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| MAY NEWSLETTER |
| May Newsletter |
Year End Tax Planning
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, note the following points:
? Most taxpayers will not be assessable on interest, div-idends or rent until it is received (unless otherwise paid or credited on their behalf); this creates an opportunity for deferral.
? Work in progress of pro-fessional practices will not be assessable until there is at least an entitlement to bill.
? 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
Here are some initiatives to accelerate deductions:
? Ensure that superannuation contributions are paid by year end.
? Write off bad debts before year end.
? Ensure that audit fees are incurred before year end, in accordance with Tax Ruling IT 2625.
? 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 sub-ject to existing transitional rules.
? Consider the appropriate-ness of the low value pool for depreciation of plant and equipment.
? Consider realising foreign exchange losses and deferr-ing the realisation of gains.
? Ensure that bonus obligat-ions are incurred before year end.
Capital Gains Tax
Here are some strategies to minimise CGT:
? 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.
? Utilise the CGT small business and retirement concessions.
? Utilise the CGT small business and retirement concessions.
? Consider whether non-deductible costs may be included in an asset?s cost base.
? Seek a liquidator?s deter-mination to crystalise a capital loss on valueless shares in a company in liquidation.
? Consider whether it is more beneficial to utilise the 50% discount rather than frozen indexation.
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 pre-scribed repayments are made on private company loans as required.
? Consider whether the commercial debt forgive-ness rules could apply and, if so, whether grouping rules or other planning initiatives can mitigate the impact.
? Ensure optimum utilisation of franking credits (includ-ing the 45-day holding period rule).
? 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 estab-lishments 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 deter-mination required or can the rules be avoided through careful planning?
? Consider bringing forward income or deferring ex-penditure to use up losses, and consider whether intra-group asset transfers or dividend payments should be made before the intro-duction of consolidation rules.
? Consider whether year end asset valuations are approp-riate (for entities that propose to consolidate).
? Is there any entitlement to a refund of franking credits?
? Consider whether non-commercial loans made to a company may be treated as equity under the debt equity rules.
SGC for Casual Employees
The Federal Court recently upheld an AAT decision that a temping agency was liable for the superannuation guarantee charge (SGC) in relation to its casual employees.
It confirmed that ?ordinary hours of work? for SGC purposes are the actual hours worked rather than the minimum number of shifts specified in an employment contract.
Super Payments to People Leaving Australia
A bill has been introduced into Parliament proposing a tax of up to 40% on certain super-annuation payments made to persons who have permanently departed Australia. Super-annuation funds will be required to withhold the tax.
21st-April-2002 |
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