor from the oil company in the nature of consideration for a trade tie lasting for a considerably long duration is deemed capital. The same rule is applicable in the event that the sums are used to improve the station facility or to provide capital assets to the station service provider.
Where there is no significant alteration of the nature of the business or its structure and that the tie is not for a considerably long duration to give it a capital character, the payments made to the proprietor of the service station are treated as revenue. Courts have decided on relevant factors to consider in determining whether a lump sum payment to station service providers is capital or revenue.
In the present scenario, the payments would be treated as capital because the tie agreement would last for 20 years, which is considerably long. Furthermore, the fact that Jack Smith was the only service station provider in the region meant that he had to change his business structure to suit MPC specifications, hence qualifying the payment for capital. This is not deductible.
Response to Question (c)
As already mentioned in (b) above, where a service station provider ceases to be a multi-brand trader and becomes an exclusive product retailer, with this conversion involving significant changes in the nature of business or profit-making structure, any lump sum received by the station service proprietor from the oil company in the nature of consideration for a trade tie lasting for a considerably long duration is deemed capital. The same rule is applicable in the event that the sums are used to improve the station facility or to provide capital assets to the station service provider. If the contrary is the case, the lump sum payment is treated as revenue, which is deductible.
Fred Brown’s scenario does not meet the capital threshold because of a number of reasons. Firstly, the tie agreement would be for a shorter period (3 years), which is not sufficient to make the lump sum payment capital. There is no standard duration stated to be long enough to make a payment become capital, but contrasting this scenario with the one in (b) above, it comes out clear that 3 years is quite short a duration. It also emerges that Fred Brown used the money in objecting jointly with other proprietors to applications made by other interested investors in the station service provision business within the Chatswood Shire Council. This use is contrary to the requirement that the payments should be applied to business structure improvement so as to be deemed capital. The payment is treated as revenue, which is deductible under the Income Tax Assessment Act. The legal expense is deductible as well. This is the expenses incurred in objecting to the applications.
References
Woellner RH, Barkoczy S, Murphy S, Evans C and Pinto D, 2014 Australian Taxation Law
(Sydney: CCH Australia Ltd, 24th edition, 2014).
BP Australia Ltd v FCT (1965) 14 ATD
Income Tax Assessment Act 1997, s32-45
Income Tax Assessment Act 1997, s46
Maney & Sons de Luxe Service Station Ltd v. C of IR (1976) NZLR 41
Snowden & Wilson Pty Ltd (1958) 99CLR 431
Stone v FCT 2003 ATC 4584
Advice To Anton, Martin And Kelly On Who Is Responsible For The Contract With Designers Supply Ltd.
Advice To Anton, Martin And Kelly On Who Is Responsible For The Contract With ‘Designers Supply Ltd.?
Contents
TOC o “1-3” h z u HYPERLINK l “_Toc377465753” b) Who is responsible for the contract with ‘Beautiful Windows Ltd.? PAGEREF _Toc377465753 h 3
HYPERLINK l “_Toc377465754” c) The legal effect of incorporation and the consequences it will have on the company’s insurance claim and the arguments raised by the company against compensating Anton from the company compensation scheme. PAGEREF _Toc377465754 h 6
Case Facts
According to the partnership facts in the agreement by Anton, Marin and Kelly, the agreement outlined the procedure to perform purchases on behalf of the partnership. The partnership agreement that the three partners signed was clear that any purchases for the business ought not to exceed £2,500 unless through the consent of the other partners. In this case, Martin completed a purchase for a chandelier worth £3,500, which broke the first agreement regulation, which restricted purchases to £1,000 less that amount. In light of the agreement, it anything above the purchases restriction was supposed to be communicated to the other partners, but Martin failed to make the commutation. While the action of making a purchase exceeding the laid down limit could have been corrected through communication, the omission of the disclosure to the partners makes the entire action in breach of partnership rules.
Advice
The role of the partnership agreement is to make the provisions of partners’ protection legally binding particularly in dealing with responsibility over liability when it occurs. Partner’s negligence in operations should not be condoned as outlined in the guidelines that define the operations of the business. Sensitive operations such as those touching on financial elements require stringent compliance since it implies that future transactions are likely to be marred by uncertainty, which can easily bring the business down crumbling. It is therefore admissible for the partners to consider placing the extra consideration of £1000 for the chandelier’s purchase at Martin’s expense, for the breach of express partnership agreement. Alternatively, the other partners have the right to wholly place the cost of the chandelier on Martin’s expense for the same reason of breach of partnership regulations. The most practical and just option however, is to charge the extra cost element of £1,000 on the errant partner. The difficulties occasioned by lack of communication are interpreted to constitute extra engagements that are unauthorized by the partnership thereby occasioning an agency restriction.
