Australia Taxation – Advanced flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Base rate entity rate

A company with aggregated turnover under $50 million and no more than 80% passive income is taxed at 25% for 2024-25 and later income years.

Franking credit formula

For a company taxed at 30%, the maximum franking credit equals the dividend multiplied by 30/70. For a 25% company, it is the dividend multiplied by 25/75.

Division 7A deemed dividend

A loan, payment, or debt forgiveness by a private company to a shareholder or associate is treated as an unfranked dividend unless minimum yearly repayments are made under a complying loan.

Continuity of ownership test

A company can carry forward losses only if the same owners hold more than 50% of the voting, dividend, and capital rights throughout the ownership period and at the end of the loss year.

Present entitlement

A beneficiary's vested, indefeasible interest in trust income or capital. Presently entitled beneficiaries are taxed on their share; the trustee is taxed where no beneficiary is entitled.

Trust streaming requirements

To stream capital gains or franked dividends, the trust deed must permit it and the trustee must record the streaming decision in writing before the end of the income year.

Family trust election

An election allowing a trust to access loss deductions and franking credit refunds, but distributions outside the family group attract family trust distribution tax at 46.5%.

Partnership flow-through

A partnership files an information return and does not pay tax; each partner includes their share of partnership net income or loss in their own tax return.

Individual residency tests

An individual is an Australian resident if they reside in Australia, meet the 183-day test, or satisfy the Commonwealth superannuation test, subject to treaty tie-breakers.

Withholding tax rates

Non-resident withholding applies at 30% on unfranked dividends, 10% on interest, and 30% on royalties, generally reduced under Australia's double tax agreements.

Taxable Australian property

Includes Australian real property, assets used in a permanent establishment, and shares in land-rich entities. Foreign residents are generally taxed only on this property.

Thin capitalisation safe harbour

Debt deductions may be limited where adjusted average debt exceeds 60% of the entity's average total equity, unless the arm's length or worldwide gearing tests are met.

Controlled foreign company rules

Attributable income of a controlled foreign company may be included in the Australian controller's assessable income unless an active income test or exemption applies.

Division 293 tax

An additional 15% tax applies to concessional contributions of individuals whose income plus contributions exceeds $250,000, bringing the effective rate to 30%.

Concessional contributions cap

The cap is $30,000 for 2024-25. Contributions above the cap are included in the individual's assessable income and taxed at their marginal rate.

Transfer balance cap

The lifetime limit on amounts that can be transferred into retirement phase is $1.9 million for 2024-25. Earnings supporting excess balances are taxed at 15%.

Minimum pension standards

Account-based pensions require minimum annual drawdowns, starting at 4% for those under 65 and rising with age. Failure to draw affects the fund's tax exemption.

CGT discount

Individuals and trusts receive a 50% discount on capital gains for assets held at least 12 months. Complying superannuation funds receive a 33 1/3% discount.

Cost base elements

Five elements: acquisition cost, incidental costs, non-capital ownership costs, capital costs to increase or preserve value, and costs to establish title.

Small business CGT concessions

Available to small business entities meeting the turnover or net asset value tests: 15-year exemption, 50% active asset reduction, retirement exemption, and rollover.

Main residence exemption

A dwelling used as the main residence is generally exempt from CGT, with partial exemption where used to produce income. The six-year absence rule extends the exemption.

GST registration threshold

Registration is required where turnover equals or exceeds $75,000 ($150,000 for non-profit entities). Taxi and ride-sourcing drivers must register regardless of turnover.

Margin scheme

GST on real property can be calculated on the margin (consideration less acquisition cost) rather than the full consideration, subject to eligibility.

GST-free versus input-taxed

GST-free supplies (basic food, health, education, exports) attract no GST and allow input tax credits. Input-taxed supplies (financial supplies, residential rent) attract no GST and no credits.

Tax invoice threshold

A tax invoice is required for input tax credits over $82.50 (GST-inclusive). Recipients must hold a valid tax invoice when lodging the return.

Amendment periods

The ATO may amend assessments within two years for individuals and four years for other entities, subject to exceptions for fraud or evasion and specific provisions.

Objection rights

A taxpayer may object in writing to an assessment or decision within the relevant time limit, setting out the grounds, and may then seek review by the Administrative Review Tribunal.

General interest charge

GIC accrues on late payment of tax and is tax deductible. Shortfall interest charge applies to amended assessments and is also deductible.

Record keeping period

Taxpayers must keep records for five years after the relevant CGT event or the lodgment of the return, whichever is later.

Part IVA dominant purpose

A scheme entered into with the dominant purpose of obtaining a tax benefit may be struck down. The Commissioner considers eight statutory factors, including form and tax effect.

Tax benefit

A tax benefit includes an amount not included in assessable income, a deduction allowed, or a capital loss incurred. The Commissioner may cancel the benefit and impose penalties.

Code of Professional Conduct

Tax agents must comply with the Tax Agent Services Act 2009, acting honestly, with integrity, and maintaining confidentiality. Breaches may lead to sanctions by the Tax Practitioners Board.