Capital Gains Tax Retirement Business

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                                        TAX REPORT                                              May 2002

                          Time for Tax Planning
                                    •   In line with the Arthur         •   Maximise prepayments sub-
      Year End Tax                      Murray case, taxpayers may          ject to existing transitional
        Planning                        be able to defer recognition        rules.
                                        of income received before       •   Consider the appropriate-
                                        year end for services not yet       ness of the low value pool
As we approach year end it is
                                        performed.                          for depreciation of plant
time to focus on tax planning
issues, including the deferral of   •   Royalties and insurance             and equipment.
income, the acceleration of             proceeds     are    typically   •   Consider realising foreign
deductions and other planning           assessable on a cash basis.         exchange losses and deferr-
initiatives.                        •   Derivation of income in             ing the realisation of gains.
Important matters to consider           general might be deferred       •   Ensure that bonus obligat-
are outlined below.                     where possible.                     ions are incurred before
                                                                            year end.
                                    Accelerating Deductions
Deferring Income
                                    Here are some initiatives to        Capital Gains Tax
In relation to the derivation of    accelerate deductions:
income, note the following                                              Here are some strategies to
points:                             •   Ensure that superannuation      minimise CGT:
                                        contributions are paid by       •   Defer a disposal to a
•   Most taxpayers will not be          year end.
    assessable on interest, div-                                            subsequent income year.
    idends or rent until it is      •   Write off bad debts before      •   Defer a disposal to ensure
    received (unless otherwise          year end.                           the asset has been held for
    paid or credited on their       •   Ensure that audit fees are          at least 12 months, to
    behalf); this creates an            incurred before year end, in        (potentially) benefit from
    opportunity for deferral.           accordance with Tax Ruling          the 50% discount.
•   Work in progress of pro-            IT 2625.                        •   Match gains and losses
    fessional practices will not    •   The outlay for deductible           where possible to avoid
    be assessable until there is        expenses may be brought             carrying forward a capital
    at least an entitlement to          forward.                            loss.
    bill.                           •   Consider scrapping stock        •   Consider the availability of
•   Long-term        construction       and plant and equipment of          rollover relief for disposals
    contract income may be              nil value before year end.          to related parties.
    recognised using either the     •   Value stock at a lower          •   Utilise the CGT small
    billings or estimated profits       replacement price or market         business and retirement
    method.                             value where appropriate.            concessions.

                                                                                            . . . over please
•     Utilise the CGT small                         •    Consider      whether      the                •    Consider bringing forward
      business and retirement                            commercial debt forgive-                           income or deferring ex-
      concessions.                                       ness rules could apply and,                        penditure to use up losses,
•     Consider whether non-                              if so, whether grouping                            and consider whether intra-
      deductible costs may be                            rules or other planning                            group asset transfers or
      included in an asset’s cost                        initiatives can mitigate the                       dividend payments should
      base.                                              impact.                                            be made before the intro-
                                                    •    Ensure optimum utilisation                         duction of consolidation
•     Seek a liquidator’s deter-                                                                            rules.
      mination to crystalise a                           of franking credits (includ-
      capital loss on valueless                          ing the 45-day holding                        •    Consider whether year end
      shares in a company in                             period rule).                                      asset valuations are approp-
      liquidation.                                  •    Consider making a family                           riate (for entities that
                                                         trust election where a trust                       propose to consolidate).
•     Consider whether it is more
      beneficial to utilise the 50%                      holds shares acquired after                   •    Is there any entitlement to a
      discount rather than frozen                        31 December 1997 to                                refund of franking credits?
      indexation.                                        maintain franking credit                      •    Consider whether non-
                                                         benefits.                                          commercial loans made to a
Other Issues                                        •    Consider whether the non-                          company may be treated as
                                                         commercial       loss    rules                     equity under the debt equity
Other     important                matters
                                                         apply.                                             rules.
include the following:
                                                    •    Consider the effective lives
•     Try to match foreign source                        of depreciable assets.                               SGC for Casual
      income of a particular class                                                                              Employees
      with related expenditure, to                  •    Where loans have been
      avoid a quarantined foreign                        made       involving      non-
      loss.                                              resident associates, consider                 The Federal Court recently
                                                         the application of the thin                   upheld an AAT decision that a
•     Plan to utilise foreign tax                        capitalisation rules.                         temping agency was liable for
      credits against Australian                                                                       the superannuation guarantee
      tax on foreign income of the                  •    Consider         international
                                                         related-party transactions,                   charge (SGC) in relation to its
      same class or transfer the                                                                       casual employees.
      credits to a group company.                        whether arm’s length prices
                                                         have been charged, and                        It confirmed that ‘ordinary
•     Avoid paying rebateable                            whether there are transfer
      dividends      to   a   loss                                                                     hours of work’ for SGC
                                                         pricing issues to address.                    purposes are the actual hours
                                                    •    Identify and address other                    worked    rather   than   the
•     Remember that year end                             international tax issues,                     minimum number of shifts
      trust    distributions   and                       such as permanent estab-                      specified in an employment
      income injections may                              lishments and controlled                      contract.
      affect a trust’s ability to                        foreign companies.
      recoup prior year tax losses
      and bad debt deductions.                      •    Consider whether a family                          Super Payments to
                                                         trust election should be
•     Consider the impact of                             made because of losses or
                                                                                                             People Leaving
      private company loan rules                         bad debts in trusts or                                 Australia
      and whether loans can be                           companies owned by trusts.
      structured to comply with
      the provisions to avoid a                     •    Do the alienation of                          A bill has been introduced into
      deemed unfranked dividend                          personal services income                      Parliament proposing a tax of
      and franking debit.                                rules apply? Is a personal                    up to 40% on certain super-
                                                         services business deter-                      annuation payments made to
•     Ensure that minimum pre-                           mination required or can the                  persons who have permanently
      scribed repayments are                             rules be avoided through                      departed Australia. Super-
      made on private company                            careful planning?                             annuation funds will be
      loans as required.                                                                               required to withhold the tax.

    Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general
    comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend
    that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private
    information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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