In general, partnership operation is guided by the laid down agreement, which plays the most important part of the definition of individual partners’ obligations as well as rights. Among the vital definitions in the agreement signed by the partners are the administration roles that each of the partners should take care of in the running of the partnership. Whereas every partner ought to contribute towards the smooth operation of the business, the agreement usually clearly states the specific roles that the various partners ought to play in terms of the business oversight. It is not a necessity for a partner to disclose to the other partners every action taken on behalf of the business, if it squarely lies within their docket of responsibilities defined by the agreement. Communication and disclosure however becomes an integral part of the daily running of the business to avoid confusion in case a conflict of roles appears. Among the advantages of entering into a partnership is the capacity to assist each other in terms of carrying out some important decisions, which include daily running of the business; referred to synergy in decision making. In light of such a case, it is always important to ensure that communication makes the regulations outlined in the agreement are followed and consensus reached in case they become compromised in some inevitable ways.
b) Who is responsible for the contract with ‘Beautiful Windows Ltd.?Case Facts
Anton made purchases for curtain fabrics on behalf of the partnership at an undisclosed fee, which will be assumed to be within the set limit to avoid a conflict such as the one that Martin committed with the purchase of the £3,500 chandelier. The fundamental question in this question therefore does not directly involve a partner’s conduct in contravention of the partnership deed. At the time when Beautiful Windows Limited was engaged to supply the business with curtain fabrics, Kelly had already undertaken the communication to the effect that she was quitting the partnership. The other two partners, Anton and Martin were contemplating and had taken initial steps to incorporate the partnership in order to transform it into a private company. However, the actual incorporation had not taken place at the initial contact between the partnership and Beautiful Windows Limited, which implies that the business existed as a partnership. It is alternatively clear that the newly incorporated company was involved in the ratification of the contractual engagement entered with Beautiful Windows Limited. In light of the contractual engagement that the incorporated company, under the name of Smart Designs Limited had with Beautiful Windows, it was purely a corporate engagement since Kelly had left at that time.
Determination of the status is important in order to define the obligations and rights of the three parties at the time of the contractual undertaking entered with Beautiful Windows Limited. It is not clear whether the exit procedure provided for in the agreement had been followed to the later in order for the exiting partner to legally be relieved of her obligations and liabilities to the extent that the partnership and the incorporated business were involved. In light of these facts, the advice to the partners will be constructed with regard to exiting procedure and liability immediately after the exit of a partner, although incorporation of the business attracts considerations that would not bind Kelly.
Advice
Two assumptions will be made regarding the consideration of the contract that the business involved Beautiful Window Limited; some contractual obligation under the partnership and another after incorporation. Firstly, partners are expressly deemed to be the agents of the partnership in their dealings, if they act within the provisions of the partnership deed. It will be assumed that the contractual agreement that Anton had with Beautiful Windows Limited was appropriately done. This is due to the fact that the partners have an obligation to act as agents of the partnership if they perform such processes as can be identified within the usual way of operations to constitute actions that legally bind the partnership. Having factored in the involved consideration as a direct partnership engagement, focus shifts to the actual membership of the partnership at the time of the contractual agreement with Beautiful Windows. In light of the case facts, it is not clear if the appropriate procedure was followed by Kelly in making her exit. Technically speaking, a notice of a partner’s exit out of the partnership spells the beginning of the dissolution process, where the fate of the business is defined by incidental agreements to determine if the business closes shop or it continues in a different form.
In many cases, a partnership with only two partners is dissolved resulting in disposals, debts clearance, liability and surplus sharing according to individual sharing capacity. Where many partners carry out business, the business status is valued as if the business is closing down in order to evaluate the financial responsibility or rights that the leaving partner has on the business to facilitate buying out process for the business to continue. Anton, Martin and Kelly must consider whether this actually happened in order to release Kelly out of the partnership.
To determine the legality of Kelly’s exit, the partnership deed must be consulted to give guidance on the admissibility of her exit. This is important particularly to ascertain a partner’s intentions such as escaping liability. Admissibility will qualify only of the partnership deed allows leaving the partnership on personal will such as on grounds of getting married, otherwise the contractual obligation entered after her alleged exit will be legally binding on her as it does on the other two partners. An agreement can however be reached among the partners in case she is completely incapable of continuing being a partner, to avoid legal and technical complexities from the deed. Such an agreement will take care of the actual date of her legal exit to assist in determination of her financial obligation expected from the contract with Beautiful Windows. In case personal will is allowed in partnership exit, the appropriate communication must be made for the procedures to be initiated immediately to avoid unnecessary conflict.
