for the year ending 30 june 2019 · 2019-06-11 · for the year ending 30 june 2019. 3 ... (such as...

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Year-end tax planning toolkit

For the year ending 30 June 2019

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Pitcher Partners. All rights reserved. Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

Table of contents

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Glossary

AIIR Annual Investment Income Report

AMIT Attribution managed investment trust

ATO Australian Taxation Office

BAS Business activity statement

CFC Controlled foreign company

CFI Conduit foreign income

CGT Capital gains tax

CIV Collective investment vehicle

CRS Common Reporting Standard

DTA Double tax agreement

ESIC Early stage investment company

ESVCLP Early stage venture capital limited partnership

ETP Employment termination payment

FAT Financial acquisitions threshold

FATCA Foreign Account Compliance Act

FBT Fringe benefits tax

FITO Foreign income tax offset

GST Goods and services tax

HELP Higher Education Loan Program

IDS International Dealings Schedule

IMR Investment manager regime

LAFH Living away from home

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LITO Low income tax offset

LMITO Low and middle income tax offset

MIT Managed investment trust

MLR Minimum loan repayments

NANE Non-assessable non-exempt

OTE Ordinary time earnings

PAYG Pay-as-you-go

PE Permanent establishment

Pitcher Partners Pitcher Partners Advisors Proprietary Limited

PSB Personal services business

PSI Personal services income

R&D Research and development

RTP Reportable tax position

SBE Small business entity

SG Superannuation guarantee

TFN Tax file number

TOFA Taxation of Financial Arrangements

TSL Trade Support Loan

UPE Unpaid present entitlement

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Section 1 – Introduction

Welcome to the Pitcher Partners 30 June 2019 year-end tax planning toolkit.

Year-end tax planning

As the financial year ends, it is time to start thinking about whether your year-end tax planning is in order. Tax

planning not only requires consideration of income and deductions for the year, but also requires you to consider

whether your compliance requirements have been met. This includes whether appropriate elections are made and

made on a timely basis, the preparation and maintenance of appropriate documentation (such as trust minutes) and

forward planning of your tax affairs. Our tax toolkit is here to assist you in this process.

Interactive PDF

This document has been created as an interactive PDF. This means you can check boxes, record notes and submit

this back to Pitcher Partners for discussion.

What this document does

This document provides an outline of tax issues that can be considered before year-end. This document has been

updated for new developments and, where relevant, the 2019/20 Budget announcements. This toolkit is specifically

tailored for taxpayers in the middle market and covers both corporate taxpayers and private groups.

What this document doesn’t do

This toolkit is not intended to be a comprehensive and complete document covering all taxation issues that require

consideration. Each taxpayer’s circumstances are unique. This document is only intended to provide you with a

broad overview of a range of issues for consideration before the end of the financial year.

Take care about tax planning

Tax planning may often result in a taxpayer paying less income tax in a given income year. It is noted that the

definition of a tax benefit under the tax anti-avoidance provisions is broad enough to cover a deferral of income tax.

Therefore, the tax anti-avoidance provisions must always be considered as part of your year-end tax planning. We

have highlighted several anti-avoidance or integrity provisions for your consideration in Section 17 – Tax

administration and integrity of this toolkit.

How will you find what you are looking for?

To assist you in quickly locating the area of tax that is relevant to you, this document has been divided into sections.

Section 3 to Section 5 covers general tax planning considerations for all taxpayers. Section 6 to Section 9 covers tax

planning considerations for specific entity types (e.g. companies or trusts). Section 11 to Section 16 provides

additional tax planning considerations for specific tax specialisation areas (e.g. capital gains tax and international

tax). Finally, Section 17 outlines several tax integrity measures that are looked at by the ATO.

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We trust you will find this document useful when considering your 30 June 2019 tax planning. Please contact your Pitcher Partners representative for more information or to clarify any of the issues raised in this document.

Disclaimer

The contents of this document are for general information only and do not consider your personal circumstances or

situation. Furthermore, this document does not contain a detailed or complete explanation of the law, as provisions

or explanations have been summarised and simplified. This document is not intended to be used, and should not be

used, as professional advice.

The content of this document do not constitute financial product advice and should not be used in making a decision

with respect to a financial product. Taxation is only one of the matters that must be considered when deciding on a

financial product. You should consider seeking financial advice from the holder of an Australian Financial Services

License before deciding on a financial product.

If you have any questions or are interested in considering any item contained in this document further, please

consult with your Pitcher Partners representative to obtain advice in relation to your particular circumstances.

Pitcher Partners disclaims all liability for any loss or damage arising from reliance upon any information contained in

this document.

© Pitcher Partners Advisors Proprietary Limited, June 2019. All rights reserved. Pitcher Partners is an association of

independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

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Section 2 – Client details

Tax planning toolkit

Enter your details

If you are completing this document and wish to submit this to your Pitcher Partners representative, please

complete your details in the following boxes.

Enter name

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Section 3 – Key new measures This section references to several key taxation measures announced in the Federal Budget and other legislative

changes that are critical to 30 June 2019 planning. Not all budget announcements are contained in this section.

Several proposals are due to commence from 1 July 2019, however, we have highlighted those items for prior

consideration during the 2018/19 income year. The detail of each item is contained in the linked reference.

• No deductions for payments that do not comply with the PAYG rules from 1 July 2019 – refer [5C]

• Instant depreciating asset write-off for small business entities increased and extended – refer [5H]

• Instant depreciating asset write-off for medium business entities – refer [5I]

• Personal income tax rate changes – refer section [6B]

• Significant proposed changes to the R&D tax incentive stalled – refer [8FF]

• Check the applicable corporate tax rate and franking rate – refer [8B] - [8F]

• Introduction of Division 7A changes deferred to 1 July 2020 – refer [8P]

• Changes to the treatment of UPEs under Division 7A deferred and considering opportunities – refer [8Q]

• Retrospective access to prior year losses and debt deductions under new similar business test– refer [8X]

• Removal of small business concessions proposed for an assignment of partnership interests – refer [9A]

• Review change of ATO view on the tax residency of foreign incorporated companies – refer [13F]

• Uncertainty over main residence exemption to non-residents especially expats– refer [13O]

• Consider contributing proceeds from downsizing your home to superannuation – refer section [15O]

• Consider the impact of changes to economic entitlement rules – refer [16J]

Additional notes

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Section 4 – Income This section deals specifically with the treatment of income that you may have received or derived during the income

year and whether such income should be recognised in the 2018/19 income year or subsequent years.

Timing of income using cash or accruals

In calculating taxable income for an income year, a taxpayer is required to include all amounts of

income "derived" in that year. Generally, income from carrying on a business would be regarded as

derived on an accruals basis (when the invoice is raised or the taxpayer is legally entitled to do so)

while passive income may be regarded as derived on a receipts basis (when the amount is received

or taken to have been received). Taxpayers should carefully review amounts recorded as accrued

income to determine whether they are properly assessable in the current year or the following income

year.

Accounting for your business income

If you carry on a business, you may be able to legitimately bring forward or defer sales invoicing (in

appropriate circumstances). Whether business income has been derived for tax purposes depends

on the legal arrangements governing your entitlement to the amount. Typically, business income

would be recognised for taxation purposes at the time when everything has been done that is

required to be done to earn the amount. This may be different to the time at which an invoice is

raised or cash is received. Amounts recorded in your accounts as accrued or unearned income should

be reviewed to determine when the amount should be recognised for tax purposes.

Determine if amounts are capital or revenue

While capital amounts may be subject to concessional tax treatment (e.g. CGT discount or the

utilisation of capital losses), the ATO may seek to treat a particular receipt as being on revenue

account. Where you have received material amounts that you are treating on capital account, you

should properly consider whether your position on characterisation is correct and defendable.

Treatment of trade incentives (purchases of stock or services)

Trade incentives (e.g. volume rebate, trade discounts, and promotional rebates) may reduce the cost

of trading stock acquired or be assessable income. However, some incentives are only required to be

recognised as income when they are claimed. Where the incentive is “accrued”, you should properly

review whether the amount needs to be recognised in the current or a later year.

Construction contracts and different methods of accounting

Where your business involves constructing a building or other asset for clients (and the activities do

not constitute the sale and supply of trading stock), the ATO accepts different methods for recognising

income and deductions (e.g. the basic approach or the estimate profits approach). The methods

chosen can have a significant impact on your taxable income in different circumstances. Whichever

method is chosen should be applied on a consistent basis.

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Treatment of proceeds of insurance and indemnities

An amount received under an insurance policy may be required to be brought to account as assessable

income or as an adjustment to the cost base of an asset. Where the amount is properly treated as

assessable income, the time when the amount should be brought to account may depend on the

application of the particular statutory provisions (e.g. there are cases where the amounts can be

deferred over a number of income years). If you have received insurance or indemnity amounts, you

should properly examine whether the amount should be included in assessable income in the current

or a later year.

Treatment of grants, bounties and subsidies

The treatment of government grants and subsidies is complex and depends upon the nature of the

grant. The ATO takes a broad view as to what a grant, bounty or subsidy is. Where the amount of the

grant or the timing of receipt is conditional, it may be possible to defer recognising the amount for

income tax purposes. You should examine whether any grant or subsidy you have received should be

included in assessable income and the year in which the amount should be brought to account.

Disaster relief amounts and potential concessions

Concessional tax treatment may apply to money received in connection with a natural disaster. In

addition, the ATO has released guidelines outlining their approach to the reconstruction of lost or

damaged records.

Interest income and timing

Typically, interest is recognised as income for tax purposes on a receipt’s basis. However, where

interest arises in the ordinary course of carrying on a business, recognising interest income on an

accrual’s basis may be required for income tax purposes. Further, deferred interest arrangements (or

arrangements subject to the TOFA regime) could be assessed on an accrual’s basis. You should review

amounts of accrued interest recorded in your accounts to determine when they should be recognised

for tax purposes.

Dividend income and timing

Dividends are included in assessable income when paid. For this purpose, a dividend is taken to be

paid when it is credited to the shareholder in the company’s records. Where a dividend is franked,

the franking credit is also included in assessable income. It may be possible to defer income by

declaring and paying dividends on or after 1 July, rather than on 30 June.

Treatment of retail premiums

Retail premiums received by a shareholder because of not participating in a renounceable rights issue

may give rise to a capital gain while amounts received for not participating in a non-renounceable

rights issue may be treated as an unfranked dividend. You should review the treatment of any

amounts received during the year.

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Calculate trust amounts (non-AMIT) for the year

Where a beneficiary of a trust is presently entitled to a share of the trust’s income, the beneficiary

may be required to include in their assessable income a share of the taxable income of the trust. Year-

end tax planning should take into account the expected share of the trust’s income for tax purposes

rather than the expected amount of the accounting or cash distribution.

Calculate trust amounts (AMIT) for the year

If you have invested in managed investment trusts that are AMITs, you may be taxable on a share of

the taxable income of the AMIT even if you do not receive any cash distributions for the year. You

should estimate the amount of attributable income that may be allocated to you from an AMIT.

Rental or leasing income timing

You should consider whether rental income received is passive in nature (and therefore assessable on

a cash basis) or is derived in carrying on a business (and therefore possibly assessable on an accruals

basis). This can influence when income should be recognised for tax purposes.

Check your treatment of foreign income

Income that is denominated in a foreign currency must be translated into Australian dollars.

Generally, a foreign currency denominated amount is required to be translated using the exchange

rate applicable at the time the amount is derived for tax purposes. However, certain compliance

saving measures may allow you to use average rates or the rates used for accounting purposes. You

should ensure that amounts denominated in a foreign currency have been properly converted into

Australian dollars.

Calculate foreign exchange gains on foreign currency amounts

If you held a foreign currency denominated bank account or entered into transactions denominated

in a foreign currency, you may be required to include foreign exchange gains in calculating your

taxable income. Foreign exchange gains can arise even where the relevant transaction occurs wholly

in a foreign currency; for example, where a US dollar amount is withdrawn from a US dollar

denominated bank account. There are also opportunities to reduce the compliance burden by making

appropriate elections before year-end.

Claim tax offsets for foreign taxes (paid on your behalf or on foreign income)

If you received income that has been subject to foreign tax, you should determine whether you need

to gross-up the income for the foreign tax and whether a foreign income tax offset (FITO) can be

claimed to reduce your Australian tax on such income.

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Review income that may not otherwise be assessable

Several provisions of the tax law treat receipts as not being assessable income. Examples include,

non-portfolio dividends received by companies, foreign income (other than employment income)

earned by temporary residents and mutual receipts of certain member-based organisations. You

should consider whether an amount received during the year may be excluded from assessable

income.

Consider whether you derived personal services income

If you provide your services through a trust or company, the PSI rules may apply to require you to

include the amount received by the entity in your assessable income and limit the deductions that

you may claim (unless you are conducting a PSB). If you provide such services in your own name, then

your deductions may also be limited under the PSI provisions (unless you are conducting a PSB).

Accordingly, you should closely examine the treatment of services income and deductions being

claimed.

Review extraordinary items

If you have received extraordinary (or significant) amounts during the year, these items should be

examined closely to determine the proper tax treatment.

