Topics Income tax self assessment Returns Assessment Amendment of assessment: anytime if fraud/evasion Objection review and appeal

Payment of income tax PAYG withholding system PAYG instalment system PAYG instalment Calculation Business Activity Statement (BAS) Instalment activity statement (IAS) Running balance account(RBA) Public Rulings Private rulings Practice statements and interpretive decision Penalties: relevant circumtances can be considered General interest charges (GIC) Shortfall interest charge (SIC) Part IVA: anti -avoidance provisions Part IVA: Scheme Part IVA: Tax benefit Part IVA: Purpose of the scheme Part IVA: Consequence Part IVA: Peabody's case Part IVA: Spotless decision

Page No. Note 1.04 1.04 1.05 1.05 1.06 1.07 1.07 1.08 1.09 1.09 1.11 1.11 1.11 1.12 1.12 1.13 1.13 1.14 1.15 1.16 1.16 1.16 1.17 1.17 1.18 1.20 Non GST register Limit: no GI/ penalties listed; commisioner authority Legally binding Commissioner Legally binding Commissioner, apply for requesting taxpayer only direction for ATO office, not binding by commissioner relating to statements; failing to lodge, withhold PAYG, meet other obligation- 28 day unit@$110 & cap Rate table & where to apply 4% less than GIC apply where amended tax payable is increased compared with original assessment Taxpayer's entered into a scheme with obtaining tax benefit dominant purpose s.177A s.177C- must be a tax benefit s.177D s.177F reverse the tax benefit + penalties 50% (reduce to 25% if reasonable) No tax benefit obtained as the case progress in reasonable commercial sense Obtained tax benefit as dominant purpose vs commercial post assessment checking through ATO audit tax return lodgment 31 Oct Ordinary, default or special. NOA by Commissioner within 2 years after NOA (4 for large co. & complex affairs) 2 & 4 years or within 60 after amended notice 60 days of decision. AAT, Federal court, STCT (<5,000) 21 days after NOA, 1st day of 6th month after EOFY Rate; small 28th day, midium 28th or 21st day after EOQ/EOM; large-weekly/fortnightly Installment rate by commisioner; small(<8K tax) one annual amount by 21st date of the 4th month after EOFY; 28th date after EOQ for BAS deferred, or 21st date after EOQ for others GDP adjusted notinal tax or instalment rate method

Topics Tax equation

Page No. 2.04

Assessable income Ordinary income: ordinary concepts Statutory income s 6.10 Exempt income Non assessable non exempt income Ordinary income: common law concepts- 3types: from personal services; carrying on business; property Distinguishing between income & capital

2.05 2.05 2.06 2.07 2.08

2.09 2.12

Source of income Residence: Individuals Residence: Company Income: Cash or accruals basis Income: Instalment sales Income: From property Income: Wage/salary Income: Amount receive in advance/unearned rev. Income: long-term construction contracts IT2450 Income: Redirection of income Esixtence of business Commencement of a business Income from business

2.13 2.14 2.15 2.17 2.18 2.18 2.18 2.18 2.20 2.20 2.22 2.22 2.23

Income from business: Isolated transaction Income from business: Realisation of Investment Non-cash business benefits: As a result of business included in ass. inc.

2.25 2.28 2.28

Topics Compensation: same character of the item which it replaces Compensation: loss of profit/trading stock Compensation: loss of contract Compensation: loss of agency Compensation: Restrictive covenants Compensation: Apportionment Compensation: recoupment/ unliquidated damage Royalties Foreign exchange gains and losses Foreign exchange events Assessible income: Other specific sections Trading stock Trading stock: definition Trading stock on hand Trading stock: accounting & valuation Trading stock: Cost price (full absorption costing- fix + variable) Trading stock: Replacement value Trading stock: Market selling price Trading stock: Asset become trading stock Trading stock: Obsolete stock Trading stock: Disposal Trading stock: Notional disposal- s.70.100 - the transferor is not the sole owner but an entity Trading stock: Cease to hold as trading stock (still own) Trading stock: lost or destroyed Death of owner Trading stock: SBEs

Page No. 2.30 2.31 2.31 2.32 2.32 2.32 2.32 3.34 2.36 2.38 2.40 2.41 2.42 2.43 2.44 2.45 2.47 2.47 2.48 2.48 2.49 2.49 2.49 2.49 2.51 2.51

Note Income tax payable = taxable income x rate - tax offset Taxable income = assessable income - deduction s 6.1 = ordinary income + statutory income s 6.5: Aust res.: all source; foreign res: Australia source s 10.5, Dev.15 list of statutory income; prevail ordinary income in term of provision precedence s 6.20, Div. 11 ITAA97 list of classes of exempt income s 6.23 ex: repayable amount; trading stock sold outside ordinary course; GST collected must be realised; monetary form or convertible; has income charactes; regular; except windfall gains; compensation for loss of income; not of capital nature, not mutual receipts, can include receipts from illegal activities Flow concepts (Ex: rent flows from ownership of property) Wage/salary: where-perform; business income: contract place, where- perform; where-payment; Interest: where- payment obligation arise; dividends: where- profit earn; royalties: where it arose s. 6.5: reside in Aust; Domicile test; 183 day test (no need to be consecutive) incorporate in Aust; central mngmt/control in Aust; voting power controlled by Aust residence Large professional practices & business: accrual/earning is almost mandatory; Non business activity providing skill or knowledge (wage/salary)- cash Income earned when good were sold & delivered Derive when it is paid & received: cash basis Not regarded as being derived until its received Income derive when service/good are supplied Basic approach' or 'estimate orifuts method' s. 6.5 (4) income derived as soos as it is applied or dealth with in any way on taxpayer's behalf or as taxpayer's direct Degree of system & org. used; activities scale; repetitive; profit factor; time spend; type of activity have to have sign of commercial production /activity being undertaken s.6-5 of ITAA 97; Scottish Australian Mining v. FC of T (1950); FC of T v. Merv Brown; FC of T v. Whitfords Beach PL FC of T v. Myer Emporium: isolate transaction can be included in ass.income if the intention/purpose is to make profit/gain/ in the courseof carrying on a business>< Westfield Ltd v. FC of T; Selleck v. FC of T and other cases Not include in ass. income if of capital nature. But if it realised in the ordinary course of business, it's included. (bank, insurance co... s 21.A Not assessible if claimable as a deduction/ <=300 (s.23L) or not deductible to the benefit provider

Note Form: loss of profits, trading stock; contract; agency; restrictive convenants. Have to look at case circumtances s 15-30 & 70-115 Contract is of ordinary business or of a capital nature?? If the loss severely disrupts structure/capital, then compensation may be of a capital nature The importanc of the agency. Same as loss of contract Higg v. Olivier- Pmt received for entering into a restrictive covenant are on capital account If compensation can't be dissect into income & capital components, the whole amount is treated as capital. Mclaurin v. FC of T (1961) included as income whole/partly s 6-5 s15-20 (cover what is outsine s 6-5)- royalty chart 960C, 960D: rate as when on hold/ deducted or time of receipts event & examples compensation in respect of employment & services (not being a fringe benefit); to encourage work; loss of trading stock/profit/income; bonus Div 70 ITAA97 s 70.10; good can be included as trading stock even taxpayer does not have legal title s 70.15 Deduction only available when it is on hand; purchased undelivered maybe on hand s 70-35 End -Start: excess, assessable >< otherwise, deductable. S 70.45 EOY Valuation at a) costs, b) market value, c) replacement value. Can adopt different basis for different stock Cost that including all charges in getting to existing condition and being on hand. Accepted method: FIFO, average cost, retail inventory & standard cost Using comparable items Value from sale in ordinary business course (not include selling & delivery expenses) s 70.30 Original cost or market value s 70.50 Can write down stock to lower reasonable value Sale price; market value on disposal day if out of ordinary business course market value or elective to choose tax value if date of disposal is identical to tax year end date (change ownership form) treat as sold and bought back at arm length value ass. inc includes amount received as compensation but not assessable as ordinary ass. Inc includes market value of trading stock or avoid by elect to continue the business SBEs concessions Div 328 ITAA97; SBEs eligibility (<=2m turnover). Can choose not to account for the difference of end- start stock on hand value if <=5,000

CAPITAL GAIN TAX

Topics Page No.

