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
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
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
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.