Random Flashcards
1
Q
Can the Senate create or amend a tax bill?
A
No. All bills must go through House of Reps. The Australian Senate is able to suggest amendments, but cannot amend bills.
2
Q
What is the order of courts or the appeals process?
A
Appeal to AAT (should go through ATO first)
Federal Court
Full Court
High Court (appeal by special leave)
3
Q
What is ratio decidendi?
A
“Doctrine of precedent”.
Courts are bound by decisions of courts higher in the hierarchy.
4
Q
What is “obiter dictum”?
A
Statements made by a court “in passing”.
These are statements that should be regarded as persuasive, not binding.
5
Q
Who is responsible for collecting Australia tax revenue?
A
Australian Taxation Office (ATO)
6
Q
Do Individual taxpayers self-assess?
A
No. They are “partially self-assessment”. The ATO accepts at face value and then issues the assessment.
Companies and super fund are fully self-assessed.
7
Q
When does the actual legal liability arise to pay income tax?
A
Upon assessment of the tax payer
8
Q
How long can a taxpayer or the ATO self-amend or amend a previous tax assessment?
A
2 years for individuals, SBE’s (< $10m t/o), medium (<$50m t/o) - from the date of the original notice of assessment
4 years - all other larger entities or individuals with high risk / complex tax affairs - from the date of the original notice of assessment
9
Q
How long can objections be raised?
A
Taxpayer can lodge written objection within 2 years or 4 years (complex tax matters) - from the date of notice of assessment.
10
Q
How long can a taxpayer object against an amended assessment?
A
Later of:
- 60 days after notice of amended assessment
- the normal 2 or 4 year limit
11
Q
What is part IVA of ITAA36 (part 4A)?
A
Anti-avoidance schemes.
Must have:
(A) scheme
(B) tax benefit
(C) dominant purpose of enabling taxpayer to obtain a tax benefit
12
Q
What are the four tests for residency?
A
OD1S
Ordinary Concepts / Besides Test
Domicile test
183 day test
Super fund - Commonwealth super test
Taxpayer must answer No to each test to be classed as non-resident
13
Q
Where is the source of income for a business?
A
Place where profits have been made
14
Q
What does the commissioner look for under the Ordinary Concepts test? (PPBTAS)
A
Period (> 6mths in aust)
Purpose
Behaviour
Ties - family or business
Assets in Australia being maintained
Social and living arrangements
Key question for commissioner: does the time spent in Australia reflect continuity, routine or habit?
Is it consistent with a resident of Australia?
15
Q
Where is the source of income for personal services?
A
Where services / duties are performed.
If can be performed anywhere (e.g. remote work), the place where contract is signed.
16
Q
What are the tests for residency of companies?
A
Resident of Australia if:
(A) incorporated in Australia
(B) central management and control in Australia
(C) voting power controlled by shareholders who are residents of Australia
17
Q
What is a Domicile?
A
Permanent place of abode.
Intention to make home indefinitely.
Commissioner generally looks for 2 years or more overseas, without the intention of returning within the 2 years
18
Q
What is the principle of mutuality?
A
Person or taxpayer cannot derive income from themselves, only from external sources
19
Q
Where is the source of interest income?
A
Where the bank account is located
20
Q
Where is the source of dividend income?
A
Place where company makes most of it profit
21
Q
What are the characteristics of a business, rather than a hobby? (RSPCC)
A
Repetition
Size
Profit motive
Commercial nature
Continuous and systematic manner
22
Q
What is Section 21A?
A
Deals with non-cash benefits in connection from a business relationship.
Treated as if convertible into cash.
Value of benefit reduced by otherwise deductible rule
Reduced to the extent the cost is non-deductible entertainment
23
Q
Under Section 21A, is a non-cash benefit under $300 assessable?
A
No. Exempt income
24
Q
Why is exempt income relevant?
A
Used when calculating the amount of loss available to be carried forward.
25
Are salary and wages cash or accruals?
Cash. Derived when received.
Doesn't matter whether past or current services.
26
Business (trading) income - cash or accruals?
Accruals.
27
Revenue received in advance
Accruals.
Payments received upfront can be treated as accruals where:
1. Accounts prepared on accruals basis
2. Possibility of refunds to customers.
If non-refundable, assessable income when received.
28
Income from personal services business - cash or accruals?
Cash (if small)
Accruals (if large)
29
Income from property - including interest, dividends and rent - cash or accruals?
Cash.
Exception is if business is trading as a real estate landlord business, or in the business of money lending.