Profit making plan Capital Gain Tax Decision chart CGT Step 1: Involved CGT event CGT Step 1: A1 Disposal of a CGT asset CGT Step 1: B1 Use & Enjoyment of a CGT asset befor title pass CGT Step 1: C1 Loss or destruction of a CGT Asset CGT Step 1: C2 Cancellation and surrender of a CGT asset CGT Step 1: C3 End of an option to acquire shares CGT Step 1: D1 Creation of contractual or others rights in another entity CGT Step 1: D2 Granting an option to an entity CGT Step 1: D3 Granting a right to income from mining CGT Step 1: D4 Conservation covenants CGT Step 1: E1-E9 Events relating to trusts CGT Step 1: F1-F5 Events relating to leases CGT Step 1: G1 and G3 Events relating to shares CGT Step 1: H1-H2 Special capital receipts CGT Step 1: I1-I2 Australian residency ends CGT Step 1: J1,2,4,5,6 Events relating to rollovers CGT Step 1: K2-K12 Other CGT events CGT Step 1: L1-L8 Events relating to consolidated groups CGT Step 2: CGT asset or capital receipts

3.05 3.08 3.09 3.10 3.11 3.12 3.12 3.13 3.14 3.15 3.15 3.15 3.16 3.20 3.22 3.24 3.24 3.29 3.30 3.34 3.35

Topics CGT Step 2: CGT Asset & Classification CGT Step 2: Collectables CGT Step 2: Personal use asset CGT Step 2: Other assets CGT Step 2: Separate CGT assets CGT Step 3: Exemption- PreCGT acquired assets

Page No. 3.35 3.35 3.36 3.36 3.37 3.37

CGT Step 3: Exemption- Specific exemption CGT Step 4: Rollover apply? CGT Step 4: Rollover apply? CGT Step 4: Rollover apply? - Demerger relief CGT Step 4: Rollover apply? - Same asset rollover CGT Step 4: Rollover apply? - Small business rollover CGT Step 4: Rollover apply? - Effect

3.39 3.40 3.40 3.41 3.42 3.42 3.42

CGT Step 5: Calculation gain/loss CGT Step 5: Calculation: Captital proceed

3.43 3.44

CGT Step 5: Calculation: Cost base CGT Step 5: Calculation: Cost base CGT Step 5: Calculation: Cost base- Index CGT Step 5: Calculation: Reduced cost base CGT Step 5: Calculation: Capital losses

3.45 3.47 3.47 3.49 3.50

Topics CGT Step 6: Assesable capital gain- Individual CGT Step 6: Assesable capital gain- Compying superannuation fund CGT Step 6: Assesable capital gain- Trust CGT Step 6: Assesable capital gain- Company CGT 12 month rule Adminitration: record Adminitration: asset register Special circumtances: Partnership Special circumtances: Deceased estates

Page No. 3.52 3.53 3.53 3.54 3.55 3.56 3.56 3.57 3.58

Relief from CGT: Main residence Relief from CGT: Different main residence Relief from CGT: Partial exemption Relief from CGT: Mariage breakdown Relief from CGT: Deceased estates Relief from CGT: SBEs relief 2011/2012 Relief from CGT: SBEs- Active asset test Relief from CGT: SBEs- CGT concession stakeholder & significant individual Relief from CGT: SBEs 15 year exemption Relief from CGT: SBEs 50% reduction Relief from CGT: SBEs retirement exemption Relief from CGT: SBEs Rollover

3.60 3.62 3.63 3.63 3.64 3.65 3.66 3.67 3.68 3.68 3.69 3.69

CAPITAL GAIN TAX

Note s 25A ITAA36 s 15-15 ITAA97- Ass.income includes profit from carrying on/out of profit making plan but not apply if it is ordinary income or from asset acquired after 19-9-85 (CGT applied in this case) Part IIIA ITAA 96; Part III ITAA97 Div104; Step to determine appropriate CGT event (CGT event then D1, H2) Timing: Date of contract or change of ownership. Exception for compulsory acquisition; Earliest of pmt, ownership, took possession or entering Timing: When first obtain the use and enjoyment of the asset Timing: Compensation receives or when discovered Timing: Contract date or when the asset ends (intangible: option, share, lease Timing: When option end(not being exercised/cancelled/released/abandonded) D1 does not apply where other CGT event, other than H2, occur Does not apply over option over shares, units, debentures, or collectable Timing: (both 4): contract date or when right is create Timing: when trust is created (E1) or asset is transferred (E2) Timing: when lease contract is entered or start of the lease (F1) G1 Capital payment for shares; G2 Liquidator/administrator declare worthless shares H1 Forfeiture of deposit; H2 Receipts for event relating to CGT asset Taxable Aust property test; CGT on non taxable Aust Property- can disregard capital gain/loss when choose to or temporary resident K2 Pmt of debt by bankrupt; K3 Asset passing to a tax advantaged entity after death; K4 CGT asset becomes trading stock; K5 Collectable losses

Note s 108.5: property & legal/equitable rights; collectables, personal use & others $500 Threshold; collectable capital loss can only be offset against collectable capital gain subdiv. 108 C- $10000 Threshold Ordinary CGT rule subdiv 108 D Separate post-CGT additional asset from pre CGT principal asset 20-Sep-85 Car (<+1tonne); decoration awarded for brave, valour conduct; personal use asset <=10,000; asset to produce exempt income (s.118-12); supperanuation lump sum, termination payment; compensation for occupatinonal wrong/injury; gambling winning; .. Disposal of asset to or creation of asset in a wholly owned company Replacement asset rollover events: Involuntary disposal of CGT asset; Others

Asset transferred by court order resulting fr marriage/de facto break down; .

Rollover relief apply -> disregared capital gain/loss When asset at least 12 month from acquired-> index method(frozen Sep 1999) or CGT disccount method (does not apply to D1 where is relating to intangible assets Do not include GST; Rules: market value; apportionment; non receipt; repaid rule: assumption of liability; misappropriation s 110.25 Cost =(1) cost paid + (2 )incidental cost (transfer, stamp duty, marketing, valuation, search, . S.110.35) + (3) Cost of owning (After 20.9.91interest, rate, maintaining cost)+ (4) capital expenditure for increasing value (not apply to goodwill) + (5) Capital expenditure relating to title/right of asset Market value substitution rule Before 11:45 am 21.9.99 and at least 12 month old; index all except (3) element s. 110.55. Use 4 cal. capital loss: Include all element except (3) if acquired after 20.8.91; Never indexed;

Note At least 12 month ownership: index method (if acquired pre 11:45 21.9.99) or discount method: 50%; less than 12 month no discount no index Discount at 33 1/3 % Similar to individual but gross up process apply No CGT discount

Record of Acquired date/CGT date; costs Kept for 5 years after CGT events Can transfer record to a certified asset register Ref. to partneship agreement or partnership law Beneficiary deem to acquire asset on the date of death at market value (preCGT) or at the deceased cost base or reduced cost base (post CGT) Subdiv 118 B: gain/loss made fr dwelling CGT asset is disregard if a) individual; b) main residence throughout ownership; c) no relation to trust or deceased estates. Absence fr main residence: can treat as main residence if less than 6 year threshold Formular & example Exemption apply pro rata for main residence period out of the whole period of combined ownerhip s 118-195 Div 152 A- Basic conditions: gain fr CGT events; SBE; must be active asset; if owned >15yrs: must active at least 7.5yrs; if <15 yrs: half of relevant period concession stakeholder are significant individual (at least 20% participation) in co/ trust or spouse of him/her with % participation > 0 Satisfied 152.A; owned asset for 15 yrs; if individual- must over 55 & retires Satisfied 152.A- 50% reduction apply after 50% CGT discount (if applicable) Satisfied 152.A- > 55 year old - cant exceed a 500K lifetime limit Apply when capital gain is to aquire a replacement/improvement of active asset within 1 year before & 2 year after the occurring of latest CT event

