SOLOMON ISLANDS NATIONAL UNIVERSITY (SINU)

SCHOOL OF BUSINESS AND MANAGEMENT (SBM)

TAXATION (ACC703)

ACC703 – ASSIGNMENT 2 (Individual)

Instructions:
▪ Weighting: This assignment contributes 10% to the overall course grade.
▪ This is an individual assignment with a total possible mark of 100.
▪ Assignment Cover Page: Use SBM cover page
▪ Referencing and Academic Integrity: All sources must be properly cited and referenced.
Failure to acknowledge external sources constitutes plagiarism, which is strictly
prohibited and will not be tolerated.
▪ Academic Misconduct: Copying another student’s work is strictly prohibited. Any
student found engaging in such misconduct will receive a zero mark for the assignment.
▪ Formatting Requirements: The assignment must be word-processed; handwritten
submissions will not be accepted.
▪ Due Date & Time and submission guidelines:
o Hard Copy Submission: 28 April 2025, by 5:00 PM – In my office
o Soft Copy submission: 28 April 2025, by 11:55pm – Upload to SINU Moodle
o Late submissions will incur penalties as outlined in the Course Outline.
▪ Individual Assignment: This is an Individual assignment.

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TAXATION CASE STUDY ASSESSMENT
Case Study: Tax Compliance and Planning for Ocean Breeze Café

Background
Ocean Breeze Café is a small but growing business in Honiara, Solomon Islands, specializing in organic
coffee, baked goods, and local seafood dishes. Established in 2021, it started as a small family-run
café but has rapidly expanded due to increasing demand from both locals and tourists.

By 2024, the business has:

• Opened a second location in Auki, Malaita Province.
• Increased its annual revenue from SBD 480,000 in 2022 to SBD 1,200,000 in 2024.
• Hired 10 full-time employees across both locations.
• Introduced an online order and delivery service.

Current Taxation Challenges

With this expansion, Ocean Breeze Café is now facing new taxation obligations. The owner, Maria
Talo, is unsure about corporate income tax compliance, GST registration, and tax planning strategies.
She has approached an accountant to help navigate these issues.

Key Financial Information (2024)

• Total Sales Revenue: SBD 1,200,000
• Total Expenses: SBD 720,000
o Salaries & Wages: SBD 300,000
o Rent & Utilities: SBD 120,000
o Inventory Purchases: SBD 180,000
o Advertising & Marketing: SBD 30,000
o Equipment Depreciation: SBD 20,000
o Loan Interest: SBD 10,000
o Miscellaneous Business Expenses: SBD 60,000
• Net Profit Before Tax: SBD 480,000
• Loan Balance (Used for Expansion): SBD 250,000

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Key Tax Issues
Corporate Income Tax Compliance • Now that Ocean Breeze Café is generating over SBD 1 million, it
is subject to corporate income tax (30%). • Maria is unsure about what expenses can be deducted to
lower taxable income. • She is also considering reinvesting profits into the business and wants to know
if this affects taxable income.

1. GST Registration and Reporting. The company was not registered for GST previously because its
revenue was below the SBD 600,000 threshold. Now that revenue has exceeded SBD 1 million,
GST registration is mandatory. Maria is uncertain about:
o How to calculate and collect GST from customers.
o How to file GST returns with the tax authority.
o Whether all sales, including online transactions, are subject to GST.

2. Available Tax Credits and Deductions. Maria wants to know if there are any tax incentives for
small businesses. She recently purchased energy-efficient kitchen equipment and is curious if this
qualifies for any tax deductions or rebates. The business also donated SBD 5,000 to a local
charity, and she wants to know if this is deductible.

3. Tax Planning for Business Expansion. Ocean Breeze Café plans to open a third location next
year. Maria is considering whether to lease or purchase the new property and how that impacts
tax obligations. She is also thinking about hiring more employees and whether there are any tax
incentives for employment.

4. Recordkeeping and Compliance Challenges. The café has not been keeping systematic tax
records, making it difficult to track income and expenses. Maria is worried that poor
recordkeeping could lead to penalties during a tax audit. She is looking for advice on how to
improve financial reporting and tax compliance.

Additional Complications

1. Changes in Tax Law. Tax Rate Increase: In 2024, the government announces a planned increase
in corporate income tax rates to 35% starting in 2025. Maria is considering whether to accelerate
any expenditures or income recognition to reduce her tax burden this year. • GST Rate Change:
The government is considering a GST rate hike from 10% to 12% starting in 2025. Maria is unsure
whether she should raise her prices now or wait until next year. How will this change affect her tax
planning?

