Week 5 Flashcards

Question

Taxing of minors - Considerations

Answer 1

Minors can no longer claim a Low Income Tax Offset (LITO) of $445 for unearned income ``` Investment options include : Life Insurance/ Friendly society bonds Will Trusts Distributions – Taxed as adults ATO’s View Who has earned the income? ```

Answer 2

A levy is payable by an individual who is a resident during a year of income. levy based on taxable income rate is 2.0% levy not payable for taxpayers with low taxable income (single $ 21,980; rates apply for families and pensioners) surcharge of up to an additional 1.5 % of taxable income is payable where taxpayer does not have private patient hospital insurance- Now Income Tested individual adjusted taxable income > $90,000 family adjusted taxable income > $180,000 ( no children) increased by $1,500 for each dependent child after first

Answer 3

Differentiate between a tax deduction and a tax offset Tax offsets predominantly apply to individuals Is there a limit on how much of a tax offset can be claimed? Generally, tax offsets cannot result in a tax refund being provided. Exceptions: private health insurance, franking credits

Answer 4

1-rental income fully assessable 2-rental expenses tax deductible including interest on borrowed money if it is reasonable to expect rents will be derived BE AWARE OF PROPOSED CHANGES TO NEGATIVE GEARING RULES BY LABOUR PARTY 3-capital gains subject to capital gains tax

Answer 5

1-generally assessable 2-joint accounts assumed to be earned equally not assessable where used to offset against mortgage account under an “interest offset” arrangement interest on child’s savings account

Answer 6

1-dividends fully assessable where paid out of company profits. 2-dividends may be subject to franking credits. 3-profits / losses made on sale subject to capital gains tax.

Answer 7

System introduced in 1987 to overcome problem of double taxation BE AWARE OF PROPOSED CHANGES TO SYSTEM PROPOSED BY LABOUR PARTY operation of system: company pays tax on profits shareholder includes after tax dividend as assessable income tax paid by the company on the profits [imputation credit (IC)] also included in shareholders assessable income -calculated as: I C= Dividend received x company tax rate 1 – company tax rate shareholder pays tax on total based on their MTR shareholder entitled to a franking credit equal to the imputation credit. dividends paid by company can be fully franked, partially franked or unfranked. under Business Reform changes, excess imputation credits have been refunded since 1 July 2000.

Answer 8

``` Managed investments are structures (typically unit trusts) that stand between the investor and the 4 basic forms of investment: Cash Fixed-interest securities Shares Property ``` Holders of units in trusts are taxed as beneficiaries on trust earnings which are apportioned to their unit holding CGT implications: capital gains of the trust capital gain on sale of units in the trust capital gains on switching from one unit trust to another Agricultural-based managed investments have provided up to 100% deductibility of initial investment Attractive tax-based incentive for investment ATO seeking to remove tax-based incentives for non-forestry agricultural based managed investments

Answer 9

Employment position is made redundant ITAA s 27E Similar to Approved Early Retirement Initiated by Employer not employee Payments cannot be rolled over to superannuation Special tax rules apply: Tax Free amount- First $ 10,399 + $ 5,200 for each completed year of service. Amount above tax free portion treated as a Life Benefit ETP and is subject to ETP tax rates based on clients age and cap levels.

Answer 10

From 1 July 2007- Superannuation funds were required to reclassify the components according to the two components: tax free and taxable. The taxation implications of lump sum withdrawals as cash from 1 July 2007 depends: The person’s age – whether the person is under or over 55, between 55 and 59 or aged 60 or over. The tax free and taxable components of the superannuation fund.

Answer 11

``` Create Tax effective investment vehicles Increase Deductions Expenses Invest in Tax effective products Reduce Personal Deductions Ensure underlying product is sound Keep up with Tax legislation Keep Good Records Use Superannuation as a long term investment vehicle ```

Week 5 Flashcards

(35 cards)