GENERAL & SPECIFIC DEDUCTIONS

Topics
General Deductions G.D.: General principles G.D.: 1st limb- losses or outgoing G.D.: 1st limb- inccured G.D.: 1st limb- Cole Myer v. Fc of T G.D.: 1st limb- TR94/26 G.D.: 1st limb- Nexus/link between outgoing and ass.inc G.D.: 2nd limb- business and carry on a business G.D.: 2nd limb- necessarily G.D.: 2nd limb- purpose G.D.: Negative limbs- losses or outgoings of capital or of capital nature

Page
4.04 4.05 4.09 4.10 4.10 4.12 4.13 4.14 4.14 4.14 4.18

G.D.: Negative limbs- losses or outgoings of a private 4.23 or domestic nature G.D.: Negative limbs- losses or outgoings in deriving 4.26 exempt or non assessable non exempt income G.D.: Negative limbs- losses or outgoings denied a deduction by another provision of the Act G.D.: Aportionment G.D.: Interest G.D.: Capital protected borrowigs G.D.: Damages & Penalties G.D.: Rent- Advance payment G.D.: Exchange losses 4.26 4.27 4.27 4.29 4.30 4.30 4.31

Topics
G.D.: Specific exclusions from s 8.1 G.D.: Step to treat losses/outgoing for tax purpose G.D.: Effect of GST on deductions Specific statutory deductions: S.S.D SSD: Repairs SSD: Repairs vs Improvement SSD: Repairs associated with purchase/sale of property SSD: Repairs - Commisioner's ruling SSD: Repairing assets used only partly for income producing purposes SSD: Bad debts SSD: Tax affair expenses SSD: Preparation of leases SSD: Borrowing expenses SSD: Borrowing expenses where loan has dual purpose SSD: Expenses of discharging a mortgage SSD: Travel between workplaces SSD: Terminate a lease SSD: Super contributions SSD: Pmt to asscociations SSD: Gift or contributions SSD: Fundraising events SSD: Gifts of trading stock SSD: Tax loss of previous year SSD: Deduction of earlier year tax losses SSD: Tax loss prior to bankruptcy SSD: Deduction for current year tax losses

Page
4.31 4.33 4.34 4.35 4.35 4.36 4.37 4.38 4.38 4.39 4.42 4.42 4.43 4.44 4.44 4.45 4.46 4.47 4.48 4.48 4.49 4.49 4.50 4.51 4.52 4.52

Topics
Limitations: Entertainment expenses Limitations: In-house dining facilities & meals in a dining facility Limitations: In-house recreation facilities Limitations: Taxpayer who are in the business of entertainment Limitations: Promotion & advertising expenses Limitations: Overtime meals Limitations: Seminar Limitation: Charitable entertainment Limitations: Ocupational clothing Limitations: Pmt to related entities Limitations: Prepaid expenditure Limitations: Losses from non-commercial business activities Limitations: Losses from non-commercial business activities- Condition 1 Limitations: Losses from non-commercial business activities- Condition 2 Limitations: Losses from non-commercial business activities- Condition 3 Limitations: Losses from non-commercial business activities- Condition 4 Substantial of expenses: Work expenses Substantiation: Written evidence fr supplier Substantiation: Evidence recorde by the taxpayer Substantiation: Evidence of payment summary Substantiation: Time limit for obtaining written evidence Substantiation: Meal allowance expenses

Page
4.53 4.54 4.54 4.54 4.55 4.55 4.55 4.55 4.56 4.56 4.57

4.60 4.61 4.61 4.61 4.61 4.63 4.63 4.64 4.64 4.64 4.64

Topics
Substantiation: Travel allowance expenses Substantiation: Written evidence is not required Substantiation: Car expenses Substantiation: Car expenses- Cents per km Substantiation: Car expenses- Log book method Substantiation: Car expenses- 12% of original value method Substantiation: Car expenses- 1/3 actual expenses method Substantiation: Car expenses- Exceptions Substantiation: Business travel expenses Substantiation: Retention & production of document Substantiation: Loss of record Substantiation: Penalty for breach of substantiation provision Thin capitalisation Thin capitalisation: Exemption Thin capitalisation: Entity category Thin capitalisation tests

Page
4.65 4.65 4.66 4.66 4.67 4.67 4.68 4.68 4.68 4.69 4.69 4.70 4.70 4.71 4.72 4.73

GENERAL & SPECIFIC DEDUCTIONS

Note
s. 8.1- Framework - 2 positive & 4 negative limbs Always related to ass. inc.; must producing ass.inc. for entity that inccured expenditure (exception: group co. ); necessarily inccured (can include involuntarily expenditure- Ex: robbery); No need to be incurred in tax year (can be before or after); Deductible even when income producing activity cease; Court only consider how much has been spent but may check on the unreasonable amount s. 8.1 (1) (a) Commisioner only entitled to fact that it has been spent Must be inccured: actual disbursement (doubtful debts, holiday pay, long service leave are not deductible until pay out). Discount BoEx. & promissory note: loss arising should be apportioned on an accounting straight line basis over the life of the bill or note. Incurred at issued time not at maturity date where loss has not been realised, a presently existing pecuniary liability is necessary prerequisite to an expense being "incurred'' Must always be a nexus between them. If no evidence, expenditure must relevant to the particular trade/field s. 8.1 (1) (b) expense incurred be4 commencement of business or disposing, closing down business is not deductible 8.1 (1) (b) must be dictated by the business for the purpose of gaining/producing ass.inc. The court will look at the subjective factor of voluntary & excessive/ commercial unexplanation/ disputable outgoing Once & for all test- capital; Enduring benefit test- capital; Business entity test- purpose of expenditure- if for preserving, defending capital assets ->capital; if for the continual competitive business operation-> revenue nature Non deductable: nursery fee, travelling fr home to work (Payne v. FC of T), Uni fee to obtain degree; home office for convenience; Deductable: Travelling in the course of business; higher certificate fee; seft education expenses; premium of disability insurance; protective clothes s 11.55 lists the non assessable non exempt income Ex: club fee, employee's car parking, leisure facilities & entertainment

If borrowed fund are used for income producing -> interest is deductable. Steele v. FC of T: interest paid on fund using to purchase capital asset was deductable. Not deductable interest but as capital cost to be included in cost base. If entered in be4 or at 7:30pm 13.5.08, amount contribute to cost is cal under Div 247; If after and interest exceeds RBA variable home loan rate +100 basis point, the excess is not deductile Deduction is prohibited for law imposed penalties/fines Rent is deductible when paid but advance rent is prima facie deductible Div 775- forex ex gain/loss incurred in earning ass.inc are on rev acc. & deductible except when time between acquisition & disposal of CGT asset & pmt due date is less than 12 months;

Note
Div. 26 No deduction for GST if the tax payer is entitled to input tax credit s 25.10- if repairs was of revenue nature-> (pro rate) deductible Improvement: addition, alteration; replacement whole or part-> enhance the efficient functioning of the property. Repair: Restoration without changing its characteristic Initial repairs- capital outlay that form part of the cost of the asset (both before/after sale purchase) -> not deductible Deduction may be allowed for repairs to a property which has ceased to be used for income producing purpose Deductible to a reasonable extent Must be an existing debt; must be bad (not doubtful); have been written off during tax year; must have been included in taxpayer's ass.inc. Not extend to pmt of income tax; obtain finance to pay income tax; "recognized tax adviser"

Deductible if used for the purpose of producing ass.inc.; deductible in the year if <=$100; otherwise, over the shortes of loan period, fr date borrow & date repay; 5 years from date borrow

deductible if travel directly between 2 place of employment/business, place of employment & place of business: in the course of business fr 1.7.05, can deduct capital expenditure incurred to terminate a lease/license in the course of business. 20% /yr for 5 yrs Employers: full tax deduction for all contribution paid to complying suer fund on behalf of employees (except >75yrs old). Employees are not entitled to deduction. Personal contributions for self employed will be deductible if <10% of ass.inc.. Cap 25,000- 10/11; 50,000 09 to 12 if >50 yrs old Deduct to maximum $42 under s.25.55, balance may be deductible under s8.1 Minimum $2, if gift consist of property, property must be purchased withing 12months preceding the making of the gift: recipient is in Aust. If gift is>5,000, deduction spread over 5 years Deductable if value of contribution exceeds $150 & benefit received is < than the lesser of $150 &20% of the contribution value. Market value on the date the gift is made Tax loss = Assessable income - Allowable deduction - net exempt income