Additional notes

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Section 5 – Deductions This section deals specifically with the expenses that you may have incurred during the income year and whether

such expenses can give rise to a deduction for the 2018/19 income year or should be deferred to subsequent years.

General rules of claiming a deduction

A taxpayer may deduct a loss or outgoing to the extent that it is incurred in gaining or producing

assessable income or is necessarily incurred in carrying on a business for the purpose of gaining or

producing assessable income. Losses or outgoing that are capital or private in nature or are incurred

in deriving exempt income are excluded from this general rule. Where the general deduction rule is

not satisfied, a deduction may be available under a specific provision. Consider all material expense

items to determine whether there is any risk that certain amounts may not be deductible or whether

a specific deduction provision can be applied.

Check the timing of deductions

Generally, a loss or outgoing will be incurred when the amount is actually paid or the taxpayer

becomes definitively committed to pay the amount. This is subject to the application of other

provisions that defer deductions (e.g. the prepayment rules), deny deductions (e.g. fines or penalties)

or allow deductions at a specific time (e.g. payments for annual leave).

No deductions for payments that do not comply with the PAYG rules

From 1 July 2019, taxpayers will be unable to claim tax deductions for payments to employees and

contractors where they have not withheld under the PAYG (in the case of salary or wages) or the no-

ABN withholding regimes (in relation to certain payments to contractors). Taxpayers should begin

reviewing systems to ensure internal controls prevent payments being made in such circumstances.

Review whether items involve capital expenditure

If you have identified non-deductible capital expenditure (other than expenditure on a depreciating

asset - refer 5H), you should consider whether a deduction is available over time under the blackhole

provisions or, alternatively, whether the amount should be included in the cost base of an asset. An

immediate deduction may be available for certain capital expenditure incurred in relation to a

business proposed to be carried on by a start-up or small business entity (SBE) (an entity with an

aggregated turnover for the 2019 income year of less than $10 million).

Claiming deductions for bad debts

If you have genuine doubtful debts, you may be able to bring forward a deduction if they are written

off as bad debts for tax purposes before the end of the income year. Evidence that a decision to write

off the debt was made before year-end should be created and retained to substantiate the deduction.

However, it is not necessary that journal entries are physically posted before year-end.

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Using trading stock valuations to change taxable income

For taxation purposes, trading stock on hand at year end can be valued at cost, market selling value

or replacement value. The provisions allow a choice to be made on an item-by-item basis. The value

chosen can have the effect of bringing forward deductions or shifting amounts to the following year.

Review depreciating assets and options to accelerate deductions

A taxpayer can claim a deduction for the decline in value of an asset it holds if that asset is a

depreciating asset that is used or installed ready for use for a taxable purpose. A taxpayer can choose

whether the deduction is calculated using a prime cost (or straight line) or diminishing value method.

There are several options that allow you to accelerate deductions in respect of depreciating assets

you hold. You may also be able to claim a deduction where depreciating assets are scrapped.

Review the significant SBE concessions for depreciating assets

If you are a SBE (an entity with an aggregated turnover for the 2019 income year of less than $10

million), you may be eligible to claim an immediate deduction for depreciating assets costing less than

$20,000 (if acquired on or after 12 May 2015 and first used or installed ready for use before 29 January

2019), $25,000 (if acquired on or after 12 May 2015 and first used or installed ready for use between

29 January and 2 April 2019) or $30,000 (if acquired on or after 12 May 2015 and first used or installed

ready for use after 2 April 2019). An SBE can also allocate assets (regardless of their cost) to a general

small business asset pool, with depreciation calculated at a rate of 15% in the year of acquisition

(regardless of when the asset was acquired during the year) and 30% on a diminishing value basis in

following years. Assets allocated to the pool will remain in the pool even when the entity is no longer

an SBE. This can provide a significant tax acceleration for capital intensive start-up entities, even

where they expect to earn substantial income in future years.

Consider the depreciating assets concession for medium enterprises

If you are an entity with an aggregated turnover for the 2019 income year of less than $50 million,

you may be eligible to claim an immediate deduction for depreciating assets acquired after 2 April

2019 and costing less than $30,000.

Consider whether you can claim project pool capital deductions

If you have identified non-deductible capital expenditure, you should consider whether a deduction

is available as a project pool cost. Costs that may be deducted under this provision include community

infrastructure costs, certain site preparation costs for depreciating assets, project feasibility costs,

environmental assessment costs, costs pertaining to obtaining information for projects, costs incurred

in seeking to obtain intellectual property rights, costs incurred in relation to ornamental trees or

shrubs, mining expenditure, and transport capital expenditure.

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Ensure you do not overclaim depreciation for rental properties

Changes enacted in 2017 can deny depreciation claims in respect of properties acquired on or after 8

May 2017 unless the property is “new residential premises” or the taxpayer’s rental activities amount

to the carrying on of a business. The changes can also apply to rental properties acquired before 9

May 2017 in certain circumstances. These rules do not apply to companies, superannuation entities

(other than self-managed superannuation funds) and managed investment trusts.

Ensure you do not overclaim travel expenses for rental properties

No deduction is available for travel expenses incurred after 30 June 2017 that relate to inspecting,

maintaining or collecting rent for a rental property unless the expenses were incurred in carrying on

a business of providing residential accommodation or were incurred by a company, superannuation

entity (other than a self-managed superannuation fund) and a managed investment trust.

Consider whether you need to capitalise internal labour costs

Where you use employees to construct assets, you may be required to capitalise labour costs for tax

purposes. This may defer when deductions may be claimed (i.e., deductible over the effective life of

the asset). If you capitalise labour costs for accounting purposes (or would otherwise be required to

do so) you should carefully consider the basis of any different tax treatment. This issue should be

particularly considered for large products involving IT and software implementation, as well as the

construction or development of depreciating assets (both tangible and intangible).

Check the treatment of commercial website expenditure

If you have incurred periodic costs during the year in maintaining a commercial website that you use

in your business, you may be able to claim an immediate deduction. Costs of developing or

substantially upgrading a commercial website may be capital in nature, and deductible under the

depreciating asset rules.

Review employee bonuses provisions

Consider whether changes can be made to your employee bonus arrangement to bring forward

deductions to the current year. An employee bonus will be deductible only if, on or before 30 June,

the employer becomes definitively committed to paying the bonus (e.g. by passing a properly

authorised resolution) or by incurring a quantifiable legal liability to pay the bonus.

Review expenses and whether they relate to earning exempt-type income

Expenses that relate to exempt-type income may be non-deductible. Where exempt or non-

assessable income is earned, expenses should be reviewed to determine the extent to which they

relate to such income.

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Check your treatment of foreign denominated expenses

Deductions denominated in a foreign currency must be translated into Australian dollars. Generally,

a foreign currency denominated amount is required to be translated using the exchange rate

applicable at the time the amount is incurred for tax purposes. However, certain compliance saving

measures may allow you to use average rates or rates used for accounting purposes. You should

ensure you have appropriately converted foreign currency amounts into Australian dollars.

Review deductions claimed for foreign exchange losses

If you held a foreign currency denominated bank account or entered into transactions denominated

in a foreign currency, you may be able to include foreign exchange losses in calculating your taxable

income. Foreign exchange losses can arise even where the relevant transaction occurs wholly in a

foreign currency; for example, where a US dollar amount is withdrawn from a US dollar denominated

bank account. There are also opportunities to reduce the compliance burden of the relevant rules by

making appropriate elections before year-end.

Claiming deductions for gifts and donations

A taxpayer is entitled to a tax deduction if a gift or donation of money or property is made (where it

is valued at $2 or more) to a deductible gift recipient provided appropriate documentary evidence has

been retained. A deduction is reduced to the extent that the amount thereof would result in, or

increase, a tax loss for the income year. A taxpayer may be able to elect to amortise the gift or

donation over a period of up to five years (such an election can only be made in respect of a gift of

property that is valued at over $5,000). You should consider deferring deductions if the amount

thereof would otherwise result in a tax loss.

Review interest deductions

If you have significant interest (or debt) costs during the year, you should consider whether you are

precluded from deducting some or all of the costs. We recommend you consider issues covered in

Section 12 – Finance issues in further detail.

Consider whether prepayments can be deducted upfront

A taxpayer who prepays expenditure is generally not entitled to an upfront deduction. Instead,

prepaid expenditure is apportioned over the shorter of 10 years or the period during which the

services are to be provided. However, this rule does not apply for expenditure that is: (a) less than

$1,000 (GST exclusive); (b) required to be paid pursuant to a law or court order; (c) salary or wages

paid under a contract of service; and (d) certain expenditure by SBEs and individuals.

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Review service and management fees to associated entities

If management fees and service fees are charged between your group entities, you should ensure

agreements and other relevant paperwork to substantiate deductibility is in place before year-end. It

is critical that the fees are commercially justifiable given the services received and the margins

charged.

Capital support payments may not be deductible

Where a parent entity makes payments to a subsidiary entity that has incurred a loss, these payments

may be regarded as capital support payments. The ATO takes the view that capital support payments

will be on capital account and non-deductible. Accordingly, consider whether it is better to structure

the arrangement as an appropriate arm’s length service fee.

Check superannuation expenses to be paid before year end

You may be able to claim a deduction for superannuation contributions by ensuring the amounts are

received by the superannuation fund before year-end.

Review deductions claimed for trade incentives (sale of stock or services)

Trade incentives (e.g. volume rebate, trade discounts and promotional rebates) provided to

customers may not be deductible until they are provided (e.g. on receipt by the trade debtor). Where

the incentive is “accrued” or where the trade debtor is recorded net of the incentive provided, you

should properly review whether a deduction can be claimed in the current year or a later year.

Related party deductions can be denied

Where transactions involving related parties result in a mismatch between the year in which a

deduction is claimed by one party and when income is recognised by the other party, anti-avoidance

provisions may defer the deduction. You should properly consider these provisions in such

circumstances.

Additional notes

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Section 6 – Individuals This section outlines a number of specific year-end taxation considerations that could apply for individual taxpayers.

Be aware of ATO compliance activity

The ATO are scrutinising claims made by individuals for work-related expenses, rental property

expenses and interest deductions on the private portion of loans. Individual taxpayers should pay

particular attention to these types of issues. The ATO have developed an app (available for download

here) that allows taxpayers to compare the level of proposed deductions against the ATO’s average

claims (provided by industry code, expense type and income threshold).

Review income tax rates for the year ending 30 June 2019

The individual tax rates are included in the Appendix. For an individual resident taxpayer, the average

tax rate (including Medicare levy) on a taxable income of $138,922 for the year ending 30 June 2019

is 30%. A taxable income of that amount equates to a dividend of $97,245 fully franked at 30%. A

taxable income of $110,638 (which equates to a dividend of $80,213 fully franked at 27.5%) would

result in an average rate for such an individual of 27.5%.

Note the Medicare levy changes

The Medicare levy is an additional 2% charge on a taxpayer’s taxable income. This rate applies where

an individual’s taxable income for the year ending 30 June 2019 exceeds $22,398. As part of tax

planning, you should understand your Medicare levy liability and consider any opportunities to reduce

this levy.

Consider the private health insurance rebate

As the private health insurance rebate is based on income for the current year being less than a certain

threshold, your rebate entitlement may be adjusted following the lodgement of your income tax

return. Where the rebate to which you are entitled is reduced, the difference may be clawed back on

your assessment notice.

Consider other rebates and offsets

There are many rebates and offsets that may be available to reduce tax payable. Eligibility for some

rebates and offsets is based on the amount of your adjusted taxable income. Adjusted taxable income

is the sum of: (1) taxable income; (2) adjusted fringe benefits; (3) total net investment losses; (4)

reportable superannuation contributions; (5) deductible superannuation contributions; (6) certain

tax-free government pensions and benefits and (7) target foreign income. You should review your

personal circumstances to determine entitlements.

https://www.ato.gov.au/Business/Small-business-benchmarks/Compare-your-business-now/

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Claiming deductions for home office expense

Home office expenses include running expenses (heating, cooling, and lighting); depreciation of

computers, phones and desks; work-related phone calls; work-related internet usage; the costs of

repairs to your home office furniture and fittings and cleaning expenses. The ATO allow you to claim

actual amounts or an amount based on a rate of 52 cents per hour (plus the decline in value of

depreciating assets).

Claiming deductions for occupancy expenses

Occupancy expenses include rent or mortgage interest, council rates and house insurance premiums.

These can only be claimed where your home office is a place of business.

Claiming deductions for other work-related expenses

This category of expenses includes union fees and subscriptions to associations, seminars,

conferences and education workshops, books, memory sticks and insurance against the loss of your

income.

Tools, equipment and stationary deductions

This category of expenses may include depreciation on tools of your trade, protective items,

computers and software. This category may also include items of stationery purchased to complete

your ordinary work activities.

Overtime meal allowance deductions

If you get paid an overtime meal allowance under an industrial instrument, you can claim a deduction

for an amount up to the reasonable allowance amount. The reasonable allowance amounts are

provided yearly in an ATO taxation determination.