30
What are the 2 positive limbs for deductions? (Sect 8-1 ITAA97)
Loss or outgoing to the extent that -
(A) incurred in gaining / producing assessable income
(B) necessarily incurred in business with purpose of assessable income
31
What are the 4 negative limbs checked to see if a deduction is not available? (Sect 8-1 ITAA97)
1. Not capital
2. Not private and domestic
3. Not incurred in gaining / producing exempt or NANE income
4. Provision of the act doesn't allow it
32
Is security for a loan (e.g. business loan secured against personal house) relevant in determining deductibility of interest?
No.
Security on the loan is not relevant.
33
Should an initial repair as part of a capital purchase (before earning assessable income) be treated as capital or repair?
Capital. Any repairs at the time of acquisition are specifically capital.
34
What are the 2 tests for deducting tax losses for corporate entities?
COT - Continuity Of Ownership. Same person owns / carried more than 50% of shares / voting / capital rights.
BCT - Business Continuity Test. Same business test, similar business test.
35
How are borrowing expenses deducted? (Sect 25-25 ITAA97)
If relates to the purpose of assessable income, it is deducted over 5 years (or term of the loan if shorter).
Includes establishment fees, legals, valuation fees, stamp duty for loan.
Excludes interest - this is separate.
36
What does entertainment cover under s32-10 of ITAA97?
Food
Drink
Recreational activities
Any related accommodation or travel
37
Meals to staff in an in-house dining facility - deductible or not?
Yes. These are an exception under s32-30 to -50.
Deductible where satisfies 8-1 and not excluded by another provision.
38
Recreation to staff in an in-house facility - deductible or not?
Yes. These are an exception under s32-30 to -50.
Deductible where satisfies 8-1 and not excluded by another provision.
39
Food and entertainment provided in promotion / marketing to the public - deductible or not?
Yes. These are an exception under s32-30 to -50.
Deductible where satisfies 8-1 and not excluded by another provision.
40
Food and entertainment provided to select clients (not public) - deductible or not?
No. Must be provided to the public to get a deduction.
41
How many hours minimum does a seminar have to be to claim a tax deduction for food, drink, accommodation and travel?
Minimum of 4 hours to be tax deductible.
42
What rules apply to prepayments?
Under s8-1 ITAA36 s 82KZME, no immediate deduction, should be apportioned over the period it relates to (called Eligible Service Period - ESP).
Exceptions are deductible expenses that are:
- Less than $1,000
- Salaries & wages
- Amounts paid under court action, or federal / state / territory government legislation.
Deduction may be denied if made under a tax shelter arrangement.
(Note: SBE's and individuals with non-business income may be entitled to various concessions).
43
What is the ESP for the general prepayment rule?
ESP = Eligible Service Period.
Number of tax years over which service is provided.
If ESP is greater than 10 years, is taken as maximum of 10 years.
44
What rules apply to prepayments for SBE's and individuals with non-business expenditure?
Since July 2020, where entity satisfies $50 mil aggregated turnover test, can claim immediate deduction where:
- Payment ESP does not exceed 12 months
- 12-month period ends no later than the last day of the tax year.
45
What is the non-commercial losses division of the legislation?
Division 35 - ITAA1997
46
What steps are required to review if Non-Commercial Losses can be applied against other income?
Is business in primary production or professional arts, and all other income is under $40k? -> Losses can be offset.
If not, test for adjustable taxable income (which includes all taxable income, investment losses, reportable fringe benefits, reportable super contributions, net investment losses).
(a) If greater than $250k, then cannot deduct non-commercial losses, only able to deduct at commissioners discretion.
(b) If less than $250k, one of the following business tests must be met for deductibility:
- Assessable income (either actual or reasonable estimate) of at least $20k annualised
- Profits test - profit 3 out of past 5 years (including current year)
- Real property (excl main residence) used in the business is at least $500k
- Other assets (excl real property + vehicles) is at least $100k.
47
For non-commercial loss purposes, what does adjustable taxable income include?
Taxable income
Investment / business loss added back
Reportable fringe benefits
Reportable superannuation contributions
48
Where persons adjusted tax income is less than $250k (and not primary or professional arts), what is the 4 tests to see if non-commercial losses can be deducted from other income?
Must meet 1 of:
- Business income at least $20k (on annual basis)
- Profits 3 of last 5 years
- Real property in business at least $500k
- Other business assets at least $100k (excl vehicles + property)
49
What is thin capitalisation?
Where Australian multi-national is predominantly financed by loans (usually 150% debt to equity).
If applicable, cap on debt deduction.
8 categories of entities are used (Authorised Deposit Taking Institution v Non-ADI).
50
Which expenses are generally not subject to substantiation rules?