Denied as a deduction and cannot be carried forward

Note
Generally not deductible unless incurred in providing a fringe benefit; extend to the use of property for entertainment (repair is non deductible) Deductible. In house dining facility must be located on premises and not open for public. For non employee meals: either no claim deduction of claim up to 30/meal and add $30 as ass.inc. Deductible if facility is at premises & for employees use only. Excluding accommodatio, dinning & drinking Deductible as in course of business Deductible Deductible Deductible if run for 4 continuouse hrs, not a business meeting, not advertising/promoting, not entertainment, must be conference, education course Deductible if provide to public member who are sick, disable, poor, dis-advantaged.. Deductible where clothing is 'necessary & peculiar' to taxpayer's occupation or extra expenses in incurred in relation to the clothing s 26.35 SBEs & individual can immediately claim deduction for prepayment if the associated "eligible service period' not exceeding 12 months and 12m period ends before the following EOFY, otherwise, proprtionally claim over the year, up to 10yrs. Does not apply if < $1000, pmt under a contract, or required to pay by cour order (same with other taxpayer) Taxpayer can deduct a loss fr business activity if they meets one of 4 conditions Adjusted taxable income is <250K and taxpayer meets one of 4 additional tests: at least $20K ass.inc.; produced tax.inc in 3 out of last 5 yrs; at least 500k value of property; at leaset $100K value of other assets The commisioner has exercised his discretion to allow the taxpayer to claim the loss Loss is solely due to a reduction cliamed under the SB or general business tax break Primary production or professional arts business exception applies s 900.30; cover tools of trade, protective clothing, repairs, borrowing expenses, subscription. Do not included loss relating to motor vehicle except travel outside Aust. receipts, invoices < $10 & total <$200

No time limit but then no deduction claim until prove Generally require written record but overtime meal allowance (if not exceed the allowance limit 26.45 for 11/12)

Note
Written evidence plus travel diary if >6 consecutive night. 2 exception: no written evidence if reasonable & within Australia; if travel outside Aust, no written evidence for food drink, incidental expense if reasionable; require for accomodation though Total of all work expenses (including laundry) <=300 (exclude travel, meal, car, transport); laundry expenses <=150; covered by award transport pmt as in s.900-220 include all relating losses in operating a car and decline in value. 4 claiming method Business km <= 5K; disregard excess of 5K Business km <=5K; maintain log book for at least 12w to determind business use % Business km >5K; 12% of aquisition cost of car (lease cost). Ceiling 57446. Business km>5K; 1/3 of total expense incurred during tax period for producing ass.inc. 5 year record commercial vehicle; trading stock; personal use; car hire/lease business; unregister; use in bisiness of repairing car Written evidence required 5 year record keeping. 28 day for complying with evidence required notice Limited concession. Taxpayer must try to obtain a substitute doc 25% of tax shortfall, extra 20% if taxpayer has been penalised in an earlier year Assets of Aust multinational entity are predominantly financed by debt with only a relatively low amount of equity The thin captitalisation in Div 820 does not apply if no debt deductions during the tax year; debt deductions do not exceed 250K in a particular tax year; Aust resident entity does not have offshore investments or outwards investor Non ADI (authorised deposit taking institution) general outward investor; Inwards investor vehicle general; Inwards investor general

CAPITAL EXPENDITURE ALLOWANCE

Topics Depreciating asset: Definition s.40-30 Depreciating asset: Intangible asset Depreciating asset: Who hold asset Depreciating asset: When Depreciating asset: Flowchart Depreciating asset: Calculation rule Depreciating asset: Non business < = 300 Depreciating asset: Low value pool <=1000 (Non SBE taxpayer) Depreciating asset: Cal. the decline in low value pool Depreciating asset: Cal. the closing balance in low value pool Depreciating asset: Software development pool Depreciating asset: Others Depreciating asset: Diminishing value formular Depreciating asset: Prime cost formular Depreciating asset: Base value Depreciating asset: Diminishing value formular Depreciating asset: Cost- Example Depreciation asset: effective life Depreciation asset: recalculate effective life Depreciation asset: remaining effective life Depreciation asset: adjustable value: cost or cost- declined value Depreciation asset:forex gain & loss/ can be elective disregarded Depreciation asset: short term gain Balancing adj. events (spitting asset is not) Termination value Termination value: luxury car example Reduction for non taxable use Relief for involutary disposal Balancing adj. event in a low value pool: speacial rule Rollover Relief SBE capital allowance rules: Eligibility for SBE concessions D.328 SBE capital allowance rules: Concessional deductions SBE capital allowance rules: Exceptions SBE depreciation flow chart SBE depreciation calculation SBE Rollover Relief on disposal of Depreciating asset Project expenditure pools Subdivision 40. I Blackhole Expenditure Blackhole Expenditure: Business related costs Blackhole Expenditure: Limitations & Exceptions Blackhole Expenditure: Temporary investment allowance Capital work: deduction for capital expenditure Capital works type Page No. 5.05 5.05 5.06 5.07 5.08 5.09 5.09 5.09 5.10 5.11 5.12 5.12 5.13 5.13 5.13 5.14 5.15 5.17 5.18 5.18 5.18 5.19 5.20 5.21 5.21 5.22 5.22 5.23 5.24 5.24 5.26 5.26 5.27 5.28 5.31 5.33 5.35 5.36 5.37 5.38 5.39 5.40 5.41 5.42 project amount, formular - 10 May 06 neither deductible, nor depreciable or related to cost base of CGT assets Deduct after 1/7/05 @20% in 5 years Section 40:880 D. 41 D. 43 residential (short & other income producing) & non residential bldgs/ rate & formular D. 43 5 steps: Opening balance; add addition; deduct disposals; deduct depreciation; closing balance Condition of rollover relief 2million turnover immediate deduction <= 1000 <> general small business pool 30% (<25 years) or long life small business pool 5%. But 15% or 2.5% only if the assets is first use or first installed for use in that tax year Adj. value is not reduced to the extent for private use 24 month period beginning 12 month before holding example: cost/adj. cost reduced by the gain when / amount assessible = adj. value- termination value depreciating asset Car limit 57,466 Formular & example Include balancing adjustmnet in assessable income or offset agains cost of repalcement Pre 10/5/06 (365,150) after (365/200) 365,100 Cost at Start time or asset's opening adj. Value Example 1st & 2nd element second hand- can /can not self assess does not apply 4 intangible dep. Asset. S40-95 Economic owner are legal one (mostly); jointly holder- pro-rate claim Start time: First use or install for use Flowchart & Formular 300; low value/sofware dev. Pool; general rules Div. 40B & C immediate deduction (set - no identical) Diminishing value method/ 4years/18.75 then 37.5 Example Example Prime cost: 21/2 yr pre7.30pm 13/5/08 or 4 years 0-40-40-20 after Land & Trading stock are not D. A Note

