Review notes for taxation

Topics: Tax, Income tax, Taxation Pages: 7 (1082 words) Published: October 22, 2013
Termination and Retirement
1. Superannuation (LUMP
2. Superannuation (INCOME STREAM

3. Employment Termination Payments
Unused sick leave, excess over tax-free redundancy, “golden hand shakes”, severance pay Cn’t be rolled over to a super fund

4. Unused Leave Payments

5. Redundancy
Tax free amount=$8806+[$4404x year of completed service] [s83-175] Excess amount taxed as ETP
Small Business Concessions & Depreciating Assets

N.B.
1.Identical materials or substantially identical materials need to be grouped tgt [s40-8012] 2. Assets costing < $1,000 each [ID 2003/946]
Small Buz: cn’t be grouped
Non Business: Cn be grouped Depn using effective life
3. For buildings & structural improvements (e.g. roads, bridges, pipelines, fences etc.)

Partnership/Company &Dividend
Partnerships
1. Income divided equally if there is no partnership agreement; 2. Salaries to partners are not deductible as they are distribution of income (5-090 MTG); 3. Interest expense
- for general law partnership is deductible (Robert&Smith Case; TR95/25) -Not available to partners in rental property as not carrying on business (considered as investment) - loan used for private purposes-no deductions;

- borrowing used to replace internally generated goodwill- no deduction 4. Exit/Entry of parteners:
-retiring partner receive their share of future assessable inc. and assessable under s.15-50 -s25-95 deduction to amounts paid for WIP after 23/9/98
5. CGT
Relates to partners not partnership (ITAA 97, 106-5)
Partners individual interests in partnership assets disposed of by partnership Or disposing of their own interest in the partnership itself Companies
1.

Company
Partnership
Tax
Pay as separate entity s4
No pay as partnership s90
CGT
Have CG No discount
Have both CG & discount
Loss
Cn’t distribute
c/f to offset against future economic income
Cn’t offset
2. Dividend
-Distribution of profits to shareholder owners (s.6(1), ITAA36); payable form profits -No automatic distribution of taxable income, pay dividends according to company law, assessable -fully franked dividend: original income was fully taxed FD= Tax paid x 70 /3 Unfranked dividend: original profit is untaxed

-excess imputation credit are refundable (s67-25) credit=FD x CR / (1-CR) - Tax on dividends
a) Individual
Franked dividend
70,000
Imputation Credit 70,000x 30/70
30,000
Taxable Income
100,000
Tax payable (100,000-80,000)x37% +17,547
24,974
Less imputation credit
(30,000)
Net tax payable
(5,053)
+ Medicare Levy
1,500
Tax refund
(3,553)
- corporate tax entity “excess franking tax offsets” are treated as a tax loss (s36-55, ITAA97) as franking tax offsets are generally not refundable to corporate tax entities. b) Company
-As per individuals. Gross-up by 207

c) Non residents
-unfranked dividends: withholding tax (@15% or 30%). No further assessment (128 D) -fully franked dividend: no withholding tax and not assessable (128B(3))

d) Partnerships & Trusts
-Dividend is grossed up with gross distributed to partner/beneficiary -Partners and beneficiaries receive a notional allocation of attached franking credits 50:50 split cash dividend $10,000 fully franked

Fully franked dividend for partner @50%
50,000
Imputation credit (10,000x30/70) @ 50%
2,142
Total taxable income
52,142

3. a) Franking Account
Franking Dr.
Franking Cr.
No impact
-tax refund
-pay franked dividend (30/70)
-pay com. Tax
-receive franked dividend (30/70)
-receive non-resident dividend (with tax withholding)
-receive unfranked dividend

b) Franking deficit tax (FDT)
Dr. Bal
-liable for franking deficit tax (FDT) [amout=Dr. bal.]

Cr. Bal.
-paid out as fully franked dividend
or
-carry forward
* FDT applies cos the com has given shareholder credit for tax it has not paid and the com is required to pay the tax as an advance payment. c)
d) Distribution by liquidators...
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