Claiming work-related car expenses

There are only two methods for the calculating the tax deduction available for motor vehicles: (1) the

cents per km method (business use of up to 5,000 km at a rate of 68c per km); and (2) the logbook

method. Ensure that you record odometer readings for the year ending 30 June 2019 and consider

maintaining a logbook or use the ATO’s myCar App (to maximise options for car expense deductions).

Claiming work-related travel expenses

Examine whether travel expenses (local, interstate, overseas) are deductible and ensure the

substantiation requirements are satisfied.

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Work-related clothing, laundry and cleaning expenses

Consider whether you can claim a deduction for the cost of buying or cleaning occupation specific or

protective clothes or distinctive uniforms.

Review any special rules or ATO guidance for specific industries

You should consider the ATO’s guide on work-related expenses for specific industries to determine

what additional deductions may be available.

Self-education deductions

Review whether education expenses are deductible and consider the non-deductible threshold of

$250 which may apply.

Work-related expenses you cannot claim

There are several expenses associated with your work that you cannot claim. Typically, these include:

travel between your home and your primary workplace; expenses for a uniform consisting of

conventional clothing; self-education expenses where the course does not have sufficient connection

to your current employment; entertainment (e.g. buying a meal for a client or colleague); fines or

penalties; child care expenses; and fees paid to social clubs.

Claiming superannuation contribution expenses

The prohibition on an individual claiming a deduction for personal contributions where 10% or more

of their income was from employment does not apply to contributions made on or after 1 July 2017.

Individuals should consider whether making additional personal contributions is appropriate. If a

contribution is made, a notice of intention to claim a deduction must be given to and acknowledged

by the fund before the earlier of the day the individual’s tax return is lodged and 30 June 2020.

Claiming tax offsets for investments in ESICs and ESVCLPs

Investing in an ESVCLP or an ESIC may provide a non-refundable carry-forward tax offset to reduce

tax otherwise payable for the year ending 30 June 2019.

Consider whether prepayments can be deducted upfront

Prepaying expenses can be an effective way of reducing taxable income for an income year.

Individuals may be entitled to a deduction for prepaid expenses (e.g. interest) where the eligible

service period does not end later than 12 months after year-end. However, amounts incurred under

a “tax shelter agreement” may need to be apportioned.

22


Taking advantage of salary sacrifice arrangements

A salary sacrifice arrangement occurs where an employee agrees to forego part of their future

remuneration in return for the employer or someone associated with the employer providing benefits

of a similar value. Examples may include superannuation contributions. However, a valid salary

sacrifice agreement must be entered into before the services have been performed and before

everything has been done by the employee in earning the entitlement to the salary or wages.

Check the treatment of employee share schemes

The discount on shares, stapled securities and right/options acquired under an ESS is generally subject

to tax to the individual. The timing of the taxation on the discount will depend on the type of the

scheme (non-concessional schemes are generally taxed upfront, while concessional schemes can be

deferred in some cases). Special concessions also apply for start-up companies. If you have received

shares, options or rights as an employee (or contractor) during the income year, you should consider

whether an amount will be assessable to you.

Review foreign employment income and benefits

The foreign income of Australian resident individuals is exempt if it relates to employment on foreign

aid projects or military service overseas. This means that fringe benefits provided in respect of non-

exempt overseas employment can now be subject to FBT in certain circumstances (alternatively, the

value will be taxable to the individual).

Non-commercial losses may not be deductible

A non-commercial loss is a loss generated by an individual from conducting a business (other than a

primary production or professional arts business). Where non-commercial losses are generated, the

ability to claim such a loss depends on whether the individual earns less than $250,000 and whether

one of several “exceptions” are satisfied. If you do not satisfy an excetion, or you earn more than

$250,000, you need to apply to the Commissioner for the exercise of his discretion to allow use of the

tax losses.

Deductions may be denied if they relate to personal services income

Where you have provided services (see [4S]), you need to consider the possible application of the PSI

rules and how this may affect your ability to claim deductions.

Reducing income through a living away from home allowance

Where an employee maintains a home in Australia for their own use and is required to live away from

that home for the purposes of their employment, the taxable value of any LAFH allowance may be

reduced. The home must be available to the employee for the duration of their time away (i.e. it

cannot be rented out). The employee must also have an ‘ownership’ interest in the home (i.e. they

or their spouse must own or lease the property). The ability to reduce the taxable value is limited to

a maximum period of 12 months for an employee at any one work location.

23


Consider changes to repayment of HELP, TSL and SFSS debts

If you are living or intending to live overseas, and have a HELP or TSL debt, you need to provide your

overseas contact details and report your worldwide income to the ATO.

Additional notes

24


Section 7 – Trusts This section outlines a number of specific year-end taxation considerations that could apply to trust taxpayers.


The ATO will continue significant trust compliance activities for the income year ending 30 June 2019.

The main issues that the ATO are targeting include arrangements that direct income entitlements to

a low-tax beneficiary while the benefits are enjoyed by others; revenue activities are mischaracterised

to achieve concessional capital gains tax treatment; changes having been made to trust deeds or other

constituent documents to achieve a tax planning benefit; reporting of capital gains by non-resident

beneficiaries. Care needs to be taken to ensure you are compliant with the trust provisions.

Trustee can be taxed at 47%

To avoid a trustee assessment at a rate of 47%, ensure that you make beneficiaries presently entitled

to all the income of the trust before 30 June 2019 (or an earlier time if required by the trust deed).

You should consider using percentages or a “balance corporate beneficiary” to reduce the extent that

ATO adjustments could result in tax at the top marginal tax rate (to the trustee or individuals).

Review trust deeds before you make distributions

You should review your trust deed before year-end to ensure that: (a) the period during which the

trust exists has not ended; (b) the deed is appropriate for distributions for the 2019 and future income

years (for example, that the deed allows for distributions of capital gains); (c) proposed distributions

are to eligible beneficiaries; and (d) the requirements for valid distributions will be satisfied (e.g.

approval by the appointor or the guardian).

Ensure trustee resolutions are made before year end

Trustee resolutions may not be required to be fully documented by 30 June unless specifically

required by the trust deed. However, the ATO will expect that you are able to evidence decisions

made by the trustee. This may be done by way of rough notes, or other documents prepared (such

as budgets, spreadsheets or mapping documents). Distribution resolutions or plans should be

completed before year-end (or earlier if required by the trust deed).

Understand the meaning of income of the trust estate

The taxable income of a trust is allocated to beneficiaries based on their proportionate entitlement

to “income” of the trust for trust purposes. It is important to review the trust deed to determine how

income is defined to ensure the resolutions are effective in distributing all trust income (and to avoid

a trustee assessment). You will also be required to disclose the amount of income as defined in your

deed in the trust’s 2019 tax return. Where allowed, using a definition of “income” that equates to

“taxable income” can help to minimise differences between distributions to beneficiaries and the

amount on which they are taxable under the trust taxation provisions.

25


ATO focus on distributions of timing differences

The ATO has been focusing compliance activity on taxpayers taking advantage of differences between

a trust’s net income for tax purposes and its income for deed purposes. In particular, the ATO is

examining cases where the income distributed is significantly less than the taxable income allocated

to a beneficiary on a low tax rate (e.g. a corporate beneficiary or an entity in a tax loss position). Care

needs to be taken if you expect taxable income to exceed the trust distribution.

Consider cost base reductions for timing difference distributions

If a unitholder receives a distribution of trust income for an income year and the distribution exceeds

the trust's (taxable) net income for that year, the cost base of the unit is required to be reduced by

that difference. If the cost base has been exhausted, a capital gain may arise as a result of such

distribution (under CGT event E4 or CGT event E10). You should consider whether it may be possible

to align tax and accounting by defining trust income as “taxable income” for the current income year.

Division 7A can apply to distributions to companies

Ensure that you have considered Division 7A when distributing income (directly or indirectly) to a

corporate beneficiary and the amount thereof remains unpaid (UPE) (see [8Q]). Where a UPE exists,

the UPE may result in a deemed dividend if not placed on complying Division 7A terms or Investment

Agreement terms. Further, loans, payments or other benefits provided by the trust may also result

in a deemed dividend to the ultimate recipient.

Trust streaming requires special rules to be satisfied by year end

Specific provisions allow capital gains and franked distributions to be streamed to beneficiaries of a

trust. It is the ATO’s view that streaming other amounts is ineffective for tax purposes. If you wish to

stream capital gains or franked dividends for the current year, you should ensure you comply with the

trust tax streaming provisions.

ATO is focusing on developers claiming capital gains in trusts

The ATO may seek to treat capital gains as on revenue account and deny access to capital gains tax

concessions (such as the 50% CGT discount). The ATO are focusing on this area for development

group entities holding assets on capital account. You should ensure your position is correct and

defendable.

26


Satisfying the trust loss and bad debt deduction rules

The impact of the trust loss provisions should be considered where a trust has a current or prior year

revenue loss or bad debt deduction. In the absence of a family trust election (FTE), these provisions

operate to disallow deductions unless certain tests for changes in ownership and control are satisfied.

The application of the tests depends on whether the trust is a fixed or non-fixed trust and is modified

where a valid FTE is in place. The downside of making a FTE is that the trust would be liable to Family

Trust Distributions Tax if a distribution is made to a beneficiary that is not a member of the family

group.

Franking credits may not flow through a trust

Where a trust holds shares that were acquired after 31 December 1997, franking credits can only be

passed through to a beneficiary that is a qualified person (unless an exception applies). This generally

requires that both the trust and the beneficiary satisfy the 45-day holding period test (or 90 days for

certain preferred equities). Exceptions to the 45-day holding period test include: (1) a small individual

exclusion (i.e. if the beneficiary is an individual and the total franking credit tax offsets claimed by that

person do not exceed $5,000 for the income year); (2) where the distributing trust is a fixed trusts; (3)

where a valid FTE is in place for the trust and the beneficiary is part of the family group; and (4)

deceased estates. It is practically difficult (if not impossible) to satisfy the fixed trust test without

requesting the ATO to exercise its discretion, which can be obtained through a private binding ruling.

Where franking credits are material you should properly consider these rules.

Review distributions from foreign trusts

The ATO has released two taxation determinations dealing with capital gains made by trustees of

foreign trusts in respect of assets that are not taxable Australian property. Broadly, it is the ATO’s

view that capital gains will be assessable to an Australian resident beneficiary as trust income that has

not been previously subject to tax. This view results in the denial of the general 50% CGT discount to

the beneficiary and prevents the beneficiary offsetting capital losses against the gain. The application

of this view in practice is an area of focus for the ATO.

Deductions can be denied where income is injected into a loss trust

Where income is to be injected into a trust (for example, by receiving a distribution from another

trust), you should consider whether a FTE should be made. The consequences of not making an

election are: (1) that the trust may not be able to use its losses and deductions for the income year;

and (2) the trustee may be taxed on the income injected. It should also be noted that the

consequence of making a FTE is that the trust would be liable to Family Trust Distributions Tax if a

distribution is made to a beneficiary that is not a member of the family group.

Deductions can be denied where income is injected into a loss company

If the trust is distributing taxable income to a loss company, extreme care needs to be taken where

the taxable amounts exceeds the amount of cash to be distributed to the company. The ATO hold the

view that tax losses are only available to the extent of the distribution amount, even where a FTE has

been made. This can result in a denial of tax losses in such case.

27


Interest expenses may be denied where they fund distributions

The ATO holds the view that borrowings to fund contemporaneous distributions do not give rise to

deductible interest. A similar view is also held where borrowings are used to fund the repayment of

beneficiary loans or unpaid entitlements created from asset revaluation reserves of the trust. It is

critically important that loans and re-borrowings are “traced” to income producing activities in the

trust.

Denial of interest deductions on money used to make interest free loans

Where a beneficiary of a discretionary trust borrows money (at interest) and then on-lends money

(interest free) to the discretionary trust, the ATO may take the view that the interest expenditure may

not be deductible even if the beneficiary will receive trust distributions. Instead, you should consider

charging interest on such loans for 30 June.

Review family trust elections

Critically review your FTE requirements for the year to ensure that deductions for bad debts and losses

and the ability to flow-through franking credits are protected. Make sure all new trusts have made

an election to be within the family group. As an FTE may not be possible where the test individual

dies, you should consider whether any spare trusts should be created before 30 June which have

made FTEs with respect to the test individual (especially where the group is large).

Making FTE

A trust is not able to make a FTE if it does not pass a family control test at the end of the year from

which the election is to take effect. The ATO take the view that a valid FTE cannot be made before

the end of the first year for which it is to operate. Therefore, to avoid risk that a FTE is invalid, a FTE

should be made after the end of the relevant income year to which it relates.

Obtain TFNs before year end to avoid TFN withholding

Where a beneficiary has not provided their TFN to the trustee prior to receiving or being made

presently entitled to a trust distribution, the trustee is required to withhold 47%. Trustees should

obtain TFN’s from beneficiaries who have not previously been entitled to a distribution to avoid this.

Details of new beneficiaries need to be reported to the ATO by 31 July 2019.

Superannuation deductions can be denied for directors of corporate trustees

Superannuation contributions for a director of a corporate trustee of a trust will generally only be

deductible if the director is a common law employee of the trust engaged in producing the assessable

income of the trust. You may need to consider whether such contributions will be deductible.