INDIVIDUALS
Topics Requirements to lodge an income tax return Determining taxable income & tax payable Tax rate: Resident Individual- Non minor Taxfree threshold Tax treatment of minors (prescribed person) Minor: Prescribed person Minor: Excepted assessable income Minor: Trust income Minor: Tax calculation Ass. Income: Calculation Termination payment: includes Life benefit termination payment & death benefit termination payment Life benefit termination payments: Tax free component Life benefit termination payments: Taxable component Transitional termination payments Death benefit termination payment: both tax free & taxable component Genuine redundancy payments and early retirement scheme payments Unused leave payments Unused long service leave payment Superannuation benefits Superannuation member benefit: Component Annuities and pensions Annuities &pensions: Recovery of capital exclusion Dividends income: tax treatment- resident Dividends income: tax treatment-non resident Foreign source salary and wages income Page No. 6.05 6.06 6.07 6.07 6.08 6.08 6.09 6.10 6.10 6.12 6.13 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.24 6.25 6.27 6.27 6.29 6.30 6.30 Eligible tax inc (ETI) = ass.inc-related deductions-other appropriate deductions - a share of any appropriate deduction. Tax rate: 0 <$417; 66% fr 417 to 1307; 45% >1307 for the whole amount Calculation example After 1/7/07. Employment termination pmt does not included super fund benefit, pension, unused annual leave & long service pmt, tax-free part of genuine redundancy, capital pmt in respect of personal injury... invalidity pmt (ill-health, last retirement day, 2 qualified certifiers) and pre-July 1983 segments. S. 82-150 - Formular. Amount remain but entitled to tax offset & cap (see page.5 workshop slide) Life benefit termination pmt received after 1/7/07 & before 1/7/12 under legal entitlement existed prior to 10/5/06- can be rolled in super fund. Tax table (p6.18) Similar to LBTP but received by other person (dependant or non dependant or trustee) after the death. Tax table (p6.19) Include tax free amount & exceed amount treated as ETP, receive same treatment. Formular (p6.20) Taxed at marginal rates except 30% if pre 18-9-93 & genuine redundancy pmt/ early retirement scheme pmt Accrued since 15-8-78. Taxtable (p6.22) Div301 & 307 Proportioning rule: Tax free (non assessable non exempt income) & taxable component (element taxed & untaxed) in the fund. Tax table (p6.26) Formular A(B-C)/D. Explanation & example Franked: include franking credit in ass.inc & claim tax offset; unfranked- no tax offset; Partly franked; non resident company dividend: gross up for foreign tax & claim tax offset No tax pay on Aust sourced dividends because of not entitled to franking credit & if unfranked, subject to withholding tax 30% or 15% if having tax treaty Exemption only now available if work as a government aid worker/disciplined force or recognized NGO/charity Note Flow chart 15 % >6K; 4650 +30% of >37K; 17550 +37% of >80K; 54550 +45% of >180K 6K Div6AA of ITAA36 < 18 yr old at EoTY & not an 'excepted' person (minors working full time or suffer fr incapacity/disability) Employment/business income; Income fr Investment of money received as a result of legal claims; income fr property, trust income...

Topics Deductions Deduction: Employee or contractor Family tax offset: Dependant rebates Family tax offset: Cal. dependant rebates Family tax offset: dependant adjusted taxable income. Apportionment apply Family tax offset: Housekeeper rebates Family tax offset: Medical Expense rebates Family tax offset: Zone rebates Family tax offset: First child tax offset & maternity allowance Family tax offset: Paid Parental Leave Rebates that limit the effective tax rate for a class of receipts Offset for super contribution for low income/non smoking spouse Rebate for assessablel ife assurance bonuses Income arrears rebate Rebates that increase the tax threshold of recipients - Low income rebates Rebates that increase the tax threshold of recipients Senior Australians Tax Offset Rebates that increase the tax threshold of recipients Pensioner Rebate Rebates that increase the tax threshold of recipients Beneficiary rebate Rebates to prevent double tax- Foreign income tax offset Rebates to prevent double tax- Franking Credit Tax offset Rebates to encourage gov. Policy- Private health insurance offset Rebates to encourage gov. Policy- Mature age worker tax offset Rebates to encourage gov. Policy- Child care tax rebate Rebates to encourage gov. Policy- Education expenses tax offset

Page No. 6.31 6.31 6.34 6.36 6.37

Note Allowable deductions Employer- Employee relationship exist where there is a master servant relationship between payor & payee. 2 tests: control & integration Class of dependants & threshold/maximum rebate: P6.36 1/4 of the amount exceed $282. Maximum rebates- p6.35 = taxable income + reportable super contribution + net loss fr financial & property investment + Centrelink/Veterans Affairs benefit, pesion + exempted foreign income - child support paid Entitlement to the spouse/child housekeeper rebate is denied partly or whole when taxpayer/taxpayer's partner is eligible for Family tax benefit part of the year or whole year 20% of net amount exceeded $2060. Do not include cosmestic, IVF, travel to obtain treatment, insurance expenditures First child tax offset was replaced by marternity allowance fr 1/7/2004. It's a family assistance pmt rather than tax offset (exempted) Family Assistance for 18 weeks @ 589.40/w before tax Examples 18% of the lesser of spouse contribution or 3K reduced by $1 for every $1 exceed 10800. 30% 1500 for Low income: <30K, reduces 4% for each dollars above 30K. No rebate if income >=67500 Table 6.7. & Example Does not apply together with Senion Australian tax offset. Table 6.8 p6.46

6.38 6.38 6.40 6.40 6.41 6.42 6.42 6.43 6.43 6.43 6.44 6.45 6.46 6.47 6.47 6.48 6.48 6.49 6.50

Tax offset cal from net income from working only. Tax table p6.49 rebate 50% out of pocket child care expenses up to max 7500 50% refund for key edu. Expenses up to $818 for primary school childs (2 kids) or $1636 secondary school (2kids). Excess Amount can be carried forward to next FY

Topics Rebates to encourage gov. Policy- Entrepreneurs' tax offset Medicare Levy Medicare Levy Surcharge Higher Education Assistance (HELP) Tertiary student financial supplement scheme Flood levy Family Tax Benefit Part A Family Tax Benefit Part B Personal Services Income PIS: Result test PIS: Unrelated Client test PIS: The employment tests PIS: The business premises tests PIS: Example Employee share scheme rules Employee share scheme: Upfront Taxation Employee share scheme: Deferred Taxation Employee share scheme: Deduction by employers Employee share scheme: Refund of tax for forfeited shares Employee share scheme: Diagram

Page No. 6.50 6.53 6.53 6.54 6.55 6.56 6.57 6.57 6.58 6.63 6.64 6.64 6.65 6.66 6.67 6.68 6.68 6.69 6.69 6.70

Note 50K or less. Fr 50 to 75K, offset phase out. Maximum offset is 25% of tax liability. (reduce in 12/13) Example 6.26 1.5% on income > $19,404 (single) or $32743 (family income) increased by 3007 for each add child or student. 10% apply fr. $19904 to $22828 Rate apply for high income with no private patient hospital insurance with income > $80k (single) & 160K (family) HELP rate p6.55 Discount for voluntary payment during initial 5 yr period 0.5% on taxable income exceed 50K, $250 + 1% on taxable income exceed 100K children < 21 or student , 25 without Youth Allowance or ABSTUDY.. Single income families with dependent child < 16 or full time student <18 with no Youth Allowance Div 84, 85, 86

Div 83A Default position. $1000 tax exemption for taxpayer participating in an ESS paying tax upfront Deferred when ESS interest relate to ordinary shares (risk) or acquire share under salary sacrifice agreement (5K limit)

PARTNERSHIP
Topics Partnership: Definition Partnership vs Joint Venture Partnership: Who Partnership: How they are formed Partnerships and part IVA Taxation of partnetship Payment of tax Partnership income/loss computation Partnership loss Non commercial loss rules & partnership losses fr business activities Partner's salary Partner's interest Partner's life insurance & superannuation Work in progress Stapleton v. FC of T 89 ATC 4818 and FC of T v. Grant & Ors 91 ATC 4608 Real & effective control of partnership income Assignement of a partner's interest in a partnership Alteration of profit/loss entitlements Dissolution or reconstitution of a partnership Dissolution or reconstitution of a partnership: Trading stock Dissolution or reconstitution of a partnership: Depreciation Dissolution or reconstitution of a partnership: CGT Dissolution or reconstitution of a partnership: GST Dissolution or reconstitution of a partnership Page No. 7.04 7.05 7.06 7.06 7.07 7.08 7.08 7.09 7.11 7.11 7.12 7.14 7.15 7.15 7.15 7.16 7.17 7.18 7.18 7.19 7.20 7.20 7.20 7.21