2. Tax Audit Risk. Audit Notice: Maria receives an audit notice for the 2023 tax year. The tax
authority is focusing on verifying the accuracy of her expenses, particularly the deductions for
inventory purchases and miscellaneous business expenses. There is also scrutiny on the employee
salaries, as some employees worked part-time but were paid full-time wages. Maria is worried
that improper documentation could lead to penalties.

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3. International Sales and VAT Implications. Cross-border Transactions: The café recently began
receiving international orders through its online delivery service. Some customers are from abroad,
and Maria is uncertain whether she should charge GST on these transactions. She also wants to
know if her business will be subject to any tax reporting obligations in other countries.

4. Shareholder Distributions. Dividend Distributions: Maria is considering paying out a portion of the
business’s profits as dividends to her family members, who are the primary shareholders. She is
unsure whether this distribution will affect the café’s tax position, especially since the business is
operating in the Solomon Islands but has international family members.

5. Environmental Compliance. Sustainability Tax Credits: The café is being encouraged to apply
for an environmental sustainability incentive for installing solar panels and rainwater harvesting
systems. Maria is interested in understanding if these investments qualify for tax credits or
deductions, and what documentation is required.

6. Employee Benefits & Fringe Benefits Tax. Fringe Benefits: Maria is considering offering
additional benefits to her employees, including health insurance and company meals. She is unsure
if these benefits are taxable, and if so, whether there are any tax advantages or penalties for
providing them.

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Assessment Task for Students
You have been hired as a tax consultant to advise Ocean Breeze Café on the best approach to meet
its tax obligations and plan for future growth. Your task is to provide a comprehensive report
addressing the following areas:

1. Corporate Income Tax Compliance:

o Calculate Ocean Breeze Café’s taxable income and corporate tax liability.
o Identify which expenses are deductible and any adjustments needed.
o Consider how the potential tax rate increase in 2025 might affect Maria’s tax planning, and
advise on whether to accelerate any expenses or income recognition this year.

2. GST Registration and Reporting:

o Explain GST registration requirements and how to apply.
o Provide a step-by-step guide on how to collect, calculate, and report GST.
o Consider the implications of the potential GST rate change from 10% to 12% in 2025.
o Advise on how to handle cross-border transactions and whether international sales should be
subject to GST.

3. Tax Credits and Deductions:

o Identify any tax credits or incentives available to Ocean Breeze Café.
o Determine if the charitable donation and energy-efficient equipment purchase qualify for
deductions.
o Advise on the potential environmental sustainability tax credits available for solar panel and
rainwater harvesting system installation.

4. Tax Planning for Business Expansion:

o Compare the tax implications of leasing vs. purchasing a new location.
o Advise on tax incentives related to employment, especially with the potential to hire more staff
as the business grows.
o Consider the impact of shareholder distributions (dividends) on tax obligations, particularly
regarding international family shareholders.

5. Recordkeeping and Compliance:

o Recommend best practices for bookkeeping and tax reporting to ensure compliance.
o Suggest tools or software that can help Ocean Breeze Café track finances and maintain
systematic records.

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 o Advise on how to handle the current tax audit risk and ensure that the café is prepared for
future audits.

6. Tax Audit and Risk Management:

o Provide advice on how to prepare for and handle a potential tax audit, especially concerning
the business’s expenses and salary discrepancies.
o Advise Maria on how to ensure all deductions are properly documented to avoid penalties
during the audit.

Expected Student Responses (Key Points to Cover)

• Corporate Tax Calculation: Apply allowable deductions and determine tax payable at 30% (or
35% from next year).
• GST Implementation: Outline registration, invoicing, and reporting obligations, including the
upcoming rate change and implications for international sales.
• Tax Incentives: Identify deductible expenses, capital allowances, SME tax benefits, and
sustainability incentives.
• Expansion Strategies: Advise on leasing vs. buying, hiring incentives, and managing
shareholder distributions.
• Compliance Solutions: Recommend recordkeeping tools, accounting software, and best
practices to mitigate audit risk.
• Audit Risk Management: Provide guidance on how to manage and prepare for a tax audit,
focusing on proper documentation and compliance.