Total expenses less than $300
Individual expenses less than $10 (aggregate must not exceed $200 in total)
Laundry expenses of $150 or less
Work expenses plus laundry are less than $300
51
What should a logbook cover for business travel?
Kept over 12 week period (representing normal business travel)
Record must state:
- Purpose of the journey, work or private
- Odometer start and finish
- Total distance travelled
Can be used for 5 years.
52
When does an employee need to keep a travel diary?
Where does not receive a travel allowance and 6 or more consecutive days away from home
Where receives a domestic travel allowance, if deductions are under what Commissioner finds reasonable, then no substantiation required
Where international travel allowance, employee must keep travel diary and accommodation records
53
If expenses are $10 or less, and less than $200 in total, do receipts need to be kept?
No, however taxpayer must maintain record in notebook or diary, including:
- Name of supplier
- Amount
- Date
- Goods or services purchased
54
What is the reasonable rate for home office ? (2023-24)
2023/24 67c per hour
Covers internet, phone, electricity, gas, stationery and computer consumables.
55
What is the retention period for expense substantiation?
Five years. Extended if expense is in dispute.
56
What division is capital allowances in the legislation?
Capital Allowances - Division 40 ITAA97
57
What is the maximum capital allowance that can be claimed on cars? (2023/24 and 2024/25)
2023/24 $68,108
2024/25 $69,674
Covers motor vehicles (excl motor cycle) designed to carry a load less than 1 tonne and less than 9 passengers
58
True or false - can you claim a depreciation deduction for second-hand assets used in residential rental properties?
False.
Any second-hand assets previously used by another entity (including private purposes) cannot be claimed.
Applies to property purchased after 9 May 2017.
59
Non-SBE entities - what 5 categories of deductions for capital allowances can be claimed?
1. Non-business asset less than $300
2. Software development pool
3. Low-value pool
4. General diminishing value or prime cost
5. Blackhole or project pool deductions
60
Non-business depreciable assets less than $300 workings
100% deduction. Non-business items.
Cannot be part of a set of more than $300.
Cannot acquire one or more assets identical or substantially the same in the same year, where more that $300 in aggregate.
61
Low-value asset pool workings
For low-cost asset (less than $1000 ex GST) or low-value asset (carrying value / adjustable value is less than $1000 ex GST).
Closing value from prior year and new low-value assets - 37.5% diminishing value.
New low-cost assets or additions of low-cost assets for current year - 18.75% diminishing value. Doesn't matter number of days, 18.75% applies.
Once one low-cost asset is added, must use this for all assets in future.
62
Can non in-house software be allocated to the software development pool?
No.
Off-the-shelf software that is capital is written off over 5 years (prime cost).
63
What is the software development pool?
For non SBE entities, pool contains in-house developed software.
Optional to use, however once created, must use for all future expenditure.
If not used, written off over 5 years (prime cost).
Separate pool is kept for separate projects.
Depreciation rate - prime cost - 1st year nil, 2nd / 3rd / 4th year 30%, 5th year 10%.
64
What depreciation rates apply to the software development pool?
Prime cost.
Year 1 - nil (i.e. year new expenditure incurred)
Year 2 - 30%
Year 3 - 30%
Year 4 - 30%
Year 5 - 10%
65
What is the diminishing value formula for capital allowances?
Asset purchases prior to May 2006 -
Base value x (days held / 365) x (150% / effective life)
After May 2006 -
Base value x (days held / 365) x (200% / effective life)
66
Can land or certain intangible assets be depreciated?
No.
67
What is the prime cost formula for capital allowances?
Asset cost x (days held / 365) x (100% / effective life)
68
What are the 2 elements of cost of depreciating assets?
Excludes any GST input tax credits.
First element - amount paid (or market value if no amount paid)
Second element - cost to bring asset to present condition after taxpayer starts to hold asset.
69
How is a balancing adjustment handled in a low-value pool?
Low-value pool total is reduced by the proceeds received.
If proceeds are more than total, then excess amount is treated as assessable income.
Special rollover relief may be granted where lost or destroyed, or compulsory acquisition.
70
What expenses are covered by Project Pool Expenditure provisions (non SBE) of capital allowances?
Project expenditure that is not part of the cost of a depreciating asset, not deductible under another provision.
Can include:
(a) site prep
(b) feasibility studies
(c) environmental assessments
(d) intellectual property acquisition rights
(e) upgrading community infrastructure.
Project must have a finite life.
71
Are Project Pool Expenditure deductions available for projects with an indefinite life?
No.
Only projects with a limited life can be applied to the project pool.
72
What depreciation rates are available for project pool expenditure? (non-SBE)
Diminishing value.