Note s 955.1 (1) ITAA97 J.V do not derive income jointly, liable for the costs of operating individually & entitled to individual share of product of J.V, free to elect tax treatment separately Trust is not a partner in any arrangement but trustee can on behalf of trust; partnership can not be partner in another partnership; child could not be a partner 2 up to 20 max persion (except accounting partnership), no legal written agreement required Part IVA does not apply to typical husband & wife partnership Does not pay income tax but need to calculate profit/loss & furnish a return on income. Each partner is taxed on their share of net partnership income Does notpay tax, partners are responsible for tax & PAYG remit Tax losses of earlier year & superannuation under s 290-150 are not allowable deduction. Franking credit flow to residnet partners' ass.inc regardless of whether the partnership has profit or loss Partnership's losses and exempt income flow to partners' who claim deduction against their other income Div 35 Non commercial loss ( see module 4) Partner can not enter to an employement contract with partnership. Wage/salary is only a mean to allocate profit prior to general distribution.-> salary/wage is not deductible Not deductible but if interest paid on moneys advanced to business is deductible if used for producing income Partnerhip can not claim dedution but partner can claim in his/her own tax return Not included in the net income unless creates a recoverable debt that partnership is entitled to pmt. S 25-95 allows a deduction for work in progress amount paid on or after23/9/98 payment for unbilled work in progress after partner's death made to retiring partner or trustee of decease estate Div 6AA: minor & S 94: further tax on the uncontrolled partnetship income of person >18 age Attempt to adjust the ratio of profit/loss towartd the end of tax year are ineffectual Partnership is required to lodge a partnership tax return for both the old & new partnership Market value or election in writing to treat at tax value (condition apply) Elect between Market value or rollover relief Partner incur any capital gain/loss not the partnership Examples

TRUST
Topics Trust: Not a separate legal entity Trust: components Trusts created by persons during their lifetime Trusts created by persons during their lifetime: Fixed trusts Trusts created by persons during their lifetime: Discretionary trusts Trusts created by persons during their lifetime: Unit trusts Trusts created by will or on the intestacy of any person Trusts created by the operation of rules of law Page No. 8.04 8.04 8.06 8.06 8.06 8.07 8.07 8.07 Note Definition: 3 requisites: evidence of an intention to create a trust, certainty as to the objects/beneficiaries; certainty as to the subject matter of the trust Setlor (creator/donor or testator in case of dispositions upon death); Settled fund; trust property; trustee (operates the trust as legal owner of the trust property); object/beneficiary; trust deed; vesting period; guardian; appointer Inter-vivos trust Trust deed tells the trustee precisely how to deal with the property & income; the beneficiaries have a vested and indefeasible interest Trust deed fives the trustee a discretion of choice as to how the property /income shall be dealt with Beneficiaries hold units in the trust Trust created on the death of a person for the beneficiaries named in the will. Trustee= executor if there is a will; trustee = administrator if no valid will. The deceased = testatot/testatrix Constructive trusts arise when it would be inequitable for the holder of property to be permitted to hold that property for their own benefit. 1) Evidence of an intention to create a trust; 2) nominal sum of money transferred to the trustee by the seltlor at the time of excution of the deed; 3) trustee should record in the minutes the acceptance of the office of trustee; 4) trust deed should be submit to relevant state revenue authority; 5) Client transfer property to the trust He/she can not give a valid discharge for payment made to him/her. Ex: <18 yr old; an undischarged bankrupt & a mentally incapacitated person 1) trust income must be legally available for distribution and 2) beneficiary must have an indefeasible, absolutely vested beneficial interest so that they can demand pmt of the income fr trustee (condition apply) presently entitled beneficiary must pay tax on the trust income share presently entitled His/her share of net income from trust assessed to tax in the hands of the trustee (trustee liable to pay tax) Trustee will be assessed an liable to pay tax on that share under s.99 or s.99A Charts Income to date of death or after; income form date of death to completion of adminstration & after administration is complete Excess franking credits after offsetting trustee income tax liability are not refundable to trustee unless the trustee is assessed under s.99, and can not flow to beneficiaries calculated as if the trustee were an Aust resident taxpayer Tax rate 11/12 Trust losses can only be carried forward in the trust and deducted against future trust income; bot available to reduce the income of beneficiary Hold shares /interest in the shares at risk for 45 days, not counting acquired & disposal date; carry at least 30% of the risks. Exemption: franking credit entitlement <5K Withheld 45% + Medicare Levy 1.5% if no TFN provided Example p8.27 Exampe p8.29, Example p8.34 Trapped within the trust & cannot be distributed to beneficiaries. 5 tests to decide if recoupment is allowed Subject to concessional tax treatment: Eg. Most trust loss rule do not apply to, income injection schemes are modified; imputation benefit can flow to beneficiaries of discretionary trusts if elect to become family trust

Five basic essentials in creating an inter-vivos trust

8.08

Legal disability Present entitlement Tax situation: Beneficiary 'presently entitled Tax situation: Beneficiary 'presently entitled' but under a legal disability Tax situation: No beneficiary 'presently entitled' Taxation of trust income Tax situation: Deceased Estate Availability of franking credits to trustees Trust Net income Calculate beneficiaries' share of income, exempt income, non assessable non exempt income Determine the residency of each beneficiary Allocate net income & consider the income tax implications of each allocation Qualified person (relate to dividend) TFN witholding for closely held trusts including family trusts Discrepancy between distributed & taxable net income of the trust Capital gains included in trusts income Streaming of trust income Trust losses Family trust Family trust election Family group Managed investment trusts

8.10 8.10 8.11 8.11 8.12 8.13 8.13 8.16 8.17 8.18 8.19 8.19 8.22 8.25 8.26 8.28 8.30 8.35 8.39 8.39 8.40 8.41

COMPANY & DIVIDEND

Topics Company: taxable entity Public or private companies Residency Cal. Taxable income Step to determining taxable income Gross up and franking credit tax offset Entitlement to tax offset fir franking credit Expenditure on Research & Development Restrictions on companies with losses or bad debts Continuity of majority ownership test (COT test) Simplified COT Same business test Converting excess franking offsets into tax losses Tax loss Devidend: Definition Share capital tainting Deemed dividends: Deemed dividends: pmt made by co to shareholder or associate Deemed dividends: Loan made by co to shareholder or associate Deemed dividends: Debts owed by the shareholder/ shareholder's associate to the company which the company forgives Distributable surplus Reborrowing arrangement Exclusion from D.7A Loans that meet minimum interest rate and maximum return Amalgamated loans Anti-avoidance provisions for payments and loans through interposed entities Trusts and corporate beneficiaries Concessions available under div. 7A Streaming of bonus shares/distributions of preferentially taxed capital Bonus share issues Redeemable preference shares Excessive remuneration Share buy back Distribution by liquidators Dividend assessable Debt and equity Test determine debt interest Page No.Note 9.04 distinct entity seperate from share holders for tax purpose. Public officer 9.05 9.06 9.06 9.08 & example 9.10 9.11 Example 9.2 Holding period rule (45days or 90days for preference shares); natural person who franking 9.12 credit < 5K 9.13 Tax incentive for companies involve in R&D activitites (condition apply) 9.14 9.14 9.16 9.16 9.18 9.18 9.20 9.20 9.21 9.23 9.23 9.24 9.26 9.28 9.28 9.29 9.29 9.31 9.31 9.32 9.33 9.33 9.34 9.34 9.35 9.35 9.38 9.39 9.39 Formular s. 109R - anti avoidance To prevent trafficking- 2 tests: continuity of majority ownership test or the same business test for wildly held company & broad range of subsidiary companies Same business = identical business 'Abondale Motor Ltd v FC of T Example 9.5 Generally, company can choose amount of prior year tax loss. Restriction apply Div 197 Div 7A, s109B to 109ZE, Flowchart showing application of Div 7A

Minimum repayment formular 9.31 Back to back loan Anti avoidance- sub div EA of Div 7A Commisioner has discretion to disregard a deemed dividend if evidence of Div7A compliance attempt are satisfied, thus allow a deemed dividend to be franked s.45 No immediate taxing event, condition applied The excess will not be deductible & deemed to be an unfrankable dividend s159GZZZK

Div947 ITAA97; Determine debt interest or equity interest Subdiv947 B- Flowchart p9.40