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Marking Criteria and Rubric for Case Study
Needs
Excellent (A, Good (B, 70- Satisfactory (C,
Criteria Improvement Fail (F, <40%)
85-100%) 84%) 50-69%)
(D, 40-49%)

Comprehensiv
e and
accurate
calculation of
taxable Accurate tax Basic calculation
Significant errors
income and calculation with of taxable
in tax Incorrect or
tax liability. minor errors. income and tax
calculations. incomplete tax
All deductible Most deductible liability. Some
1. Corporate Some key calculation.
expenses expenses deductible
Income Tax deductible Major errors in
identified correctly expenses may
Compliance expenses identifying
correctly. identified. be missed.
missed. Limited deductible
Demonstrates Shows good Limited
tax planning expenses.
deep understanding understanding of
insight.
understanding of tax planning. tax planning.
of tax
planning and
potential
adjustments.

Provides a
thorough and
clear
explanation of
GST
Good
registration
explanation of Provides basic
requirements, Limited
GST registration explanation of
including steps explanation of Incomplete or
and reporting, GST registration
to apply. GST registration incorrect
with minor and reporting.
2. GST Explains how and reporting. explanation of
errors or Some details
Registration to calculate, Misses key GST registration
omissions. missing
and Reporting collect, and points on rate and reporting.
Addresses GST regarding GST
report GST changes and Misses major
rate change rate change and
with full international points.
and cross- international
understanding sales.
border issues sales.
of upcoming
adequately.
rate changes
and
international
sales
implications.

Thorough Correct Provides basic

No or incorrect
3. Tax Credits identification identification of identification of Misses several
of all relevant tax credits and tax credits and key tax credits identification of
and
tax credits deductions, but deductions. or deductions. tax credits and
Deductions
and incentives. some minor Some points Explanations are deductions.
Clear points or underexplored

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 Needs
Excellent (A, Good (B, 70- Satisfactory (C,
Criteria Improvement Fail (F, <40%)
85-100%) 84%) 50-69%)
(D, 40-49%)

justification for justifications or lacking clear underdeveloped

charitable missing. Good justification. or incorrect.
donation and understanding
energy- of tax
efficient incentives.
equipment
deductions. In-
depth analysis
of
sustainability
credits.

Clear, well-
supported Basic comparison
comparison of of leasing vs.
Good analysis
leasing vs. purchasing with No analysis of
of leasing vs. Limited or
purchasing, some tax leasing vs.
purchasing. unclear analysis
with a deep implications purchasing.
4. Tax Provides solid of leasing vs.
understanding addressed. Lacks any clear
Planning for advice on purchasing, and
of the tax Limited or recommendation
Business employment minimal advice
implications. superficial s for
Expansion incentives and on employment
Detailed advice on employment or
shareholder and shareholder
advice on employment shareholder
distributions distributions.
employment incentives and issues.
with minor gaps.
incentives and shareholder
shareholder distributions.
distributions.

Provides
detailed,
actionable
recommendati
Good Poor or unclear
ons for Adequate
recordkeeping advice on No actionable
recordkeeping recordkeeping
recommendation recordkeeping. recordkeeping
5. practices. suggestions with
s and software Limited or recommendation
Recordkeeping Suggests some useful
suggestions. impractical s. Fails to
and appropriate tools/software
Some areas for software address audit
Compliance tools/software recommendation
improvement in recommendation preparation
with clear s. Audit advice is
audit risk s. Incomplete adequately.
reasoning. basic.
management. audit advice.
Excellent
advice on
audit
preparation.

6. Tax Audit Provides a Good plan for Provides basic Provides minimal No plan for
and Risk well-thought- handling audit advice on advice on audit managing audit
Management out plan to risks. Covers handling audits, risk risks. Lacks
handle tax most but lacks some management. understanding of

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 Needs
Excellent (A, Good (B, 70- Satisfactory (C,
Criteria Improvement Fail (F, <40%)
85-100%) 84%) 50-69%)
(D, 40-49%)

audit risks, documentation depth or clarity Key aspects of audit

including requirements on audit preparation
detailed steps but may miss documentation. preparation are requirements.
to ensure some key missing or
compliance. details. incorrect.
Demonstrates
deep
understanding
of
documentation
and audit
requirements.

Report is well-
Report is
organized, Report is well-
somewhat Report is
clearly organized with Report lacks
organized but disorganized
written, and minor issues in clear structure,
7. Clarity, lacks clarity or and poorly
professionally structure or and several
Structure, and depth in some written, making
presented. All clarity. Some sections are
Presentation areas. Some it difficult to
sections are sections may poorly written or
sections may be understand the
logically need more confusing.
difficult to key points.
structured and detail or clarity.
follow.
easy to follow.