28


Trust distributions to a superannuation fund can result in 45% tax

Non-arm’s length income derived by a superannuation fund (which may include discretionary trust

distributions or private company dividends) can be taxed at a rate of 45% in a superannuation fund.

This provision may also extend to distributions from unit trusts that are not fixed in accordance with

TR 2006/7.

Trust distributions to exempt entities can trigger anti-avoidance rules

Many specific anti-avoidance rules can apply where distributions are made to tax exempt beneficiaries

(e.g. a charity). If a distribution is intended to be made to an exempt entity, you will need to consider

these provisions.

Trust stripping (reimbursement agreements) can result in 47% tax

The trust stripping provisions can result in tax payable by the trustee at 47% where the trustee

distributes income to one beneficiary (that pays little or no tax) and the economic benefits of the

distribution are provided to a different taxpayer. Typically, the trust stripping provisions have only

been applied in promoter scheme type cases, particularly situations involving loss trusts and exempt

entities. However, the ATO has indicated it may apply the trust stripping provisions more broadly to

family trust arrangements. The ATO is currently focusing attention on the potential application of the

trust stripping provisions where distributions are made to non-resident beneficiaries. Care needs to

be taken where income is distributed to a beneficiary, where it is unlikely that the beneficiary will

ever call on the funds (or be paid those funds).

Additional notes

29


Section 8 – Companies This section outlines a number of specific year-end taxation considerations that could apply to corporate taxpayers.


The ATO is continuing to scrutinise the taxation affairs of companies. Areas targeted for the 2019

income year include: where the performance of the company is not comparable to similar businesses;

there is low transparency of tax affairs; there are large, one-off or unusual transactions; a history of

aggressive tax planning; choosing not to comply or regularly taking controversial interpretations of

the law; where the lifestyle of the owners is not supported by after-tax income; private assets treated

as business assets and poor governance and risk management systems. You should consider whether

any of your arrangements are those that have been identified by the ATO, and, if required, consider

taking appropriate action.

Check your corporate tax rate is either 27.5% or 30% for 30 June 2019

For the 2018/19 income year, a company can be subject to either the 27.5% tax rate or the 30% tax

rate. The lower tax rate can be available where no more than 80% of the company’s assessable

income for the year is passive income and the company’s aggregated turnover for the year is less than

$50 million. Passive income includes dividends (including franking credits), interest, rent, royalties

and capital gains. Passive income also includes the assessable amount of a partnership or trust

distribution to the extent that the amount thereof is referable (directly or indirectly through one or

more interposed partnerships or trust estates) to another amount that is passive income. All other

corporate tax entities are subject to corporate tax at a rate of 30%.

Review the corporate tax rate applied in prior years

The ATO has finalised its guidance on when a company will be regarded as carrying on a business for

the purposes of the reduced corporate tax rate. Entitlement to the reduced corporate tax rate for

2015/16 and 2016/17 was directly conditional on the company carrying on business, which is a low

threshold test for those years. The company may therefore be entitled to a reduced tax rate and a

refund of tax for those years. You should also consider the impact on franking and dividends paid.

Check the franking rate for dividends to be paid before 30 June 2019

If you are paying a franked dividend before 30 June, you should determine whether the maximum

franking credit will be set having regard to the 27.5% tax rate or the 30% tax rate. The rules are similar

to those outlined in [8B] above, however the company must use the actual turnover of the company

for the prior financial year. This can result in a company being required to pay dividends franked to

27.5%, even though the profits out of which the dividend is paid were taxed at 30%. You should pay

particular care to this issue if the aggregated turnover of the company for 30 June 2018 was less than

$50 million (where the company does not breach the 80% passive income test). Furthermore, if it is

the company’s first year, the franking rate can be deemed to be 27.5%.

30


Check the franking rate for dividends to be paid after 30 June 2019

Similarly, a company may be subject to the franking rate of 27.5% from 1 July 2019, where its

aggregated turnover for 30 June 2019 was less than $50 million (and the company does not breach

the 80% passive income test). This may mean that tax is payable to 30 June 2018 at the 30% tax rate,

yet dividends paid on or after 1 July 2018 are to be franked at 27.5%. Some taxpayers may declare

dividends and be unaware of the changes. Therefore, care needs to be taken for dividends declared

and paid after year end.

Anticipating the effect of a future change in tax rate

If you expect aggregated turnover of the company for 30 June 2019 to be below $50 million, the

company may be subject to the 27.5% franking rate for 30 June 2019. This may result in a potential

loss of 2.5% of franking credits on all retained earnings as at 30 June 2018 (i.e. where such profits

have previously been subject to 30% tax). Where retained earnings and the franking account balance

is significant, you should consider whether those franking credits can be legitimately preserved.

Impact of a change in tax rate on accounting standards

If you expect that the lower tax rate may apply to 30 June 2019 or 30 June 2020, this may require a

restatement of all deferred tax assets and liabilities, which may have a positive impact on profit.

Payment of franked dividends and sufficient profits

If you are seeking to pay a franked dividend where you have retained losses or a current year loss,

you may not have “profits” to be able to pay a franked dividend. This issue can generally be managed

where appropriate actions are taken before the signing the accounts for the current year (e.g. by not

applying the relevant loss against profits, or placing profits in a separate profit reserve).

Distribution statements for franked distributions

A company that has made a franked distribution must provide the recipient with a distribution

statement. The statement must be provided on or before the day of distribution for public companies

and within four months of the end of the income year for private companies (i.e. 31 October). The

extension of time for private companies is only in respect of the preparation of the distribution

statement and not an extension of time to resolve to pay a dividend. If the franking credit on a

distribution is incorrect, you must apply to the Commissioner to make an amendment (unless you are

within the scope of the ATO’s draft guidance on errors resulting from recent legislation dealing with

a change in corporate tax rate).

31


Disclosing changes to the benchmark percentage for franked distributions

The benchmark rate is a reference to the percentage to which a dividend has been declared to be

franked. The benchmark rate can only be set once a year for private companies but twice a year for

public companies. The benchmark percentage is set at the time of making the first distribution for

the relevant franking period – the income year in the case of a private company and each six-month

period during the income year for a public company. Once set, all dividends paid during the same

franking period must be franked to that franking percentage, with disclosures required if the

percentage varies by more than 20% from one franking period to the next. Ensure that you comply

with the benchmark rules and that you are aware of disclosure requirements.

Review your franking account balance for a franking deficit

While a company can take into account franking credits expected to arise by 30 June in determining

the extent to which a distribution is franked, care is needed to ensure that this does not create a

franking deficit which can result in franking deficit tax and penalties. An exception can occur if the

dividend is paid in the first year in which company tax becomes payable by the company.

Distributions funded by raising capital may not be frankable

Companies that are seeking to pay franked distributions to shareholders should ensure that these are

not funded by raising share capital (as the dividend may be unfrankable).

ATO are targeting franking credit trading arrangements

You should review any arrangements that purports to provide a return that is calculated by reference

to franking credits. Such arrangements may fall foul of specific franking credit benefit provisions.

Debt that can be treated like equity

All loans made to companies during the current year should be reviewed to ensure that they are on

terms that allow them to be treated as debt for tax purposes. The loan agreement will typically

require a 10-year repayment period or an appropriate interest rate. An exception also exists for some

small businesses that have at call loans. Failure to satisfy the debt provisions can result in interest

payments and loan repayments being treated as non-deductible unfranked dividends.

Review 10-year loan agreements that are due to be repaid

A number of loans to companies have been made under loan agreements with a 10-year repayment

period. Depending on when those loan agreements were put in place, such loans may be due for

repayment by 30 June 2019. If such loans are not repaid (e.g. the term is simply extended), the ATO

may take the view that such loans are to be treated as equity for tax purposes with the consequences

outlined above at [8N].

32


Review Division 7A and identify transactions

Where a private company pays an amount, makes a loan or forgives a debt owed by a shareholder or

their associate (and ex-associate in some cases) a Division 7A deemed dividend may arise for the

benefit provided. The use of a company’s assets (for example, a company yacht) for private purposes

at less than their market value can constitute a payment for these purposes. You should identify all

transactions between a company and any other associated entity (individual, trust, company or

partnership). As part of the 2019/20 Federal Budget, the Government announced that changes to

Division 7A would be deferred

Consider Division 7A for trust distribution to companies

Division 7A may apply where income of a trust is distributed to a company but not actually paid,

creating a UPE to the company. It is ATO practice to treat UPEs made on or after 16 December 2009

directly or indirectly to a corporate beneficiary as a loan from the company to the trust. You should

identify all new and existing UPEs and determine whether these are placed on complying investment

agreements or should be converted to Division 7A loans. As part of the 2019/20 Federal Budget, the

Government announced that legislation to codify the ATO practice would be deferred.

Ensure Division 7A loan agreements and investment agreements are in place

Ensure that appropriate agreements are in place for any new loans made to shareholders or their

associates. Consider whether new UPEs should be placed on complying investment agreements or

treated as loans before the lodgement date of the trust’s tax return.

Be careful on drafting new loan agreements

A new loan agreement that replaces a Division 7A loan agreement may constitute a new loan, breach

the refinancing rule and result in a deemed dividend (KKQY). A new loan agreement may also only

apply from the time it is entered into and may be ineffective (Rowntree). Ensure you properly

consider these issues when implementing new loan agreements.

Ensure payment of Division 7A MLRs and interest charges

Ensure that MLRs are made before 30 June in respect of Division 7A loans made in prior years. Where

dividends need to be declared by 30 June to enable MLRs to be made, ensure necessary resolutions

are made and offset agreements entered into before year end. For prior year UPEs that have been

placed on investment agreements, ensure that appropriate amounts of interest have been recorded

and that the interest has been paid in cash.

33


Review for benefits provided indirectly by companies

Division 7A contains interposed entity provisions that may apply where a loan or payment is made

from a company to an entity (for example, another company) which, in turn, provides a loan to a

target entity or trust. They can also apply where a company guarantees a loan for or on behalf of

another entity or where a company has an UPE from a trust. These provisions may also apply to

payments or loans made by a private company to another entity where the payment or loan is an

ordinary commercial transaction such as a dividend.

Review Division 7A for any re-borrowings that occur

Ensure that payments of interest and principal under Division 7A compliant arrangements are not

directly or indirectly, re-borrowed from the same company.

ATO is targeting Division 7A for capitalisation of unit trusts or companies

The ATO is currently focusing on companies that capitalise unit trusts, where the trust capital is used

to provide debt, equity or other benefits to other entities within the group. The ATO is examining

whether section 109C (i.e. a payment made to an associate) or Part IVA (the anti-avoidance

provisions) applies to the capitalisation. The ATO has highlighted they may seek to apply Division 7A

even where the arrangements are commercial. Care needs to be taken if you are considering

capitalising a unit trust, including by way of a distribution reinvestment plan

Review access to prior year losses and bad debts

Recent changes to the company loss recoupment provisions introduced a new more relaxed test, the

similar business test, with application retrospectively to losses and bad debts (where the debt was

incurred) in income years beginning on or after 1 July 2015. Companies that have undergone a

substantial change of ownership may be able to access such losses otherwise denied (which could

result in a refund of tax payable).

Claiming deductions for losses and bad debts

If you are utilising prior year tax losses, or have tax losses in the current year, you should consider

whether the company has satisfied the continuity of ownership test and the same business test. If

you have made a loss in the 2016 or later income years, you should also consider whether the similar

business test may provide a better opportunity to utilise losses in the future.

Share capital transactions can result in unfranked dividends

Several integrity provisions can operate where an amount moves into or out of a company’s share

capital account. For example, if an amount is transferred to the share capital account (other than in

connection with the raising of share capital), this can “taint” the whole of the share capital account.

Any subsequent payment from a tainted account will be treated as an unfranked dividend unless

untainting tax is paid. Please ensure you have reviewed all movements to share capital for the year.

34


Making tax consolidation choice on time

If you are making a choice to consolidate, you need to record your choice in writing and lodge a

separate notification form with the ATO. Both the notification form and the choice to consolidate

must be made by the time the tax return for the year ending 30 June 2018 is lodged. You will also

need to consider whether tax funding and tax sharing agreements are put in place before (or close to)

year-end.

Reporting change in members for tax consolidation

If members have joined or left during the income year, you are required to notify the ATO within 28

days. You are also required to update your tax funding and tax sharing agreements.

Ensure you update tax cost calculations for tax consolidation

If a tax consolidated group was formed during the year or entities joined an existing tax consolidated

group during the year, you should ensure that you have recalculated the tax cost base of assets and

liabilities, as this could materially impact your income tax calculations.

Ensure exit calculations for disposals of subsidiaries

If entities have left a tax consolidated group, the cost base of the shares needs to be recalculated

based on the underlying tax cost of assets and liabilities of the leaving entity. This can have a material

impact on any capital gain or loss derived on sale of the leaving entity.

Consider the deductible liabilities adjustment for tax consolidation

You should review whether changes to the treatment of deductible liabilities for an entity that joins

a tax consolidated group requires an amendment to previously lodged tax returns. The change applies

with effect from 1 July 2016 and impacts all tax cost setting calculations that occur after that time.