Test determine equity interest Non-share equity interest At-call loans by connected entity Dividend imputation system Corporate entities Distributions Unfrankable distributions Maximum franking credit Franking % greater than 100% Distribution statements: Must be in the approved form & contain certain info (ss202-80 (2) & 202-80 (3) Distribution statements: Approved form Listed investment co- Distribution statement Benchmark rule Ascertaining the franking period Concequences of breaching benchmark rule Departure from benchmark rule: Commisioner power Anti-streaming rules Disclosure rule Franking account Franking credit Franking debit Franking deficit tax: can be offset against future income tax liability Excessive overfranking Relief from 30% tax offset reduction Imputation System Examples Tax offset for direct distributions to entities other than parnership or trust Individual resident shareholders Tax offset for indirect distributions through partnership and trust Franked distribution flowing indirectly to a partner of a partnership Franked distribution flowing indirectly to a beneficiary of a trust Gross up & offset rules Residency requirements for tax offsets

9.42 9.43 9.43 9.44 9.44 9.44 9.45 9.46 9.48 9.48 9.49 9.49 9.51 9.51 9.52 9.54 9.55 9.56 9.57 9.57 9.58 9.60 9.61 9.61 9.62 9.63 9.64 9.65 9.67 9.68 9.68 9.69

Subdiv947 C- Equity debt if gives rise to an interest : 1) as a shareholder; 2)carries a right to a return that is contigent on economic performance; 3) carries a right to a reurn that is at the discretion of company; 4) converts to or provide a right to be issued with, an equity interest Equity interest that is not in legal form solely a share in the capital of the company At call loan: equity interest except if made before 30/6/05 or by company with <20mil turnover Introdution Imputation rules apply to corporate tax entities that are not mutual life insurance Company: Dividend; Corp. Limited partnership: money/ property or dividend; Corp. Unit trust: Unit trust dividend s102D ITAA36; Public trading trust: Unit trust dividend s.102M ITAA36 The lesser of 100% (30/70) or the mount stated on distribution statement Example Must provide. Private Co: within 4 months after EOTY or further allowed time by Commisioner: Others: on or before distribution date s115-290: Special concession regarding deduction s.203-10. Prevent corporate tax entity making distributions to its member, within a particular franking period) that are franked to differenet extents the same as tax year for private company; two franking period for corporate tax entity that is not a private co Penalty formular 4 Rules: Entities are required to disclose any signigicant variations between successive benchmark franking rate. Formular Account off- book maintained to keep track of the franking credits that it can pass on to members Arise when: make pmt of PAYG installment or income tax; received franked distribution or incurs liability for franking deficit tax. Table p9.58 In deficit when franking debit > franking credit ( imputed more tax than it has paid & will be liable to pay franking deficit tax) more than 10% of all the franking credits arose during the year & 30% penalty of franking offset

Figure 9.3 P9.66 Example Example Must be residnet to be eligible for tax offset. Non resident would be exempt from withholding tax

No tax offset if distribution is exempt income No offset if the imputation system has been manipulated Administration of imputation system-franking account tax return

9.69 9.70 9.70

Eligible income tax exempt charities & deductible gift recipient entitled to a tax offset lists Franking account tax return must be lodged in some conditions

CONSOLIDATIONS
Topics Consolidation group Head company Subsidiary member Comparison to accounting consolidation rules Single entity rule Entry history rule Entry history rule: Exception & restriction Benefits and costs of consolidation Tax cost-setting of a subsidiary's assets Calculating the allocable cost amount (ACA) of the joining member Calculating the allocable cost amount (ACA) of the joining member Allocating ACA over a joining member's assets Retained cost base asset Excluded Asset Reset cost base asset Allocating ACA over a joining member's assets Allocating ACA over a joining member's assets: Adjustment Transfer and utilisation of losses Determining losses to be transferred: COT & SBT Utilising transferred losses Page No. Note 10.05 S.703-10 ITAA97 10.05 Corp unit trust or public trading trustc an be the head company if it elect to be 10.06 treated as a company for in come tax purposes Adjustment need to be made because of the different definition of 'subsidiary' 10.08 between financial report & income tax report s.701-1 ITAA97: The intended operation is to apply the income tax laws to a 10.09 consolidated group as if it were a single entity s.705-1 ITAA97: everything that happened to a subsidiary member before it 10.11 joined the group is taken to have happened to the head company for income tax purposes 10.12 10.13 10.14 Subdiv. 705A of ITAA97 Cost setting approach to be applied at 'joining time' Tax cost of each asset of a joining subsidiary is based on a share of the allocable cost amount (ACA) comprising the cost base of the membership interest and its liabilities at the time immediately prior to consolidation Examples & Table 10.1 8 steps to calculating ACA of joining member s.705-25(5) : value of retained cost base asset is generally its face value except repayment (entitlement to unclaimed deductions) & value of right of future income (terminating value/ nil) s.705-35(2) ITAA97: any asset of the subsidiary member which has reduced the ACA s.705-35(1) ITAA97: any asset that not retained cost base or excluded asset Examples Examples Div 707 ITAA97 Trial year (12 months) satisfy continuity of ownership (COT) and same business test Recoup losses incurred post consolidation first, when exhauted, transferred losses will be available for potential recoupment. Restriction (available fraction) apply Each subsidiary member is jointly and severally liable for the group's income tax liability if the head company fail to meet the tax obligation. Entering into a valid tax sharing agreement can limit its liability PAYG installment; franking account; foreign income tax offset

10.15

10.16 10.20 10.20 10.20 10.20 10.21 10.22 10.23 10.23 10.25

Consolidated group's tax compliance: Income tax liabilities Consolidated group's tax compliance: Other tax issues

10.27 10.28

Exiting a consolidated group: Resetting costs of membership interests Exiting a consolidated group: Exit history rule ACA exit calculation Allocating the ACA to membership interests on exit

11.29 11.29 11.30 11.31

Div 711 IATT97 s.701-40 ITAA97: subsidiary will inherit the head company's history of everything that has happened to any asset/liability/business taken with its exits Table 10.2 Example

TRANSFER PRICING
Topics Transfer pricing legislative framework Division 13 ITAA36; s136AD "Property" under s.136AA (1) "International agreement" "Arm's length consideration" "Supply/Acquire" Double taxation agreements (DTAs) ATO rulings Arm's length principle ATO approved four step process Sources of comparable data Accepted arm's length methodologies: Comparable uncontrolled price (CUP) CUP method: advantage/disadvantage Accepted arm's length methodologies: Resale price method (RPM) RPM: advantages/disadvantages Accepted arm's length methodologies: Cost plus method (CPM) CPM: advantages/disadvantages Accepted arm's length methodologies: Profit Split method (PSM) PSM: advantages/disadvantages Accepted arm's length methodologies: Transactional net margin method (TNMM) TNMM: Advantages/disadvantages Interaction with thin capitalisation provisions Note Page No. 11.05 Introduction Supply/Acquisition of good/services internationally must be for an arm's length 11.05 consideration 11.06 11.06 s. 136AC: involve cross border supply/acquisition between 2 distinct legal entities 11.06 11.07 11.08 Article 9: dealing with associated enterprises & Article 25: mutual agreement procedure 11.10 11.11 11.11 11.13 Compares the price of a related party international dealing with the price charged on a comparable uncontrolled dealing between independent parties in comparable 11.14 circumtances 11.15 Based on the price at which a product that has been purchased in a related party international dealing is later resold to an independent party. Key requirement: Identifying 11.16 the resale price margin 11.17 Taxpayer 's costs plus mark upfor the gross profet that the taxpayer would have aerned under a comparable dealing with an unrelated purchaser.Most useful with semi-finished 11.17 goods 11.17 Applied where a combined profit is split between associated enterprises involved in a 11.18 cross border transation on an economically valid basis 11.18 Compares the net margin of a taxpayer on a related party international dealing with the net margin of an independent party dealing wholly independently inrelation to a 11.19 comparable transaction 11.19 TR2010/7: Transfer pricing provision must be applied before the thin capitalisation 11.20 provisions kick in

