taxation of companies and shareholders

Mat Wong
Mind Map by Mat Wong, updated more than 1 year ago
Mat Wong
Created by Mat Wong over 6 years ago


Mind Map on taxation of companies and shareholders, created by Mat Wong on 06/18/2015.

Resource summary

taxation of companies and shareholders
  1. dividends s44
    1. paid to shareholder by company out of profits derived
      1. paid in money or other property
        1. Tainted share capital account s197
          1. where company capitalises profits and transfers of other amounts other than capital
            1. assessable under s44 (1B)
        2. paid means credited s6(1) ITAA 36
          1. dividend still paid if it is credited and irrevocable
            1. CS: Brookton Cooperative society ltd v FCT
          2. all non-share dividends paid to shareholder by the company
            1. paid to holders from non share equity interest s974-115 & s974-120
                1. dividends subject to withholding tax and franked dividends that are exempted from withholding tax are NANE s128D ITAA36
                  1. deemed dividends for private companies => unfrankable under s202 ITAA 97
                    1. excessive salaries s109 (1)
                      1. Deemed dividend to the shareholder
                        1. Not Deductible to the company
                        2. Payments s109(C)
                          1. Payments made to shareholders (or associates) are treated as deemed dividends
                            1. exclusions
                              1. payment to discharge arm's length debt: s109J
                                1. Payment to corporate shareholder: s109k
                              2. Loans to shareholders s109D
                                1. Loans made to shareholders (or associates) that are not repaid by earlier of "lodgement date (oct 31)" or due date
                                  1. exclusions
                                    1. loans made to a corporate shareholder s109k
                                      1. Loans meeting minimum criteria s109N
                                        1. written loan agreement
                                          1. commercial interest rate
                                            1. term of loan
                                            2. Loans made in the ordinary course of biz s109M
                                          2. Forgiven debts paid to shareholders s109F
                                            1. debts owed by shareholders of private companies that are forgiven
                                              1. exclusions s109G
                                                1. debts owed by another company
                                                  1. forgiven due to bankruptcy of shareholder
                                                2. liquidator distributions
                                                  1. treated as deemed dividends s47(1) ITAA36
                                                  2. CGT event C2 when shares are redeemed
                                                    1. Capital gains taxable under s47
                                                3. imputation system
                                                  1. can frank dividends only if it is a resident "franking entity" and distribution is a frankable distribution s202-5 ITAA 97
                                                    1. maximum franking credits that can be attached to a distribution is determined by the formula s202-60(2)
                                                      1. frankable distribution * (30% / ( 1- 30%))
                                                        1. must give shareholders a distribution statement which states the % of the distribution s202-75 & s202-80 ITAA97
                                                        2. corporate tax entities must keep franking accounts s205-10
                                                          1. Franking debits s205-30
                                                            1. franking a distribution
                                                              1. receiving an income tax refund
                                                                1. violating the benchmark rule due to underfranking
                                                                  1. benchmark rule ensures that franking is given equally to all s203-15
                                                                    1. must frank using same % s203-25
                                                                      1. underfranks: debit s203-50(1)(b)
                                                                        1. overfranks: pay-over franking tax s203-50(1)
                                                                          1. commissioner may permit different s203-55
                                                                          2. period for private company is income year s203-45
                                                                            1. period for public company is first 6 months + next 6 months in year s203-40
                                                                          3. (if exceed >10% excessive s205-70(2)
                                                                            1. reduces tax offset by 30%
                                                                          4. Franking credits s205-15
                                                                            1. paying income tax or PAYG
                                                                              1. received a franked distribution
                                                                                1. incurring a liability to pay franking deficit tax
                                                                                  1. franking deficit tax payable if the franking account is in deficit at the end of income year s205-45(2)
                                                                                    1. can offset against income liability s205-70(1) ITAA 97
                                                                              2. when shareholder receives a franked distribution
                                                                                1. need to gross up its assessable income by the franking credit s207-20(1)
                                                                                  1. entitled to claim a tax offset by the same gross up amount s207-20(2)
                                                                                    1. resident individuals franking offset is refundable if it exceeds income tax payable
                                                                                      1. resident corporate shareholders
                                                                                        1. franking credit tax offset is not refundable for shareholders who are corporate tax entities
                                                                                          1. excess franking offsets can be converted into a tax loss which can be carried forward to future income years if current year is a loss s36-55
                                                                                            1. excess franking offset / 30% = tax loss carried forward
                                                                                      2. resident partnerships and trusts
                                                                                        1. entitled to their share of franking credit s207-45
                                                                                        2. non-resident shareholders s207-35
                                                                                          1. not available s207-20
                                                                                            1. treated as NANE s128D
                                                                                              1. withholding tax applies
                                                                                              2. if fully franked dividends flow indirectly through a partnership/trust can have specific deduction of franking credit s207-95
                                                                                            2. qualified person when hold shares for at least 45 days (90 days for preference shares) s160APHO ITAA36
                                                                                              1. if not qualified, not entitled to tax offset
                                                                                          2. Treatment of losses (deductions > assessable income and net exempt income) applies to unrealised net losses
                                                                                            1. Continuity of ownership test s165-12 (looking at ultimate owners ie. have control)
                                                                                              1. >50% of the voting power in the company
                                                                                                1. rights to >50% of the company's dividends
                                                                                                  1. rights to >50% of the company's capital distributions
                                                                                                    1. test period is from start of loss year to end of the current year s165-12(1)
                                                                                                      1. anti avoidance provisions
                                                                                                        1. same share same person s165-165
