8. Companies Flashcards
What are franked dividends?
have a tax offset attached for the underlying tax paid by the company
What are unfranked dividends?
dividends from a company that have no attaching tax offset
If a company becomes public on the last day of the financial year how will it be treated (public/private)
It will be treated as public for the whole year.
This may be relevant when applying deemed dividend provisions (division 7A)
Does the commissioner have powers to treat public/private companies differently?
Yes, under s. 103A (5 & 6) ITAA 1936
If a subsidiary owned by a public parent company is wholly owned will it be public?
Yes, it will be public for tax purposes
For taxation purposes, what is the definition of a company?
under s. 995-1 (1) a company is
a body corporate
or, any other unincorporated association or body of persons, but does not include partnerships.
How does a franking tax offset relate to a company?
A company might be entitled to the offset.
They can not be refunded, but can be converted into tax losses
How does a Foreign Income Tax Offset relate to a company?
a company may be entitled to a FITO
Like other taxpayers, excess FITO cannot be refunded or converted into tax losses (use it or lose it)
What is a SBE?
An entity with an aggravated turnover of less than 10 million
What is a base rate entity in company tax?
no more than 80% of its assessable income is ‘base rate entity passive income’ (BREPI)
its aggregated turnover is less than $50 mil
What is base rate entity passive income in company tax?
it is any assessable income which is Dividends and franking credits Interest Royalties Rent Net capital gains A partnership or trust distribution of BREPI
When do franking credits usually arise?
When a resident company makes a payment of Aus income tax or receives a franked dividend
When do franking debits usually arise?
When a resident company pays a franked dividend or receives an Aus income tax refund
How does a franking account operate for a company?
On a tax-paid basis, If a company pays income tax of $30 it will generate $30 credit in the franking account
What are the three major restrictions on the allocation of franking credits to distributions?
The maximum franking credit rule Division 202-55
The benchmark rule Division 203
The anti-streaming provisions in Division 204
Does a company have to have profits to pay dividends?
Under the Corporations Act it doesn’t but the ATO believes there should be but it is no longer illegal
How is the corporate tax rate for imputation purposes worked out?
in s. 995-1
- worked out on the assumption that its ‘aggregated turnover’, ‘assessable income’ and ‘base rate entity passive income’ are the same as the previous year.
- if the company did not exist in the prior, 27.5% is used
How is the Maximum Franking Credit Rule calculated? (to work out the total the shareholder can claim in their assessable income)
amount of frankable distribution x (corporate tax rate for imputation purposes/100%-corporate tax rate for imputation purposes)
How are franked dividends treated in an individuals shareholders tax return?
basically the same for partnerships, trusts and superannuation funds.
include the dividend and the franked amount
= taxable income
x tax rate
less franked amount (offset)
= tax payable/refundable
Called the ‘gross up and offset’ approach
How are franked dividends treated in a shareholders tax return that is a company?
same as other entities, but they hold a franking account and they can not convert it into a tax refund
Rules on the order of applying tax offsets
Apply the non-refundable tax offsets before the offsets that can be refundable
What are tainted share capital accounts?
if a company distributes an amount from its share capital account to its shareholders the payment is treated under CGT rules, not as a dividend
What is Trans-Tasman imputation?
it allows a NZ resident company to choose to enter the Australian dividend imputation system and maintain a franking account
What tests does a company have to satisfy to utilise a prior-year loss on a current year’s income?
The ‘continuity of ownership’ test
The ‘business continuity’ test (similar business test)