Overall Marking Guidelines

• Excellent (A, 85-100%): The student provides a comprehensive, accurate, and well-organized
report that addresses all aspects of the case study in depth. They demonstrate an excellent
understanding of Solomon Islands tax laws, apply them appropriately, and offer well-thought-
out recommendations. The report is clearly structured and professionally presented.
• Good (B, 70-84%): The student provides a solid and accurate analysis with only minor errors
or omissions. They demonstrate a good understanding of tax laws and provide clear,
actionable advice. The report is generally well-organized and clearly written, though it may
lack some depth in certain areas.
• Satisfactory (C, 50-69%): The student addresses the key points of the case study but with
several gaps or inaccuracies. The analysis is generally basic and may miss important details or
fail to fully demonstrate understanding of tax principles. The report is somewhat organized but
lacks clarity in some areas.
• Needs Improvement (D, 40-49%): The student addresses the case study with significant errors
or omissions. Many key tax issues are not adequately covered or explained. The report lacks
clear structure and is difficult to follow in parts.
• Fail (F, <40%): The student fails to adequately address the case study. There are major
inaccuracies or missing elements in the analysis, and the report is poorly structured and difficult
to understand.

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Recommended Report Structure and Word Count Guide (Total: 2,500 words)
Title Page
• Not included in word count
• Include: Report Title, Student Name, Student ID, Course Code, Lecturer Name, Date of
Submission.

Executive Summary (Approx. 200 words)

• Summarize key findings and recommendations from the report.

• Touch on tax liability, GST, available incentives, and audit risk.
• Written last but placed first.

1. Corporate Income Tax Compliance (Approx. 500 words)

• Calculate taxable income: Identify allowable deductions (e.g., salaries, depreciation,
interest).
• Calculate corporate tax liability at 30% for 2024.
• Discuss tax planning strategies:
• Timing of expenses and income in light of the upcoming rate change to 35% in 2025.
• Reinvestment and its effect on taxable income.
• Highlight any non-deductible items or adjustments (e.g., personal use, undocumented
expenses).

2. GST Registration and Reporting (Approx. 500 words)

• Explain GST registration thresholds and obligations (> SBD 600,000).
• Outline application process to register for GST.
• Show how to calculate, collect, and report GST (10% now, increasing to 12% in 2025).
• Explain invoice formatting, GST returns, and deadlines.
• Discuss online sales and cross-border GST/VAT considerations.
• Recommend whether to increase prices now or defer based on 2025 rate change.

3. Tax Credits and Deductions (Approx. 400 words)

• Identify eligible deductions/incentives:
o Energy-efficient equipment
o Charitable donations (SBD 5,000)
o SME or small business tax credits (if available)
• Explore sustainability incentives:
o Potential credits for solar panels and water harvesting systems.
• Recommend documentation needed for claiming deductions/credits.

4. Tax Planning for Business Expansion (Approx. 450 words)

• Compare leasing vs. purchasing the new location:

o Impact on tax (capital allowances vs. lease expenses).
• Explore employment-related tax incentives:
o Any reliefs or rebates for hiring.

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 • Discuss dividend distributions:
o Local vs. international shareholders.
o Withholding tax or reporting implications.

5. Recordkeeping and Compliance (Approx. 300 words)

• Advise on:
o Bookkeeping best practices
o Use of accounting/tax software (e.g., MYOB, QuickBooks)
o Maintaining supporting documents (receipts, contracts, payroll)
• Provide a checklist or schedule for regular tax compliance.
• Suggest ways to improve internal controls.

6. Tax Audit and Risk Management (Approx. 300 words)

• Outline a plan for audit readiness:

o How to organize supporting documentation.
o How to deal with 2023 audit regarding salaries, inventory, and expenses.
• Explain the importance of evidence in defending deductions.
• Recommend staff training or consultant support.

Conclusion (Approx. 150 words)

• Recap key tax obligations and strategic advice.

• Emphasize importance of planning, compliance, and documentation.
• Offer closing remarks on positioning the business for growth and sustainability.

References (Not included in word count)

• Use APA referencing style.

• Cite Solomon Islands tax legislation, government publications, and academic sources.

Appendices (Optional – Not in word count)

GST invoice sample

Tax calculation worksheet

Audit preparation checklist

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