Safe harbour concessions Advance pricing arrangements Records and penalties

TR1999/1: Provides safe harbour ocncession for the cross border supply/acquisition of certain services within a multinational group. Concession relates to non core services & 12.20 concession relates to all services of which costs does not exceed Aust 500,000 Voluntarily enter into an advance pricing arrangement that specifies the arm's length 12.21 methodologies 12.22 At least 5 years keeping record

FRINGE BENEFITS TAX

Topics FBT- Essential features Who pay FBT Definition of a benefit Interaction of FBT with Income Tax Interaction of FBT with GST Interaction of FBT with personal services income Administration of FB Value of a benefit Otherwise deductible rule FBT and GST: the gross-up formula Charities: FBT Hospitals: FBT Nondeductible expenses FBT calculation Specific FB: Motor Vehicle Motor Vehicle: Statutory method Change too the statutory formular from 10/5/11 Motor Vehicle: Operating cost or log book method Specific FB: Car parking benefits Specific FB: Debt waiver Specific FB: Low interest loans Specific FB: Pmt of employee's expenses Specific FB: Meals & entertainment Specific FB: Housing Living away from home allowance (LAFHA) Specific FB: Board Specific FB: Goods & Services Property fringe benefits- In house Property fringe benefits- External Specific FB: Airline benefits Specific FB: Residual benefits Page No. Note 12.04 12.05 13.05 s.136(1) FBTAA- 3 conditions & what does not include in FB; s148 (1) FBTAA 12.08 Salary sacrifice arrangements GST does not apply where a fringe benefit is provided to an employee. If employee contributes 12.08 toward the benefit to the employer-> subject to GST 12.08 12.08 12.09 12.10 12.11 12.12 12.12 12.12 12.13 12.15 12.15 12.16 12.18 12.20 12.22 12.22 12.24 12.25 12.26 12.28 12.29 12.30 12.30 12.31 12.32 12.32 1 Apr to 31 Mar; self assessment; must furnish an annual return by 21 May EOFBT year Taxable value of the benefit is reduced by the amount of employee's after tax contribution Taxable value of the benefit is reduced where the benefit is used for employment related purposes (if employee able to gain a deduction for the cost) Gross up amount reflects the amount of the benefit plus value of the fringe benefits tax paid by employer. Two gross up methods depend on whether GST paid on the benefit & if input tax credits is claimable. 2.0647 if GST claimable; 1.8692 Cap of 30,000 gross up value per employee First $17000 of the grossed up taxable value is exempt from FBT (Not for profit hospitals) steps in determine FBT Div 2 ss 7-13. Car is garaged at/near the employee's residence or car is not at the business premises. Excluding mortor cycles and taxis Base value x Statutory fraction x % private use days - employee's payment flat fraction 20% with tranitional arrangement fraction avalable 12.17 Operating costs x (100% - business use %) - employee's contribution. Must have log book 1st year & every 5 year; minimum 12 weeks Div 10A ss39A-39E benefit & valuation Div 3 ss14 & 15 Div 4 ss. 16-19 - standard variable rate of owner occupied housing loan of major bank Div 5 ss.20-24 50:50 split method & 12 week register method Div 6 ss 25-28, 58ZC Accomodation provided in a remote area is exempt fr FBT Div 7 ss30-31, 63 - if allowance is in excess of the reasonable increase in costs, FBT is payable Div 9 ss 35-37 Div 11 ss 40-44 employer/ associate provide property benefit which was normally sold as part of the provider's business to its employees. $1000 reduction in the aggregate taxable value for each employee Div 8 ss32-34 Div 12 ss 45-52

Exempt Benefits (Div 13 ss 53-58) & reduction in taxable value of certain benefit (Div 14 ss59-65CC) Rebate for exempt employers Record keeping (s. 132) Reportable fringe benefits

12.33 12.36 13.37 13.37 s 65 provide not for profit bodies with a rebate of 48% 5 years- small employer may not keep record of FB- condition apply

GST
Topics GST Overview Taxable supply Supply Consideration Enteprise Supply connected with Australia Registration Special cases: Voucher Security deposits Customer loyalty programs Fines Penalties and tax Court orders and out of court settlements Consignment sales and use of intermediaries Page No. Note 13.04 Example 13.1 & 13.2, 13.3 s 9.5 1) supply; 2) made for consideration; 3) in the course/furtherance of enterprise; 13.08 4)connected with Aust; 5)register for GST 13.09 Definition of: supply; good; real property; Example 13.8 : Government grant 13.12 13.14 13.16 13.18 13.20 13.21 13.21 13.21 13.21 13.22 Commision should be separated from the supply of good/services and treat separately for GST Div 38 GST Act: Food, Health; Education; Child car; exports; religious services; non comercial activites of and second hand goods supplied by charitable institution; Water and sewerage; supply of a going concern; transport; precious metal; supplies trhough inwards duty free shops; Grants of freehold and similar itersts by government; Farming land; Cars for use by disabled people; International mail Input taxed supplies are not subject to GST ( not able to reclaim GST cost o inputs used in produciing such supply) s 40-15 consideration: payment in different form. Div 72: GST applies where a supply is made to an associate for nil consideration or at below market value. Example 13.12 & 12.12

Current GST turnover, projected GST turnover Div 100 GST Act. Supply of voucher is not a taxable supply provided it entitles the holder to a stated moneytary value. The excess of consideration over the stated value voucher will be taxable suply at the time of purchase

GST Free

13.23

Input taxed supply Input taxed supply: Financial spplies Input taxed supply: Supply of residential premises and residential rent Input taxed supply: New residential premises Input taxed supply: Commercial residential premises Taxable importations Calculating the GST: Taxable supply Calculating the GST: Taxable importations Calculating the GST: Partly Taxable supplies Calculating the GST: Taxable supply Real property margin scheme Long-term accommodation in commercial residential premises Input tax credit: Amount

13.27 13.27 13.28 13.29 13.30 13.31 13.31 13.32 13.32 13.32 13.34 13.35 13.36

Not input taxed, subject to GST Not input taxed, subject to GST GST liability falls to the importer, not the supplier

apportion

Topics Input tax credit: Creditalbe acquisition Input tax credit: Creditable purpose Input tax credit: Partly creditable qcquisitions Input tax credit: Creditable purpose Special input tax credit rules: Company preestablishment costs Special input tax credit rules: Reimbursements Special input tax credit rules: Second hand goods Special input tax credit rules: Real property scheme Special input tax credit rules: Acquisition from government Special input tax credit rules: Restriction to input tax credits on settleent of insurance claims Special input tax credit rules: Reduced input tax credi for financial supplies Special input tax credit rules: Other concessions for financial supplies Tax period Accounting for the GST Cash basis attribution rules Accrual basis attribution rules Special attibution rules Simplified accounting for small food retailers Annual apportionment of creditable purpose Net amount and adjustment Changes in creditable purposes Adjustment for bad debts Settlement of insurance claims Goods applied solely for private use Newly registered entities Provision of additional consideration Third party payment Tax invoice GST grouping provision Branches Amalgamations The general anti-avoidance provision: Scheme Benefit Dominant purpooses Special GST issues: Insurance

Page No. 13.36 13.37 Acquired in carrying on an enterprise 13.38 13.39 13.40 13.40 13.40 13.41 13.42 13.42 13.42 13.42 13.43 13.44 13.45 13.45 13.46 13.48 13.48 13.48 13.49 13.51 13.52 13.52 13.53 13.53 13.53 13.53 13.54 13.55 13.55 13.56 13.56 13.56 13.57 13.58

Note

Div 60 allows an input tax credit to the newly formed copany s115-5 allows an input tax credit on the reimbursement if the entity making the reimbursement would have received a credit if they had acquired the good//services directly Div 66 s 75-20 denies an input tax credit Div 177 allows an input tax credit for the notinal amount of the GST that would have been charged s 78-30 denies

09% owned group

Div 165 Must receive benefit from the scheme- But for test

Topics Special GST issues: Exemptions Special GST issues: Adjustment Financial services Incapacitated entities and morgagees in possession

Page No. 13.58 13.58 13.58 13.59

Note