Secondly, following the decision to incorporate the business, Kelly was not party to the decision since her input and approval are not availed. Further developments on the financial obligations that the business had under the incorporated body can directly be placed on the parties at inception. To this far, Kelly is out of any liability or gain arising from the contractual element held under the incorporated entity. This implies that if the first assumption of the partnership having financial obligation towards Beautiful Windows Limited does not apply, or if Kelly had procedurally left the partnership, the second assumption holds with full responsibility lying on Anton and Martin.
c) The legal effect of incorporation and the consequences it will have on the company’s insurance claim and the arguments raised by the company against compensating Anton from the company compensation scheme.Case Facts
The period under consideration in this question is after incorporation of the business by Anton and Martin under the name Smart Designs Limited. Anton had made relatively higher contribution towards the beginning of the private company, through becoming managing director and chief designer as well as becoming a major shareholder. Anton had also been a lone full time employee at the company besides having taken insurance cover for the business long before incorporation. A theft incidence threatening to close the company on bankruptcy has also completely incapacitated Anton following attacks from the buglers. Insurance company reluctance to compensate Anton is mainly based on insurable position that he has at the time of the incidence, which makes his claim remotely uninsurable.
Advice
Perhaps the most conspicuously missing link in the fateful episode is the preparedness for the company to have the right cover for a corporate entity. It is clear that at the time of the burglary, the same insurance cover that Anton had insured the business with before incorporation was assumed functional. To launch a compensation claim, the insured must satisfy some principle conditions that guide in the regulation of insurance contracts. Apparently, due to the several distinctions that the two types of businesses have, there is no relationship between a partnership cover and a corporate cover. In order to make a justifiable claim, the company ought to have made the appropriate adjustment from a partnership to a corporation. Besides such details as insurance cover for various legal entities, several other considerations come into the equation to ensure that the business moves from an earlier business form into the incorporated state.
Legal effects of incorporation include changes in legal requirements, which increase as the business moves from the simple partnership form to the relatively more complicated form of a private limited company. While a partnership is formed through the partnership agreement or deed, a company must be incorporated through registration procedure that is completed through submission of two main documents namely, the articles of association as well as the memorandum of association. Certificate of inception must be obtained after the incorporation for operations to commence. Whereas legal liability is higher in a partnership in terms of the extent to which liability can be reclaimed from the owners, owners of a company have protection against legally binding liability. Companies must file their returns after the completion of every financial period in order to be authorized to continue in operations while it is not a necessity in partnership business forms.
The applicable rates of taxation are also considerably adjusted when businesses become incorporated and fit in the corporate class of taxpayers. Whereas partnerships management is not defined by law, incorporated entities are guided by law in that there must be directors who must meet certain requirements. Such requirements include the level of shareholding, which is clearly defined by the law, as well as the direct roles that the directors ought to play in the management of the company. This implies that the partnership is fundamentally different from a partnership in terms of legal liability, which should also be reflected in the insurance cover for the businesses. In light of these differences, it is clear that Anton had not met some of the regulations that define incorporated bodies.
Declining to award insurance compensation to Anton for being a full employee of Smart Designs Limited has no legal basis, particularly under common law. While it is not directly assumed that directors are employees of the company thereby bound by the regulations that bind the employees within the company, there is no restriction of managers to participate in the capacity of full time employees. The director of a company who must also be a major shareholder would have the best interests of the company if a closer access were allowed which can be facilitated as an employee. Modifications of companies’ articles must however be clear in that the board of directors authorizes the awarding of service contracts to majority shareholders. Such service contracts awarded for the best interests of the company are admissible before the law. There are special modifications in the regulations of service contracts to such shareholders as the directors with regard to fixed term service contracts. Under such arrangements, directors are deemed permanent and pensionable employees besides their roles as directors, which come with its special treatments. This implies that the insurance company can only refute the claim if it can demonstrate before a court of law that the director (Anton) had not been contracted as an employee despite being a manager.