Research and development tax incentive

Companies undertaking eligible R&D activities may qualify for the R&D tax incentive. Depending on

the size of entity, the tax offset may be either 43.5% (for small entities) or 38.5% (for large entities).

The company’s business records must be sufficient to verify the nature of the R&D activities, the

amount of expenditure incurred on those activities and the relationship between the expenditure and

the R&D activities. The ATO have prepared a checklist to assist taxpayers in determining eligibility for

the offset. The government had introduced into Parliament a Bill to enact announced significant

changes to the R&D tax incentive announced as part of the 2018/19 Federal Budget. However, prior

to the election being called, the Senate Committee that scrutinises proposed legislation

recommended that the Bill be deferred pending further examination and analysis. Accordingly, it is

unclear whether these new measures will apply to the 30 June 2019 income year.

35


Restrictions on payments to associates for research and development

The R&D incentive cannot be claimed in respect of expenditure to an associate unless and until it is

paid. Paying an amount to an associate can include making a constructive payment. You should

ensure that payments to associates have been made before 30 June if you are seeking to include those

amounts in the R&D incentive claim for the current income year.

Due date for research and development registrations

To be entitled to claim the R&D incentive, companies must register with AusIndustry annually and

within 10 months after the end of their income year in which the R&D activity was undertaken (i.e. by

30 April 2020 for activity in the 30 June 2019 year). R&D activities undertaken overseas may also

qualify as eligible R&D activities if they meet certain additional requirements. These requirements

include lodging an advance overseas finding application with AusIndustry prior to the end of the

income year in which the R&D entity incurred (or plans to incur) the overseas expenditure.

Research and development and ATO focus areas

The ATO and the Department of Industry, Innovation and Science (DIIS) have released four Taxpayer

Alerts highlighting their concerns with taxpayers claiming the R&D Tax Incentive in respect of

construction activities, ordinary business activities, agricultural activities and software development.

Consider reviewing your R&D Tax Incentive registrations and claims, especially if you have claims in

those target areas. In addition to these Taxpayer Alerts, further guidelines have been issued by the

DIIS in respect to software development activities. These guidelines have been designed to provide

further guidance regarding what software development activities could qualify for the R&D Tax

Incentive. Consider reviewing your R&D Tax Incentive registrations and claims, especially if you have

claims in the targeted areas.

Research and development and feedstock adjustments

An adjustment may be required where the R&D Tax Incentive has been claimed in respect of

expenditure on goods, materials or energy which is transformed or expended in the course of R&D

activities into a product which is sold to another or applied to the R&D entity’s own use. The

adjustment, referred to as a feedstock adjustment, may result in an adjustment to the entity’s

assessable income.

Complying with the ATOs reportable tax positions requirements and changes to accounting standards

Certain large business and multinational taxpayers (that are notified in writing by the ATO) will be

required to disclose their most contestable and material tax positions by filing a RTP schedule with

their income tax return. The ATO has announced that, for income years ending on or after 30 June

2018, it will extend the obligation to lodge an RTP schedule to companies in economic groups with

turnover of $250 million or more. Furthermore, under Interpretation 23, reporting entities will need

to start disclosing uncertain tax positions in their financial statements from 1 July 2019.

36


Varying the pay-as-you-go income tax instalments

Determine whether the PAYG instalment for the final quarter of the year can be varied.

Personal liabilities under the director penalty regime for unpaid amounts

Directors of companies may be personally liable where a company fails to remit SG amounts and PAYG

withholding. Directors should ensure that SG contributions and PAYG withholding obligations are up

to date and consider implementing control procedures dealing with the director penalty regime.

Complying with the tax transparency rules for large corporate entities

The ATO is required to publicly report tax information for certain corporate tax entities. If you are

close to the $200 million turnover threshold, you should consider what these disclosures will mean

for your business.

Additional notes

37


Section 9 – Partnerships This section outlines several specific year-end taxation considerations that could apply to partnerships.

Removal of small business concessions for assignments of partnership interests

Partners in a partnership will be denied access to the CGT small business concessions on the disposal

of their rights to partnership income to an associated entity. As originally announced, the measure

was to apply to disposals after 8 May 2018.

Comply with the ATO guidelines for professional practices

In December 2017, the ATO withdrew its previous guidelines for the allocation of profits within

professional practices having observed a variety of arrangements exhibiting what were described as

high risk factors, including the use of related party financing and self-managed superannuation funds.

The ATO were also concerned with partners seeking to utilise the small business CGT concession in

respect of gains on the assignment of partnership interests. Arrangements entered into before 14

December 2017 which comply with the guidelines and do not exhibit high risk factors can continue

rely on those guidelines. Consultation on revised guidelines is ongoing.

Review changes in partners for no-goodwill professional practices

Administrative practices exist for the transfer of interests (practice interests) in no-goodwill

professional partnerships, trusts and incorporated practices (practices). The administrative practices

do not apply where a partner assigns their partnership interest to a related entity. All no-goodwill

professional practices should consider the application of the ATO’s administrative views on their

structures.

Varying distribution amounts to partners

For common law partnerships, consider the ability to vary income distribution entitlements before 30

June (provided this is allowed under the partnership agreement).

Review Division 7A for contributions made by a company

You should review partnership accounts to ensure that amounts of partnership equity and undrawn

profits owing to a company are not inadvertently recorded as loans. You should consider whether

Division 7A applies to any payments made by the company to the partnership (or to entities through

the partnership).

Additional notes

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39


Section 10 – Managed investment trusts This section outlines several specific year-end taxation considerations that could apply to managed investment trusts

(MIT).

Set your timetable for distribution reviews

You should be speaking to your accountants and fund administrators to determine the date in which

tax statements will be provided to your investors. To the extent that the tax numbers will require a

tax signoff, you should be locking in the time of the distribution review.

Determine which regime applies for the income year

You should determine whether you are going to apply the AMIT regime or the non-AMIT regime for

the current year. Please note that once you have elected into the AMIT regime and meet the

qualification requirements, the election is irrevocable.

Complying with trust provisions for non-AMITs

Where the MIT is not an AMIT, you should ensure that you have considered the ordinary trust issues

outlined in Section 7.

Complying with the AMIT provisions for AMITs

If it is your first year that you are applying the AMIT regime, ensure that your systems and processes

are in place to deal with the distribution review, including reconciliations that are required to avoid

the trustee being taxed on certain unreconciled amounts.

Satisfying the public trading trust provisions

A Unit Trust that is a public trust (e.g. the trust has 50 or more unit holders (directly or indirectly

through other trusts)) can be taxed as a company where it carries on (or controls another entity that

carries on) trading activities other than eligible investment business (EIB) activities. Furthermore, if a

unit trust does not satisfy the EIB rules, it cannot access the MIT concessional tax rates or make the

MIT capital account election. EIB activities include passive activities, such as investing in land for the

primary purpose of rent and investing or trading in debt instruments, financial securities and

arrangements. You should carefully review your income derived in the current year to see whether

you may inadvertently breach the public trading trust provisions and what preventative measures you

should be considering.

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MIT fund payments

The withholding tax rate on fund payments to non-residents during the 2019 income year is equal to

15% for exchange of information (EOI) countries and 30% for non-EOI countries. A special rate of 10%

applies to distributions related to certain energy efficient buildings. A fund payment is a component

of a payment made by the trustee of a MIT that, in effect, represents a distribution of the MIT’s net

income. It excludes certain components of income including dividends, interest, royalty income and

income derived from foreign sources. In addition, a payment can only be treated as a fund payment

if is made during the income year, three months after the income year or within six months if ATO

agreement is sought.

MIT fund payment notices

MITs that make distribution payments are required to provide a notice of the amount that is a fund

payment (which can be on a website). This notice rule extends to all other trusts that receive fund

payments and on-distribute those amounts to other beneficiaries. The details need to be made

available for five years. Please ensure that you are satisfying the notice requirements for fund

payments.

Complying with the correct AIIR reports

You should ensure that you are complying with the correct AIIR specifications. Please note that the

requirement to disclose data in relation to the “transfer of shares and units” commenced from the

2018 income year. You should ensure that the relevant information in relation to the 2019 income

year is available to be reported in the AIIR.

Completing your CRS and FATCA reports

CRS and FATCA scheme documents must be provided to the ATO by 31 July 2019. Please note that

the ATO have developed a tool to assist in the preparation of the CRS report for lodgement via the

ATO Portal for smaller fund operators. If you have not completed your due diligence procedures, you

need to ensure that these are completed in time for reporting.

Registering your entities for FATCA purposes

Ensure you have registered your relevant MIS with the IRS. This is typically a mandatory requirement

for wholesale schemes that otherwise hold financial assets (as exceptions typically do not apply to

unregistered schemes).

Lodging TFN reports

Investment bodies are required to lodge a Quarterly tax file number (QTFN) and Australian business

number (ABN) report for any quarter in which they accept a new TFN or ABN quotation from an

investor. The report should be lodged no later than 28 days after the end of each quarter.

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Stapled trusts and elections

Certain entities within the scope of the new “stapled legislation” may need to make a choice to be a

transitional entity and lodge that choice within 60 days of the year end of 30 June 2019. If you fail to

make this choice, the entities may not obtain transitional relief. The ATO form is NAT 75112.

Additional notes

42


Section 11 – Capital gains tax This section considers several year-end considerations for capital gains that may have been derived during the

income year.

Consider capital gains tax provisions for the year

Generally, CGT applies to the disposal of CGT assets acquired after 19 September 1985. However,

CGT events apply in broader circumstances, including where a right is created in another entity or

where an amount is received in respect of an event happening in relation to a CGT asset. It is therefore

prudent to consider all proceeds received during the year, especially in respect of amounts received

that have not otherwise been included in assessable income. The CGT rules may require a gain or loss

to be recognised in a year that is earlier than the settlement of the contract or receipt of proceeds.

For example, CGT events can happen at the time you enter into the contract. Accordingly, you should

review all contracts that straddle year-end to ensure that you have correctly determined whether a

capital gain or loss should be recognised in the current or a subsequent year.

Consider whether the sale of property is revenue or capital

The ATO continues to closely scrutinise whether receipts from property developments should be on

revenue account rather than capital account. Ensure that you consider the ATO’s guidelines for

determining whether a gain is on revenue account or capital account.

Review your entitlement to the CGT discount

A capital gain can be reduced by 50% where it is in respect of a CGT asset held by an individual or trust

for more than 12 months prior to the CGT event happening (subject to certain exceptions). Not all

CGT events qualify for the 50% CGT discount. A partial CGT discount may be available for non-resident

individuals and temporary resident individuals in some circumstances where a CGT event occurs on

or after 8 May 2012. Consider whether assets disposed of were held for over 12 months and thus

qualify for the CGT discount. If the amounts are material, you should consider whether the ATO will

treat the amounts as being on revenue account (and not eligible for the 50% discount).

Small business CGT concessions

Capital gains may qualify for the small business CGT concessions if you can satisfy the $6 million net

assets test (on a connected entity and affiliate inclusive basis) or the $2 million turnover test (on a

connected entity and affiliate inclusive basis). The asset that is the subject of the CGT event must be

an active asset (i.e. an asset used in the business) although, in certain circumstances, this can be

extended to assets held by other non-business entities or shares in companies and unit in unit trusts.

Please note that the ATO are targeting and reviewing compliance with these provisions. You should

review your ability to apply these concessions to capital gains derived during the income year.

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Deferring capital gains under earnout arrangements

Special rules apply where the consideration in a sale and purchase of a business includes an earnout

arrangement, which allow taxpayers to defer their capital gain on a sale. The rules only apply to a

narrow set of circumstances, so it is important to ensure that agreements are drafted appropriately.

Review CGT exemptions that may apply

There are several CGT exemptions that can apply to reduce capital gains and losses made during an

income year. You should carefully consider each capital gain that has been derived and whether an

exemption may apply.

Review CGT rollovers that may apply

There are several CGT rollovers that can apply to defer capital gains and losses made during an income

year. You should carefully consider each capital gain that has been derived and whether a rollover

may apply.

Applying the main residence exemption

A capital gain made from the sale of a dwelling that was your main residence may be reduced if you

qualify for the main residence exemption. Special rules apply in a range of circumstances, including:

(1) where the individual is a foreign or temporary resident; (2) where there was an absence during

the ownership period; (3) adjacent land (whether up to two hectares or more) is being sold with the

main residence; (4) compulsory acquisitions of the main residence and/or adjacent land have

occurred; (5) where the residence was used for a period to derive income; (6) when there are two

properties that are both used as a main residence; and (7) when special disability trusts can claim the

main residence exemption. You should ensure you have properly considered these rules.

Main residence exemption for non-residents

Non-residents (which may include Australian expats) may lose their main residence exemption.

Please refer to [13O] for further details.

Review wash sale arrangements

Where CGT assets (e.g. shares) are sold for a capital gain or loss and substantially the same assets are

reacquired shortly thereafter, the ATO may seek apply Part IVA (the general anti-avoidance provision).

Be careful in implementing wash sale arrangements, especially if the transactions occur close to 30

June.