                                                                                                          1. change of control over voting power s165-15
                                                                                                        2. same business test s165-13(10) ITAA97
                                                                                                          1. carries on the same business as it carried on immediately before "test time"
                                                                                                            1. same business means identical business
                                                                                                              1. CS: Avondale Motors (parts) pty ltd v FCT
                                                                                                              2. same business even though changed name
                                                                                                                1. AGC (advances) Ltd v FCT
                                                                                                              3. it does not derive any assessable income from a new kind of business or a new kind of transaction that it did not carry on or enter into before "test time"
                                                                                                                1. test time is when company fails the COT
                                                                                                                2. unrealised net losses
                                                                                                                  1. disallow up to amount of unrealised net loss s165-115B
                                                                                                                    1. individual asset method: calculate each CGT asset gain or loss
                                                                                                                      1. global method: market valuation of all CGT assets worth total cost base of those assets
                                                                                                                    2. Consolidation
                                                                                                                      1. objectives of consolidation s700-10
                                                                                                                        1. prevent double taxation of the same economic gain
                                                                                                                          1. prevent duplication of the same economic loss
                                                                                                                            1. reduce compliance costs and improve business efficiency
                                                                                                                            2. resident company can form a consolidated group with all wholly-owned subsidiaries s703-10
                                                                                                                              1. irrevocable s703-50
                                                                                                                                1. head company s703-15(2) item 1
                                                                                                                                  1. australian resident company
                                                                                                                                    1. subject to corporate tax rate
                                                                                                                                      1. not a member of another consolidated group
                                                                                                                                        1. must own all beneficially membership interest s703-30
                                                                                                                                        2. s703-15(2) item 2
                                                                                                                                          1. subsidiary can be company, partnership or trust
                                                                                                                                            1. australian resident
                                                                                                                                              1. wholly owned subsidiary of the head company based on financial interest
                                                                                                                                            2. implications
                                                                                                                                              1. single entity rule s701-1
                                                                                                                                                1. 1 single tax return
                                                                                                                                                  1. subsidiaries treated as divisions
                                                                                                                                                    1. assets of subsidiaries are deemed to be held directly by head
                                                                                                                                                      1. intra group transactions are ignored
                                                                                                                                                      2. entry and exit history
                                                                                                                                                        1. entry history rule: head company inherits tax attributes everything that happened before it became a subsidiary is taken to have happened to the head company s701-5
                                                                                                                                                          1. exit history rule: subsidiary inherits the relevant tax attributes from the head company s701-40
                                                                                                                                                          2. liability to tax
                                                                                                                                                            1. primary obligation to pay the consolidated group's tax liability rest with the head company
                                                                                                                                                              1. joint and several liability for subsidiary members s721-15
                                                                                                                                                                1. subsidiary will be liable even if it taken for part of period to which liability relates s721-10(1)
                                                                                                                                                                2. pre-consolidation losses
                                                                                                                                                                  1. subsidiary losses can be transferred to head company if modified COT and SBT (year which the company has been bought) tests are satisfied s707-120
                                                                                                                                                                    1. pre-consolidation losses utilised by head company = (market value of subsidiary / market value of group) * head co's taxable income for the year
                                                                                                                                                                      1. available fraction is market value of the subsidiary at the time of the loss transfer s707-320
                                                                                                                                                                    2. tax cost setting rules
                                                                                                                                                                      1. subsidiary joins the group s701-10
                                                                                                                                                                        1. allocation of the head company's acquisition costs of the membership interests in the subsidiary to the underlying assets
                                                                                                                                                                          1. reset cost base of assets
                                                                                                                                                                          2. subsidiary leaves the group s701-15
                                                                                                                                                                            1. reconstitute cost base of the membership interests
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