Bibliography
Gage, D. The Partnership Charter: How to Start Out Right with Your New Business Partnership (or Fix the One you are in), Basic Books, New York, NY, 2004
‘362.190 Partner agent of a partnership as to partnership business’, US Government, 26 June 2006, viewed on 24 August 2011 <http://www.lrc.ky.gov/KRS/362-00/190.PDF>
Bernstein, D. & Wang, C. ‘Code of Ethics and Business Conduct for Officers, Directors and Employees of Orient Paper Inc.’, Orient Paper, Inc., 29 October 2009, viewed 24 August 2011 <http://www.orientpaperinc.com/images/The%20Code%20of%20Business%20Ethics%20and%20Conduct.pdf>
Deards, E. & Deards, R. Practice Notes on Partnership Law, Cavendish Publishing Ltd., London, UK, 1999
Baxt, B. & Baxt, R. Duties and Responsibilities of Directors and Officers, AICD, Sydney, 2005
Honds, J. Directors’ Duties in the Context of Insolvency, GRIN Verlag, Norderstedt, Germany, 2006
Company Law Club, ‘Directors as Employees’, Incorporation Services Limited, 2011, viewed on 24 August 2011 <http://www.companylawclub.co.uk/topics/directors_as_employees.shtml>
TMP UK, ‘Treatment of Directors’ Claims as ‘Employees’ in Insolvencies’, Society of Practitioners of Insolvency, 2010, viewed on 24 August 2011, <http://tmp.co.uk/downloads/creditors-guide/technical-releases/directors-as-employees/>
Advertising strategies as in Zyrtec Allergy Medication Ad
Author
Tutor
Course
Date
Advertising strategies as in Zyrtec Allergy Medication Ad
Introduction
Advertising is an integral part of any business. It determines the profitability of a business as it is mainly aimed at attracting new customers, as well as retaining the existing customers. The increasing competition in the world of advertisement has ensured that advertisement companies come up with creative ways of persuading people to buy their commodities. Persuasive advertising techniques have ensured that companies are always in the eyes of the people, especially those who make decisions pertaining to rejecting or purchasing certain products. In essence, advertising has grown into a multibillion dollar industry with the sole goal of persuading people to purchase the products being offered. One of the key ways of persuading people to buy products is by incorporating the element of happiness, as seen in the Zyrtec Allergy Medication Ad. It is evident that advertisement creates the notion that happiness is within reach and that it comes with the next purchase of the commodities offered.
One of the strategies used in the case of this advert is appealing to emotion. The advert attempts to evoke an emotional response from the consumer (Alstiel and Grow, 17). The lady in the advert talks about people suffering from indoor allergies and outdoor allergies, or even both and states that she falls under the third category. She seems to be living quite well and enjoying the fullness of her life despite the fact that she has both indoor and outdoor allergies. She complements the image of happiness by stating that she is now freer to do what she wants, where she wants. This is bound to evoke feelings of happiness, and cement the thought that the next consumer purchase of Zyrtec Allergy Medication would enhance his or her happiness.
In addition, the advert uses the association principle. This is an advertising technique that revolves around creating a mental link between the product and desirable qualities (Alstiel and Grow, 25). These include attractiveness, success and freedom among others. It is worth noting that these appeals are more often than not implicit. In fact, the lady does not implicitly state that the consumer has to buy the product if he or she wants to be attractive and successful. However, it is evident that the advert shows story lines and images that espouse these values. The lady moves around the immaculate home, with immaculate furniture and an incredible lawn. In addition, she is immaculately dressed, attractive and in an impressive body shape. It is worth noting that the indoor and outdoor environments encompass happiness and satisfaction, but may not be immaterial to people who are allergic. The consumer, therefore, would have to purchase the product so as to enjoy these immaculate environments.
In addition, the Zyrtec Allergy Medication Ad incorporates the use of glittering generality. These are creative or creative techniques of advertising that are filled with phrases and terms that incorporate positive connotations attached to them (Alstiel and Grow, 45). It is worth noting that the lady after asking the viewers whether they have heard about Zyrtec Allergy Medication, she states that it is “great” news for people with indoor allergies, outdoor allergies or both as is her case. The use of the term “great” is bound to encompass or stir up a positive connotation about the product in the consumers. These positive connotations outline a relatively happy life, which would undoubtedly come with the next consumer purchase of Zyrtec Allergy Medication.
Works cited
Youtube. Zyrtec Allergy Medication Ad. 2008, Retrieved 12th October 2012 from HYPERLINK “http://www.youtube.com/watch?v=pBtQDXuKVAo&feature=related” http://www.youtube.com/watch?v=pBtQDXuKVAo&feature=related
Altstiel, Tom and Grow, Jean. Advertising Strategy: Creative Tactics From the Outside/In. New York: SAGE. 2005. Print