Additional notes

44


45


Section 12 – Finance issues This section considers several year-end considerations for financial transactions and financial type entities for the

income year.

Consider tax issues on loan rationalisations

It is common to rationalise intra-group loans at year-end to simplify arrangements and Division 7A

compliance. However, loan rationalisation can give rise to significant tax consequences, particularly

if one of the entities involved has a deficiency in net assets (such as a deemed forgiveness). Please

ensure you have properly considered tax issues associated with loan rationalisations.

Review deductibility of interest

If you have incurred significant financing costs during the year, you should consider whether you may

be precluded from deducting some or all of the costs. Situations in which such costs may not be

deductible include where the cost was incurred before the income earning activity commenced or

after it ceased, the arrangement under which the finance was obtained is classified as equity under

the debt/equity rules, withholding tax obligations have not been satisfied where the interest is

payable to a non-resident and where the gearing ratio exceeds that allowable under the thin

capitalisation rules.

Interest that exceeds the benchmark may be non-deductible

Where interest charged on a debt instrument exceeds the benchmark rate of return plus 150 basis

points, the interest expense may be treated as non-deductible. This can occur for instruments

charging significantly high interest rates (e.g. mezzanine debt). You should review such arrangements

and consider conducting a benchmark rate of return test if material.

Review capital protected borrowings

Interest deductions may be denied in respect of funding capital protected shares, units or stapled

securities. You should review capital protected arrangements.

Consider the taxation of financial arrangements provisions

The taxation of financial arrangements (TOFA) provisions contain a comprehensive set of rules

governing gains and losses on financial arrangements. Generally, TOFA applies to taxpayers that that

have an aggregated turnover of $100 million or more, gross assets greater than $300 million or

financial assets greater than $100 million and certain other categories of taxpayers (based on the prior

year). The rules also apply where a taxpayer is party to an arrangement that is a qualifying security

(for example, has deferred interest and has a term of more than 12 months). A taxpayer not otherwise

subject to the TOFA provisions may elect for them to apply. On an annual basis, you need to consider

whether the provisions will start to apply to your entity or group of entities.

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Consider using the TOFA elections

The TOFA provisons allow taxpayers to make a number of elections that allow tax treatment of

financial instruments to be aligned with accounting positions. This can simplify compliance (e.g. for

forex transactions), but may bring forward the taxing point (e.g. unrealised forex gains). Elections

generally need to be made before 30 June.

Review TOFA for consolidated group

If your group is subject to TOFA and an entity has joined your tax consolidated group, make sure that

you have applied the special TOFA rule to liabilities of the joining entity (which can treat such amounts

as assessable).

ATO is focusing on TOFA compliance

The ATO is conducting ongoing compliance activity. Accordingly, if your group is subject to TOFA, you

should ensure you are comfortable with your TOFA positions.

Reporting CRS information to the ATO for investment entities

If you run a family office or a managed investment scheme, you may need to disclose information to

the ATO by 31 July 2019 for accounts held by foreign tax residents for the period between 1 January

2018 and 31 December 2018.

FATCA compliance for investment entities

If you have US investments, have beneficiaries or controllers that are US citizens, or if you simply have

an entity that invests in Australian funds, the FATCA provisions could apply. You should carefully

consider your FATCA obligations, including the registration of the relevant entity with the IRS and

providing reports to the ATO.

Financing structures

If you are considering creating a new investment structure, or considering investing in such a

structure, consider whether the AMIT rules, ESVCLP rules, ESIC rules, crowdfunding rules, funds

passport rules or the CIV rules could be relevant.

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Additional notes

48


Section 13 – International tax This section considers a number of year-end considerations where you have international transactions, or inbound or

outbound investments.


The ATO is targeting international transactions and has received substantial funding for its Tax

Avoidance Taskforce, targeting both High Wealth Individuals and multinationals. You should carefully

consider whether your arrangements with international parties are likely to be scrutinised by the ATO.

Make sure you have appropriate foreign tax advice

When dealing with international tax issues, it is always necessary to consider seeking foreign tax

advice.

Non-resident individual tax rates

The income tax rates for non-resident individuals are set out in the Appendix.

ATO will data match your foreign income under CRS

If you are an Australian resident for tax purposes, the ATO will be receiving CRS tax information from

other jurisdictions for 30 June 2019. You should ensure that you have fully disclosed all income from

foreign financial accounts in your Australian income tax return.

Tax residency for Australian incorporated companies

The residency status of an entity is dependent on many factors and should be reviewed on an annual

basis. The consequence of an entity being a tax resident is that it will generally be subject to Australian

tax on worldwide income and certain capital gains. Whether an amount is sourced in Australia is a

question of fact and degree. Australia’s taxing rights may also be modified by a DTA, which in turn

may be modified by the Multilateral Instrument.

Tax residency for foreign incorporated companies

A foreign incorporated company can be considered an Australian tax resident if it carries on business

in Australia and has either central management and control in Australia or its voting power controlled

by shareholders who are resident in Australia. In the ATO’s view, a company with its central

management and control in Australia is automatically carrying on business in Australia. Under this

view, many foreign incorporate entities will be Australian resident. Under PCG 2018/9, the ATO is

giving you time to get your house in order before 1 July 2019. Please make sure that you have

considered these rules and implemented changes before this date.

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Changing residence

When a taxpayer ceases to be an Australian resident for tax purposes during the income tax year, a

CGT event (i.e. a deemed disposal) can occur for all CGT assets that are not taxable Australian

property. Some exceptions can apply. It is critical that you consider the tax consequences for all your

assets and liabilities on a possible change in residency.

Reducing your income if you are a temporary resident

Under Australian income tax laws, a foreign individual may be considered a resident where they reside

in Australia or they are in Australia for at least 183 days. Subject to an applicable DTA, this could

result in the individual’s worldwide income being taxed in Australia. However, there is an exception

for most income if an individual is considered a “temporary resident” (generally, where a person holds

a temporary visa granted under the Migration Act 1958 and neither the person nor their spouse (or

de facto) is an Australian resident within the meaning of the Social Security Act 1991). Certain

temporary residents may also be exempt from the Medicare Levy. If you are a foreign citizen and an

Australian tax resident, consider whether you can apply the temporary resident concessions.

Special tax rates for working holiday makers

If you are a working holiday maker, the first $37,000 of income will be taxed at 15%, with the

remainder taxed at ordinary resident rates. You are required to lodge an income tax return each year

you work in Australia. If you employ or are planning to employ working holiday makers, you need to

register as an employer of working holiday makers before making payments to them. In addition, you

will need to withhold tax at working holiday maker rates.

Distributions from foreign trusts to Australian resident beneficiaries

Foreign sourced capital gains that are distributed to non-residents through an Australian trust can be

taxable to the non-resident under a new ATO view. Care therefore needs to be taken in distributing

such amounts to non-residents on or before 30 June.

Passing conduit foreign income through Australia tax free

The CFI provisions may allow unfranked dividends to be paid by an Australian resident company to

non-resident shareholders free of withholding tax provided certain conditions are met. Certain time

constraints apply to the CFI distribution to a non-resident through a chain of entities. We recommend

that you contact your Pitcher Partners representative to discuss the application of the CFI rules.

Review your entitlements to foreign income tax offsets

The FITO rules allow a taxpayer to claim a tax offset against the Australian tax otherwise payable for

foreign income tax paid on their foreign income. As excess FITOs cannot be carried forward, you

should consider whether there are any strategies that may legitimately be adopted to minimise any

FITO wastage.

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Consider whether foreign distributions or gains to a company can be exempt

Provided certain conditions are satisfied, foreign income of an Australian corporate tax entity may not

be subject to Australian tax. This can include: (1) profits of a foreign branch (including those received

indirectly through a partnership or trust); (2) foreign equity distributions (including those received

indirectly through a partnership or trust); and (3) capital gains made on the disposal of a shareholding

in an active foreign company. You should review whether these exemptions can apply.

Indirect foreign distributions may not be exempt

The ATO has taken the view that, in relation to foreign equity distributions received indirectly through

a partnership or trust, the Australian corporate tax entity must be entitled to the income at the time

the dividend is received by the partnership or trust. This can present particular difficulties where the

interposed trust is a discretionary trust. It is critical you identify this issue before 30 June.

Review the tax treatment of sales of assets by non-residents

Non-residents and temporary residents can dispose of certain Australian assets (for example, assets

that are not land, membership interests in “land rich” entities or assets used at any time in carrying

on business in Australia through a PE) without tax consequences. However, non-residents and

temporary residents are no longer eligible for the 50% CGT discount (subject to transitional rules). In

addition, under proposed legislation a non-resident may be denied the ability to claim the main

residence exemption. As drafted, the change was to apply where the contract for the sale of the

property was entered into after 8 May 2017. Properties acquired before 8 May 2017 were

grandfathered if sold before 30 June 2019. It is uncertain whether the Bill will be reintroduced if the

Coalition government is returned.

Review deductions incurred in earning foreign income

Generally, a deduction may be denied for a loss or outgoing incurred in earning exempt or NANE

income. Debt deductions incurred in respect of income previously attributed under the CFC regime

as well as foreign non-portfolio equity distributions paid to a company are exceptions to that general

rule. If you carry on business through a foreign branch or have a foreign subsidiary that generates

exempt or NANE income, closely consider whether any deductions incurred for the year will be

denied.

Deemed dividends from non-resident CFCs

Integrity provisions can operate to deem there to be an unfranked dividend where certain benefits

are provided by a CFC to a shareholder or associate of the shareholder. These provisions are similar

to, but take precedence over, Division 7A and can operate even where the transactions are at an arm’s

length price.

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Denial of deductions where withholding tax is not paid

A deduction may be deferred or denied if applicable withholding tax obligations are not satisfied (e.g.

interest or royalty withholding tax). You should ensure withholding tax obligations for the current

income year have been considered and are satisfied.

Consider the impact of distributions to non-resident beneficiaries

If a trust has a non-resident beneficiary that is presently entitled to the income of the trust, the trustee

will be assessed on that non-resident beneficiary’s share of the net (taxable) income of the trust.

Where the income consists of interest, dividends, royalties or CFI, special withholding tax rates may

apply. The decision in the Bamford case and the ATO’s view on streaming may impact your ability to

stream such income to non-residents. The full 50% CGT discount is not available for a capital gain

(accruing after 8 May 2012) included in the net (taxable) income of a trust distributed to a non-

resident or temporary resident.

Deemed income from non-resident trusts and other offshore assets

An interest in a foreign trust may result in the beneficiary or unit holder being required to include an

amount in assessable income under special provisions, even though they have not received a

distribution (e.g. under the transferor trust provisions or the deemed present entitlement provisions).

If you hold an investment in or have provided property or services to a foreign trust, you should

consider whether you need to bring to account assessable income under these special provisions.

Charges to foreign owners of underutilised residential property

A charge will be imposed on foreign owners of residential property where the property is not occupied

or genuinely available for rent for at least six months of the year. The charge is equivalent to the

relevant foreign investment application fee levied at the time the property was acquired by the

foreign investor and applies to foreign persons who make a foreign investment application for

residential property after 9 May 2017. A person to whom the rules apply is required to file a vacancy

fee return within 30 days of the anniversary of making the foreign investment application. Significant

penalties apply for a failure to file the return.

Investment manager regime exemption for foreign investors

If you are a non-resident investor that invests in certain assets such as equities or foreign assets, you

should consider the application of the IMR regime, which could help to ensure that certain gains are

not taxable in Australia. The IMR applies to foreign entities that invest directly in Australia (direct

investment concession) or via an Australian fund manager (indirect investment concession).

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Review foreign exchange gains or losses

Consider whether the (tax) foreign exchange provisions will apply. Consider if there are any

opportunities to reduce compliance under the provisions by making certain elections before year-

end. The treatment of foreign exchange gains and losses is considered at [4P] and [5R].

Determine if you are subject to the hybrid mismatch rules

The hybrid mismatch rules can apply where two tax jurisdictions treat entities, instruments or

branches differently. The rules may permanently deny or defer a deduction or include an amount in

a taxpayer’s assessable income and may result in material tax adjustments in many cases. Broadly,

the provisions operate where the same payment results in a deduction in two countries or where a

deduction is provided for a payment in one country that exceeds the amount that is subject to tax in

the recipient country. These rules generally apply to income years starting on or after 1 January

2019 and must be considered by anyone with foreign income.

Additional notes

53


Section 14 – Transfer pricing and cross border This section considers several significant integrity measures that apply to international groups, including the transfer

pricing regime. It is critical that you consider this section if you have cross-border transactions.

Consider the controlled foreign company provisions

The CFC regime can apply to attribute income derived by a CFC to the Australian investor. The

provisions operate where a foreign company is controlled by an Australian resident(s) and can result

in material tax adjustments in many cases. The provisions can also apply to Australian taxpayers that

hold a minority interest in a CFC. You should consider whether the CFC regime will require you to

include in your assessable income the underlying income of your foreign investment, even if your

individual interest is a minority interest.

