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| Year End Tax Planning - General |
| As we approach year end it is time to focus on tax planning issues, including the deferral of income, the acceleration of deductions and other planning initiatives.
Important matters to consider are outlined below. |
Deferring Income
In relation to the derivation of income.
- Most taxpayers will not be assessable on interest, dividends or rent until it is received (unless otherwise paid or credited on their behalf); this creates an opportunity for deferral.
- Long-term construction contract income may be recognised using either the billings or estimated profits method.
- In line with the Arthur Murray case, taxpayers may be able to defer recognition of income received before year end for services not yet performed.
- Royalties and insurance proceeds are typically assessable on a cash basis.
- Derivation of income in general might be deferred where possible.
Accelerating Deductions
Some initiatives to accelerate deductions include:
- Ensure that superannuation contributions are paid by year end.
- Write off bad debts before year end.
- The outlay for deductible expenses may be brought forward.
- Consider scrapping stock and plant and equipment of nil value before year end.
- Value stock at a lower replacement price or market value where appropriate.
- Maximise prepayments subject to existing transitional rules.
- Consider realising foreign exchange losses and deferring the realisation of gains.
- Ensure that bonus obligations are incurred before year end.
Capital Gains Tax
Some strategies to minimise CGT include:
- Defer a disposal to a subsequent income year.
- Defer a disposal to ensure the asset has been held for at least 12 months, to (potentially) benefit from the 50% discount.
- Match gains and losses where possible to avoid carrying forward a capital loss.
- Consider the availability of rollover relief for disposals to related parties.
- Consider whether non-deductible costs may be included in an asset?s cost base.
- Seek a liquidator?s determination to crystallise a capital loss on valueless shares in a company in liquidation.
Other Issues
Other important matters include the following:
- Try to match foreign source income of a particular class with related expenditure, to avoid a quarantined foreign loss.
- Plan to utilise foreign tax credits against Australian tax on foreign income of the same class or transfer the credits to a group company.
- Avoid paying rebateable dividends to a loss company.
- Remember that year end trust distributions and income injections may affect a trust?s ability to recoup prior year tax losses and bad debt deductions.
- Consider the impact of private company loan rules and whether loans can be structured to comply with the provisions to avoid a deemed unfranked dividend and franking debit.
- Ensure that minimum prescribed repayments are made on private company loans as required.
- Is there any entitlement to a refund of franking credits?
- Consider whether the commercial debt forgiveness rules could apply and, if so, whether grouping rules or other planning initiatives can mitigate the impact.
- Ensure optimum utilisation of franking credits.
- Consider making a family trust election where a trust holds shares acquired after 31 December 1997 to maintain franking credit benefits.
- Consider whether the non-commercial loss rules apply.
- Consider the effective lives of depreciable assets.
- Where loans have been made involving non- resident associates, consider the
application of the thin capitalisation rules.
- Consider international related-party transactions, whether arm?s length prices have been charged, and whether there are transfer pricing issues to address.
- Identify and address other international tax issues, such as permanent establishments and controlled foreign companies.
- Consider whether a family trust election should be made because of losses or bad debts in trusts or companies owned by trusts.
- Do the alienation of personal services income rules apply? Is a personal services business determination required or can the rules be avoided through careful planning?
- Consider bringing forward income or deferring expenditure to use up losses, and consider whether intra-group asset transfers or dividend payments should be made before the introduction of consolidation rules.
- Consider whether year end asset valuations are appropriate (for entities that propose to consolidate).
- Consider whether non-commercial loans made to a company may be treated as equity under the debt equity rules.
- Ensure all dividends paid within a franking period have been franked to the same extent.
- Ensure franking accounts are converted on 1 July 2002 to reflect ?tax paid?
- Ensure a company paying a franked dividend has issued a distribution statement in the ?approved form?. Otherwise, the recipient will be unable to claim the imputation credit as a tax offset.
25th-June-2003 |
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