Australia Taxation – Advanced key terms

A rule treating certain payments, loans or debt forgiveness by a private company to a shareholder or associate as an unfranked dividend, unless the amount is repaid, put under complying Division 7A loan terms, or otherwise excluded.

A written loan arrangement complying with Division 7A minimum terms: maximum 25-year (or 7-year) term, minimum interest rate, and minimum annual principal and interest repayments made by the lodgment due date.

An attachment to a dividend representing company tax already paid, which resident shareholders can use to offset their own tax and, where excess credits remain, receive as a refund.

A running record of a corporate tax entity's franking credits and debits, used to determine the maximum franking credit that can be attached to distributions made to members.

A rule limiting franking credits on a distribution to the extent the entity's franking account would be in deficit if the distribution were franked at the benchmark percentage, currently 100 per cent.

A liability imposed on a corporate tax entity whose franking account is in deficit at year end, offsetting the excess imputation benefits it has passed to shareholders.

A company whose aggregated turnover is below the prescribed threshold and whose assessable income includes no more than a set percentage of passive income, eligible for the lower corporate tax rate.

The sum of an entity's own annual turnover and the turnover of connected entities and affiliates, used to test eligibility for small business concessions and the lower company tax rate.

A taxpayer carrying on a business with aggregated turnover below the prescribed threshold, granting access to a range of simplified tax concessions such as simplified depreciation and trading stock rules.

A concession allowing eligible small business entities to immediately deduct the cost of depreciating assets below a specified threshold, rather than depreciating them over their effective lives.

The estimated period an asset can be used for income-producing purposes, determined by the taxpayer or the Commissioner, which sets the rate of decline in value for depreciation deductions.

The net income of a trust estate calculated under trust law for distribution purposes, which is distinct from the net income calculated under tax law and is central to trust taxation.

A beneficiary's vested and indefeasible right to demand payment of trust income, which determines whether income is taxed in the beneficiary's hands rather than the trustee's.

A statutory rule treating a beneficiary as presently entitled to a share of trust income where the beneficiary is under a legal disability, or where the trustee resolves to pay or apply income for them.

Schedule 2F tests, including the 50 per cent stake test and pattern of distributions test, that a trust must satisfy before deducting prior year losses.

A test requiring that the same owners hold the same proportionate interests in a company or trust throughout the relevant period before prior year losses may be deducted.

An alternative to the continuity of ownership test, allowing losses to be deducted where the entity carries on the same business and does not derive income from a new business or transactions of a different kind.

The assessable income of a partnership less allowable deductions, calculated at partnership level and distributed to partners, each of whom includes their share in their own assessable income.

A shortfall of partnership deductions over income, which partners may deduct individually only if the partnership satisfies the relevant tests, or if the partner is a non-resident.

A company is an Australian resident if incorporated in Australia, or if not incorporated here, it carries on business in Australia and has central management and control here or Australian-resident shareholders controlling its voting power.

The place where the high-level decisions directing the company's affairs are made, used to test corporate residency for companies not incorporated in Australia.

A fixed place of business through which a non-resident carries on business in Australia, or a dependent agent concluding contracts, which allows Australia to tax the non-resident's business profits under a treaty.

A bilateral treaty allocating taxing rights between Australia and another country, generally overriding domestic law where inconsistent, and providing tie-breaker and relief-from-double-taxation rules.

A credit for foreign income tax paid on foreign-sourced income included in Australian assessable income, limited to the Australian tax payable on that income.

A foreign company in which Australian residents hold a controlling interest, whose attributable income may be included in the assessable income of those residents under the CFC rules.

Tax withheld at source on certain payments to non-residents, such as dividends, interest and royalties, at rates set by domestic law and reduced under applicable double tax agreements.

The pricing of transactions between related parties across borders, which must reflect arm's length dealings under Australia's transfer pricing rules, with adjustments where it does not.

The international standard requiring related-party transactions to be priced as if the parties were independent, used to determine the correct taxable profits of each party.

An annual limit on concessional or non-concessional contributions to a superannuation fund, with excess concessional contributions taxed to the member and excess non-concessional contributions subject to additional tax.

A contribution to superannuation that is taxed in the fund at the concessional rate rather than in the member's hands, including employer contributions and personal deductible contributions.

An additional tax on concessional superannuation contributions for higher-income individuals, effectively reducing the tax concession on those contributions.

The minimum age at which a person may access preserved superannuation benefits, set by reference to date of birth and subject to a condition of release.

A specified event, such as retirement, reaching age 65, or permanent incapacity, that must be satisfied before preserved superannuation benefits can be accessed.

The excess of the capital proceeds from a CGT event over the cost base of the CGT asset, included in assessable income after any applicable discount or concession.

The amount used to measure a capital gain or loss, comprising acquisition costs, incidental costs, ownership costs, capital expenditure and certain other amounts, adjusted where required.

A 50 per cent discount for individuals and trusts, and 33⅓ per cent for complying superannuation entities, applied to a capital gain on an asset held for at least 12 months.

Four concessions available to eligible small business taxpayers on disposal of active assets, including the 15-year exemption, retirement exemption, 50 per cent active asset reduction and roll-over.

A CGT asset used, or held ready for use, in the course of carrying on a business, or an intangible asset inherently connected with such a business, relevant to small business concessions.

A supply that is not subject to GST, such as certain food, health and education supplies, for which the supplier may still claim input tax credits.

A supply that is not subject to GST and for which the supplier generally cannot claim input tax credits, such as certain financial supplies and residential rent.

A credit for the GST included in the price of acquisitions made for a creditable purpose, offset against GST payable on supplies made by the entity.

A supply made for consideration in the course of an enterprise, connected with the indirect tax zone, where the supplier is registered or required to be registered for GST.

A GST method for calculating GST on the supply of real property or certain other goods by reference to the margin between consideration and the original acquisition cost, rather than the full price.

A formal challenge to an assessment or decision by the Commissioner, lodged within the prescribed period and setting out the grounds on which the taxpayer disputes the decision.

An application to the Administrative Review Tribunal for independent merits review of an objection decision, following the internal objection process.

The general anti-avoidance provision allowing the Commissioner to cancel a tax benefit obtained from a scheme carried out for the dominant purpose of obtaining a tax benefit.

The ruling, prevailing reason for entering into or carrying out a scheme, assessed objectively from the surrounding circumstances, which determines whether Part IVA applies.

An amount not included in assessable income, or a deduction or capital loss not allowable, that would have arisen but for the scheme, forming the basis for a Part IVA determination.

A statement of the community's expectations of taxpayers and of the Tax Office's service and accountability standards, relevant to compliance and dispute resolution conduct.

The Commissioner's discretionary power to reduce or remit administrative penalties where the taxpayer has a reasonable excuse or has taken steps to comply, relevant to compliance strategy.

A broad statutory provision, of which Part IVA is the Australian example, that strikes down arrangements whose dominant purpose is to obtain a tax benefit, regardless of their legal form.