Review your compliance with the transfer pricing regime

Australia’s transfer pricing rules operate on a self-assessment basis. All taxpayers that have

international dealings must have evidence to demonstrate that they have applied the transfer pricing

provisions. All types of international related party dealings are captured (for example, loans, service

fees, transfers of trading stock). An entity needs to make an adjustment in their tax return if they get

a transfer pricing benefit. An entity gets a transfer pricing benefit if the amount of the entity's taxable

income or withholding tax would have been greater, or its loss or tax offsets would have been less,

had the arm’s length conditions operated rather than the actual conditions. The ATO will continue to

target this area, with increased funding and increased information from the IDS. Taxpayers should be

considering and reviewing all international transactions for compliance with the transfer pricing

regime.

Ensure contemporaneous documentation for transfer pricing

Taxpayers are precluded from receiving relief from penalties in the event of an ATO adjustment if they

do not have contemporaneous transfer pricing documentation in place at the time of lodging their

income tax return. In preparing an income tax return, taxpayers are required to complete an IDS

which requires taxpayers to disclose the percentage of their related party transactions that are

covered by contemporaneous transfer pricing documentation. It is the responsibility of the public

officer, in answering these documentation questions, to ensure they do not make a false or misleading

statement.

Accessing simplified record keeping for transfer pricing

The ATO has developed two key categories of options that simplify1 the record keeping obligations of

certain taxpayers and thus reduce the costs of complying with Australia’s transfer pricing provisions.

Broadly, the first category includes options for particular classes of taxpayers (i.e. distributors and

small business taxpayers). The second category includes options for particular classes of international

related party dealings, including transactions based on certain materiality levels, low value adding

intragroup services, technical services and certain inbound and outbound low-level loans. You should

consider your ability to access these concessions.

1 These guidelines have recently been modified (9 January 2019) which are available to the taxpayers to apply to income years

commencing on or after 1 July 2018 (or substituted accounting period).

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Transfer pricing risk ratings for offshore hubs

The ATO has released guidance on its compliance approach to international related party dealings

with offshore hubs. If you are a multinational group with operating models (or hubs) involving

procurement, marketing, sales and distribution functions, you should determine your risk rating with

respect to your offshore hubs.

Determine your ATO risk rating for cross border financing

The ATO has released guidance on its compliance approach to cross-border related party financing

and related arrangements. The guidance provides a risk framework that allows taxpayers to self-

assess and compare their transfer pricing outcomes against the ATO’s risk framework. Under the

framework, a taxpayer’s risk rating is determined having regard to factors including sovereign risk of

the borrowing entity, the interest coverage ratio, the global group’s cost of funds, leverage of the

borrower and the headline tax rates for the lending entity jurisdiction. You should be determining

your risk rating with respect to such financing arrangements where applicable.

Determine your ATO risk rating to inbound distributors

The ATO has recently released guidance on its compliance approach to the transfer pricing

outcomes associated with inbound distributors. The guidance outlines the approach the ATO

will take in assessing the transfer pricing outcomes associated with the purchase of goods and

services from related foreign entities for resale into the Australian market. The guidance

categorises the risk of an ATO transfer pricing investigation into low, medium or high based

principally at the profit margin that is earned by the distributor in the past 5 years. If you are a

multinational group with inbound distribution arrangements, you should be determining your

risk rating with respect to your arrangements.

International dealings schedule and your documentation

You should ensure that the IDS included in the tax return for the year ending 30 June 2018 is

completed in a manner that is consistent with your transfer pricing documentation for the income

year. Entities that are significant global entities (and do not qualify for the short form local file option)

may choose to lodge Part A of their local file with their income tax return, rather than prepare an IDS.

This eliminates duplication of information requested in the IDS and the local file.

Determine if you are a significant global entities (SGE)

A taxpayer is required to disclose on its tax return if it is a significant global entity (SGE). An SGE is (a)

an entity that has an annual income of $1 billion or more; or (b) a member of a group of entities that

is consolidated for accounting purposes and has a consolidated annual income of $1 billion or more.

Significant global entities are subject to several specific reporting and penalty measures.

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Consider general purpose financial reports for SGEs

If you are an SGE and you do not lodge GPFS with ASIC, you may be required to lodge GPFS with the

ATO in respect of income years commencing on or after 1 July 2016.

Consider the multinational anti-avoidance law for SGEs

If you are an SGE, consider whether your arrangements are within the scope of the multinational anti-

avoidance law (MAAL). Generally, the MAAL can apply to cross border transactions that result in an

Australian tax benefit or a foreign tax benefit. The ATO has collected more than $6 billion under the

MAAL and are heavily targeting such transactions.

Diverted profits tax for SGEs

The diverted profits tax (DPT) can broadly apply to arrangements entered into with a foreign associate

that has the principal purpose, or one of the principal purposes, of obtaining an Australian tax benefit

or foreign tax benefit. There are some exceptions that can be applied. If you are an SGE, consider

whether your arrangements are within scope of the DPT.

Country-by-country reporting for SGEs

If you are an SGE, consider whether you will be required to comply with the country-by-country (CbC)

reporting regime. Broadly, the regime would require a master file (i.e. a statement relating to the

global operations and activities of the SGE) and local file (i.e. a statement relating to the Australian

entity’s operations, activities, dealings and transactions) to be lodged with the ATO and a CbC report

(i.e. a statement relating to the allocation between countries of the income and activities of, and taxes

paid by the Australian entity and other members of the group) to be filed by the parent entity with

the tax authority in its country of residence.

Reportable tax positions for cross border transactions

An RTP schedule is an additional schedule to a company’s income tax return, that requires the

company to disclose uncertain tax positions taken during that income year (see [8KK] for further

information). Category C requires disclosure on high risk arrangements set out in a list maintained by

the ATO, regardless of materiality (currently, there are 25 transactions or arrangements listed). The

ATO’s RTP guidance states that a company must have transfer pricing documentation in place to have

a transfer pricing position that does not require disclosure. Even if documentation is in place, an RTP

position may need to be disclosed depending on the outcome of the analysis.

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Thin capitalisation

The thin capitalisation provisions may permanently deny deductions for interest and other debt

deductions of Australian entities that have foreign operations or controlled foreign entities (outbound

investors) and of foreign entities that have Australian operations or controlled Australian entities

(inbound investors). The provisions broadly limit deductions by applying a safe harbour debt to equity

ratio. Some exceptions can apply for small taxpayers. Consider examining your tax gearing ratios

before 30 June 2019 as there are strategies to minimise the extent of the denied deduction.

Additional notes

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Section 15 – Superannuation funds This section outlines several specific year-end taxation considerations that could apply to superannuation funds.


The ATO have announced that one key focus area relates to individuals and promoters who use SMSFs

to illegally access super benefits (i.e. early access). In particular, the ATO are increasing their scrutiny

of new SMSF registrations. The ATO will also continue to focus on non-lodgment by SMSFs and will

increase their engagement with non-lodgers and their tax agents. Finally, the ATO have announced

they now maintain a ‘top 100’ list of SMSFs (by asset balance) and are looking to identify any instances

of aggressive tax planning. The ATO have stated their compliance focus will be on: (1) the use of

reserves; (2) the use of multiple SMSFs; (3) compliance with the transfer balance cap (TBC); and (4)

the use of limited recourse borrowing arrangements.

Employer deductions for superannuation contributions

For an employer to be entitled to a deduction for superannuation contributions, the contribution

must be made (i.e. received by the superannuation fund) on or before 30 June 2019. The SG

contribution rate for the year remains unchanged at 9.5% of an employee’s OTE. An employer does not

have to make SG contributions in respect of employee’s salary over a “maximum salary base”. For the

year ending 30 June 2019, the maximum salary base is $54,030 per quarter.

Non-deductible superannuation guarantee charge

Employers who fail to pay contributions within 28 days of the end of the quarter are liable to pay a

non-deductible SG charge. Ensure that you have complied with the SG requirements, especially for

bonuses paid and payments made to contractors, consultants (engaged wholly or principally for their

labour) or members of the board who are not paid via the payroll.

Review compliance with the concessional contributions cap

Make sure you have complied with the annual concessional contribution cap ($25,000) and consider

whether additional concessional contributions could be made before 30 June. Unused concessional

contributions for the financial year ending 30 June 2019 can be carried forward for up to five years if

your total superannuation balance is less than $500,000 on 30 June of the financial year prior to you

making the catch-up concessional contribution. The ability to carry forward unused concessional

contributions only commenced in the current financial year (i.e. unused concessional contributions

from earlier financial years cannot be carried forward).

Consider catch-up concessional contributions

Unused concessional contributions for the financial year ending on or after 30 June 2019 can be

carried forward for up to five years if your total superannuation balance is less than $500,000 on 30

June of the financial year prior to you making the catch-up concessional contribution. The ability to

carry forward unused concessional contributions only commenced in the 2018/19 financial year (i.e.

unused concessional contributions from earlier financial years cannot be carried forward).

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Review compliance with the non-concessional contributions cap

The annual non-concessional contributions cap is $100,000. Individuals with a total superannuation

balance in excess of $1.6 million (at 30 June 2018) will have a non-concessional contribution cap of

$nil. Taxpayers under the age of 65 can, in certain situations, bring forward up to two years’ worth of

non-concessional contributions, meaning that they can make up to $300,000 in non-concessional

contributions in one year. There are, however, limits on bringing forward non-concessional

contributions where the total brought forward would result in the individual’s total superannuation

balance exceeding $1.6 million.

Excess contributions

When reviewing your superannuation strategy for year-end, carefully consider whether contributions

are within your contributions cap as penalties can apply if you breach the caps. Likewise, breaching

the contributions cap will require you to choose how the excess contribution is unwound.

Claiming deductions for personal superannuation contributions

With the repeal of the 10% test, most individuals are now able to claim a deduction for personal

superannuation contributions to a complying superannuation fund. Consider whether you are eligible

to make a deductible concessional contribution before 30 June 2019 and ensure notice requirements

are met within time. If you are not eligible, consider the impact of delaying personal superannuation

contributions until after 1 July 2019.

Low income superannuation tax offset

The low income superannuation tax offset (LISTO) is an amount of up to $500 paid by the government

into the superannuation account of an eligible taxpayer with an adjusted taxable income of up to

$37,000. The LISTO is designed to refund some of the tax paid on concessional contributions of low

income earners. If you are a low income earner, consider the impact of contributing to your

superannuation fund before 30 June.

Making low income spouse superannuation contribution

If you have a spouse with a low income, you may be entitled to a tax offset of up to $540 per year if

you make contributions to their superannuation account. If your spouse has income (including

reportable fringe benefits and reportable employer superannuation contributions) of less than

$40,000, consider the implications of making contributions before 30 June.

Consider the cap on superannuation transfers into retirement products

If you are currently running pensions, or are about to commence pensions, consider the implications

of the $1.6 million transfer balance cap on your superannuation account balances, and whether you

will need to transfer excess amounts in an accumulation account.

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Additional contributions tax for higher income earners

Individuals with income exceeding $250,000 are liable to an additional 15% contributions tax (i.e.

bringing the total rate to 30%) on contributions for the year ending 30 June 2019. You should take

this into consideration when making superannuation contributions prior to year-end.

Taxation of employment termination payments

ETPs, such as golden handshakes, are lump sums paid on the termination of an employee. Whilst

ETPs generally receive concessional tax treatment (i.e. taxed at 17% or 32% depending on whether

the employee has reached preservation age by the income year-end) there are limits on the amount

that receives concessional treatment, as they are subject to two caps; the ETP Cap of $205,000

(2018/19) and the Whole of Income Cap of $180,000. The rules relating to how the caps are applied

are complex and should be reviewed if you have received an ETP during the income year.

Withdrawing super amounts under the first home super saver scheme

The First Home Super Saver (FHSS) Scheme allows voluntary concessional and voluntary non-

concessional contributions made after 1 July 2017 (along with associated deemed earnings) to be

withdrawn from 1 July 2018 to assist with the purchase of an individual’s first home. The maximum

amount of voluntary contributions that can be withdrawn is $30,000. You should consider this

opportunity if you are a first home buyer, or contemplating purchasing a first home in the future.

Contributing the proceeds of downsizing to superannuation

Individuals over the age of 65 who enter into a contract to sell their home on or after 1 July 2018 may

be able to contribute the proceeds from selling their home, up to a maximum of $300,000, into their

superannuation fund. The individual (or their spouse) must have owned the home for at least 10

years and be eligible for a full or partial exemption under the CGT main residence exemption. Strict

timeframes apply when contributing these amounts into your superannuation fund.

Additional notes

60


Section 16 – GST and state taxes This section outlines a number of specific year-end taxation considerations that could be applicable for GST and state

taxes.

GST adjustments for bad debts written off

If you write off a bad debt during the year, a debt has been overdue for at least 12 months or you

recover a bad debt previously written off during the year, you may need to make a GST adjustment in

the relevant BAS.

Accounting for GST on a cash or accruals basis

If you are a SBE (i.e., if your turnover is less than $10 million), you should consider whether to account

for GST on a cash basis (which may give you a cash flow advantage). In addition, if you currently

account for GST on a cash basis you should consider whether you still satisfy the eligibility

requirements for cash basis accounting.

Annual apportionment of GST input tax credits

An SBE can elect to adjust for input tax credits on items purchased partly for private purposes annually

rather than in each activity statement. The general effect of such an election is that a full GST credit

can be claimed for an acquisition even though the acquisition was partly for a private purpose. Any

necessary adjustment is instead made by way of an increasing adjustment in the activity statement

for the tax period in which the entity’s next income tax return is due to be lodged with the ATO. If

you have elected to use this concession, ensure that you include the adjustment in the relevant

activity statement.

Compliance with the financial acquisitions threshold for the year

An entity that makes financial supplies can claim a full GST credit for acquisitions that relate to making

those financial supplies if the entity does not exceed the FAT. An entity does not exceed the threshold

if the total GST credits otherwise associated with acquisitions it makes over a period of 12 months

that relate to financial supplies do not exceed $150,000 or 10% of all possible input tax credits of the

entity. If you make financial supplies, you should consider whether you have exceeded the FAT and

its impact on your GST claims for the year.

GST adjustments required for change in use

If you have changed the extent to which an acquisition or importation is used for a creditable purpose,

you should consider whether a change in use adjustment is required in the BAS for the period ended

30 June.

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Registration requirements where you supply low value imported goods

If you are a non-resident supplying Australian consumers with low-value (less than or equal to $1,000)

physical goods you may need to register for GST and collect and remit GST to the ATO if your

Australian turnover is at least $75,000 over a 12-month period. This extends to a non-resident that

operates an electronic distribution platform.

Review your treatment of digital products and services

If you are a non-resident supplying Australian consumers with digital products, services or other

intangibles from offshore, you may need to register for GST, collect and remit GST to the ATO if your

Australian turnover is at least $75,000 over a 12-month period. Examples of digital products include

the streaming or downloading of movies, music, apps and games. Examples of services include

architectural, legal and IT consulting services.

Reporting requirements for certain industries

If you are a business or contractor operating in the building and construction, cleaning or courier

industries consider whether you are required to report payments made to contractors (or

subcontractors) for the supply of services to the ATO. If you are required to report the taxable

payments annual report is required to be lodged by 28 August. Pitcher Partners has a system that

allows an automatic upload of information from your accounting software to assist you in meeting

this reporting requirement. If you are in the road freight, security, investigation, surveillance or

information technology industries, you will need to ensure that your record keeping will be adequate

to enable you to correctly capture payments made to contracts from 1 July 2019 that will need to be

reported to the ATO in 2020.

GST withholding for residential land and property transactions

Subject to transitional rules, purchasers of new residential premises or potential residential land may

be required to withhold and remit GST to the ATO from 1 July 2018. Significant penalties can be

imposed for a failure to withhold. In addition, from 1 July 2018, vendors of residential premises or

potential residential land are required to provide a notification as to whether the supply is subject to

withholding (regardless of whether the vendor is registered for GST). It is important to keep track of

any contracts that are currently on foot to determine whether they are subject to withholding (or

transitional rules) and whether a notification is required to be provided. As a vendor, you should be

reviewing your obligations under the new withholding regime when selling new residential premises

or potential residential land.

New economic entitlement provisions

Significant changes to how “economic entitlements” relating to land are to be treated for duty

purposes were announced in Victorian State Budget. Legislation to enact the changes is currently

before State Parliament. The changes will come into operation on the day following Royal Assent.

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Stamp duty surcharge for foreign purchasers of residential property

A stamp duty surcharge can apply in addition to the standard duty rates to foreign purchasers of

Victorian residential property. A foreign purchaser can include a discretionary trust if the trustee is

able to make a distribution to a foreign beneficiary. Consider the implications of modifying the trust

deed to exclude foreign persons.

Land tax, absentee owner surcharge and vacant residential land tax

Review your land tax assessments to ensure you have been correctly assessed. Often, assessments

are based on an incorrect aggregation of multiple properties, inaccurate ownership details held by

the State Revenue Office, and site valuations that are too high. Consider whether you should request

an amendment or lodge an objection in relation to the assessments to reduce the amount you are

liable for, obtain a refund of any overpayments, or minimise any penalty tax or interest in relation to

any underpayments. If you were an absentee owner of Victorian land as at 31 December 2018 or held

residential property in Melbourne’s inner and middle suburbs that was unoccupied for more than six

months in 2018, you may be required to notify the State Revenue Office and be liable for absentee

owner surcharge or vacant residential land tax.

Additional notes

63


Section 17 – Tax administration and integrity This section considers a number of integrity measures that should be considered with your year-end planning.

ATO compliance activity

The ATO releases various taxpayer alerts to inform taxpayers of the types of activities that the ATO

believe may be undermining the integrity of the Australian tax system. Some of the more recent alerts

that you should be aware of when considering your year-end tax planning include ones dealing with:

(1) arrangements that provide imputation benefits on shares acquired on a limited risk basis around

ex-dividend date, (2) arrangements that attempt to fragment integrated trading businesses (including

through the use of stapled structures) in order to re-characterise trading income into more favourably

taxed passive income, (3) international arrangements under which a taxpayer acquires a right to use

intangible assets where no part of the consideration is recognised as a royalty, (4) cross-border

structured financial arrangements that produce a current deduction but a deferral of withholding tax

and (5) taxpayers claiming the R&D tax incentive for activities that do not qualify as R&D [see [8FF]]

And) . You should consider whether any of the issues identified in the recent taxpayer alerts apply to

your tax affairs or to any tax planning opportunities that you are considering.

Part IVA

As tax planning strategies may reduce taxable income, it is always prudent to consider whether Part

IVA could apply in relation to any material tax planning strategies that may have been implemented.

Promoted schemes

Be careful of schemes that are promoted to taxpayers around year end to reduce taxable income for

the year. The ATO has produced guidance on what to look out for and what attracts their attention.

Phoenix activity

Illegal phoenix activity is broadly defined as causing a new company to be created to continue the

business of a company that has been deliberately liquidated to avoid paying its debts, including taxes,

creditors and employee entitlements. The ATO continually conducts reviews where such activity is

suspected. Be wary of schemes that promote deliberately liquidating companies to avoid paying

debts.

Black economy

You should ensure that you appropriately report your tax and superannuation obligations to the ATO

and other relevant authorities as there are serious consequences for avoiding tax.

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Additional notes

65


Section 18 – Appendix: Tax Rates

Resident individual income tax rates

2018/19 2019/20

Taxable income Tax payable Taxable income Tax payable

$0 - $18,200 Nil $0 - $18,200 Nil

$18,201 - $37,000 19% of excess over $18,200 $18,201 - $37,000 19% of excess over $18,200

$37,001 - $90,000 $3,572 + 32.5% of excess over $37,000

$37,001 - $90,000 $3,572 + 32.5% of excess over $37,000

$90,001 - $180,000 $20,797 + 37% of excess over $90,000

$90,001 - $180,000 $20,797 + 37% of excess over $90,000

$180,001+ $54,097 + 45% of excess over $180,000

$180,001+ $54,097 + 45% of excess over $180,000

Resident minor income tax rates

2017/18 2019/20


$0 - $416 Nil $0 - $416 Nil

$417 - $1,307 66% of excess over $416 $417 - $1,307 66% of excess over $416

$1,308+ 45% of total income that is not excepted income#

$1,308+ 45% of total income that is not excepted income#

# Excepted income includes employment income # Excepted income includes employment income

Non-resident individual income tax rates

2018/19 2019/20


$0 - $90,000 32.5% $0 - $90,000 32.5%

$90,001 - $180,000 $29,250 + 37% of excess over $90,000

$90,001 - $180,000 $29,250 + 37% of excess over $90,000

$180,001+ $62,550 + 45% of excess over $180,000

$180,001+ $62,550 + 45% of excess over $180,000

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Working holiday maker income tax rates

2018/19 2019/20


$0 - $37,000 15% $0 - $37,000 15%

$37,001 - $90,000 $5,550 + 32.5% of excess over $37,000

$37,001 - $90,000 $5,550 + 32.5% of excess over $37,000

$90,001 - $180,000 $22,775 + 37% of excess over $90,000

$87,001 - $180,000 $22,775 + 37% of excess over $90,000

$180,001+ $56,075 + 45% of excess over $180,000

$180,001+ $56,075 + 45% of excess over $180,000

Medicare levy rates – taxpayers eligible for the seniors and pensioners tax offset

2018/19 2019/20

Taxable income Levy payable Taxable income Levy payable

$0 - $34,758 Nil $0 - $35,418 Nil

$34,759 - $43,447 10% of excess over $34,244 $35,419- $44,272 10% of excess over $44,272

$43,448+ 2% of entire amount $44,273+ 2% of entire amount

The rates may change if the taxpayer has a spouse on 30 June and family income is below $48,385 plus $3,406 for each dependent child or student


* if the individual received a lump sum superannuation payment and is entitled to a tax offset in respect thereof, taxable income is reduced by so much of the taxable component of the payment as does not exceed the low rate cap.

Medicare levy rates – other individuals

2018/19 2019/20

Taxable income* Levy payable Taxable income Levy payable

$0 - $21,980 Nil $0 - $22,398 Nil

$21,981 - $27,475 10% of excess over $21,980 $22,399- $27,997 10% of excess over $22,398

$27,476+ 2% of entire amount $27,998+ 2% of entire amount



* if the individual received a lump sum superannuation payment and is entitled to a tax offset in respect thereof, taxable income is reduced by so much of the taxable component of the payment as does not exceed the low rate cap.

67


Medicare levy surcharge thresholds

2018/19 2019/20

Singles Families Rate# Singles Families Rate#

$0 - $90,000 $0 - $180,000 0.00% $0 - $90,000 $0 - $180,000 0.00%

$90,001 - $105,000 $180,001 - $210,000 1.00% $90,001 - $105,000 $180,001 - $210,000 1.00%

$105,001 - $140,000 $210,001 - $280,000 1.25% $105,001 - $140,000 $210,001 - $280,000 1.25%

$140,001+ $280,000+ 1.50% $140,001+ $280,000+ 1.50%

# While the surcharge is calculated on taxable income, liability to the surcharge is based on income for surcharge purposes exceeding the thresholds

# While the surcharge is calculated on taxable income, liability to the surcharge is based on income for surcharge purposes exceeding the thresholds

Low income tax offset

2018/19 2019/20

Taxable income Tax offset Taxable income Tax offset

$0 - $37,000 $645 $0 - $37,000 $645

$37,001- $41,000 $645 less 6.5 cents for each $1 of income over $37,000

$37,001- $41,000 $645 less 1.5 cents for each $1 of income over $37,000

$41,000 - $66,666 $385 less 1.5 cents for each $1 of income over $41,000


$66,667 Nil $66,667 Nil

Low and middle income tax offset

2018/192 2019/202

Taxable income Tax offset Taxable income Tax offset

$0 - $37,000 $200 $0 - $37,000 $200

$37,001- $48,000 $200 plus 3 cents for each $1 of income over $37,000

$37,001- $48,000 $200 plus 3 cents for each $1 of income over $37,000

$48,001 - $90,000 $530 $48,001 - $90,000 $530



$125,334+ Nil $125,334+ Nil

2 This table does not take into account the changes announced as part of the 2019/20 Federal Budget to increase the base

offset amount from $250 to $255 and the maximum offset from $530 to $1,080. If enacted as proposed, the changes apply for the 2018/19 to 2012/22 income years. It is noted that ALP election promises and policies also favoured an increase in the offset.

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Disclaimer

The contents of this document are for general information only and do not consider your personal circumstances or

situation. Furthermore, this document does not contain a detailed or complete explanation of the law, as provisions

or explanations have been summarised and simplified. This document is not intended to be used, and should not be

used, as professional advice.

The content of this document do not constitute financial product advice and should not be used in making a decision

with respect to a financial product. Taxation is only one of the matters that must be considered when deciding on a

financial product. You should consider seeking financial advice from the holder of an Australian Financial Services

License before deciding on a financial product.

If you have any questions or are interested in considering any item contained in this document, please consult with

your Pitcher Partners representative to obtain advice in relation to your proposed transaction. Pitcher Partners

disclaims all liability for any loss or damage arising from reliance upon any information contained in this document.

© Pitcher Partners Advisors Proprietary Limited, June 2019. All rights reserved. Pitcher Partners is an association of

independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

pitcher.com.au

Pitcher Partners has the resources and depth of expertise of a major firm, but with a smaller firm feel. We give our clients the highest level of personal service and attention.

Pitcher Partners is an association of independent accounting and business advisory firms located in Adelaide, Brisbane, Melbourne, Newcastle, Perth and Sydney. We have a strong reputation for providing personal service and quality commercial advice to our clients across a broad range of industries.

We specialise in providing services to family controlled, privately owned and small public businesses as well as high net worth individuals, the public sector and not-for-profit organisations. Our clients require high technical standards, matched with a personal understanding and involvement in their affairs.

Pitcher Partners is also an independent member of Baker Tilly International, one of the world’s leading networks of independently owned and managed accountancy and business advisory firms. Our strong relationship with other Baker Tilly International member firms has allowed us to open many doors across borders for our clients.

About Pitcher Partners

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Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities.

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