Expenses prior to 10 May 2006
Pool value x (150% / project pool life)
Expenses after 10 May 2006
Pool value x (200% / project pool life)
73
What is blackhole expenditure? (non-SBE)
Deduction on business-related costs that previously fell into a "blackhole"- i.e. no deducted anywhere under ITAA36 or ITAA97.
Deducted equally over 5 years (20%).
Examples include cost for establishment or winding up of a business, establishing or altering the business structure.
From July 2020 - if aggregate turnover of less that $50mil can claim 100% immediate deduction of costs to establish a new business structure (taxes, govt charges, professional fees).
74
What is the definition of an SBE for Capital Allowance purposes?
1. Carries on a business (not a hobby)
2. Aggregated turnover less than $10 mil.
75
What does being classified as an SBE mean for the taxpayer?
Can use simplified method for capital allowance deductions.
Can claim an immediate 100% deduction for assets less than $20k (instant asset write off)
Assets $20k or more - put in a SBE asset pool.
15% first year, 30% thereafter. Diminishing value.
Once balance of SBE pool is below $20k, can fully write off in subsequent tax year.
76
What are the depreciation rates for the SBE asset pool?
Diminishing value.
15% of any first year assets (regardless of date)
30% for the previous year balance.
77
How is blackhole / start-up expenditure for SBE's treated?
Can claim specific deductions from pre-business after immediately starting up SBE.
Must relate to proposed business e.g. accounting or legal fees.
If under $50m aggregate turnover, can claim 100% immediate deduction.
78
Which division covers Capital Works?
Division 43 or ITAA97.
79
What general expenditure is covered by Capital Works?
Capital works - buildings, structural improvement, alterations and improvements.
Construction expenditure - including architect or engineering fees, permits.
Structural improvements - e.g. sealed roads, driveways, bridges, fences.
80
How do you determine the Capital Works rate?
Check the date that the construction commenced (basically when foundations first poured).
Look at rates table - determine appropriate category (e.g. non-residential property).
Rate will be either 2.5% or 4% (prime cost / straight-line).
Deduction available date after first used for income-producing purposes.
81
How do Capital Works deductions (Div 43) impact CGT?
Cost base is reduced by the amount of Capital Works deductions claimed.
82
What division covers Trading Stock?
Division 70 of ITAA97
83
Can Trading Stock include items that are not in the physical possession of the taxpayer?
Yes, if the taxpayer has the legal power to dispose of the stock.
Check the shipment terms to determine what control.
84
Options for valuing Trading Stock?
1. Cost. Include direct + indirect (all costs incurred in bringing it to where it is on hand). Cannot use LIFO.
2. Replacement value. Must be a normal buying market on last day of year.
3. Market selling value. Current selling value in taxpayers own selling market.
85
How do you treat assets that become trading stock? (e.g. second hand car dealer has a previous company vehicle that is now trading stock).
At the time of the transfer to stock, use arm's length value.
86
Can obsolete stock be valued at the obsolete value?
Yes.
Where stock falls below cost, mkt selling or replacement value, can value at obsolete value if it is considered reasonable.
87
Which value at the end of the tax year do you use if you wish to maximise the deduction to the taxpayer?
Use the trading stock option with the lowest value at year end
88
If trading stock is donated or disposed not in the ordinary course of business (and not personal use by owner), how is it treated?
Include in assessable income at the market value of the stock at date of disposal
89
If trading stock is taken for personal use by the owner, how is this treated?
Include in assessable income at cost.
90
What trading stock concessions are available for SBE entities?
Where the difference between opening stock and closing stock is less than $5,000, can ignore any change.
91
What income are residents taxed on?
Under 6-5 ITAA97, taxed on worldwide ordinary + statutory income.
92
What are non-residents taxed on?
Income derived from an Australian source, or taxable Australian property.
50% CGT discount and main residence exemption doesn't apply.
Don't have to pay Medicare levy or surcharge.
Don't get tax-free threshold or offsets.
93
Can non-residents claim the main residence exemption?
No.
If sold by a non-resident at the time of being a non-resident, not even eligible for a partial exemption.
Exception is certain "live events" - e.g. terminal medical condition , divorce.
94
Can a non-resident claim any CGT discount?
No, for assets acquired after 8 May 2012.
95
What is taxable Australian real property? (S855-20 ITAA97)
Real property situated in Australia
Mining or prospecting right
Lease of land in Australia
96
What rates of PAYG withholding are applicable for Foreign resident DIR (dividends, interest and royalties)?
Dividends - 30% on unranked (franked component is nil)
Interest - 10%
Royalties - 30%
Check any DTA in all circumstances.
97
When does PAYG Withholding apply on capital gains for foreign residents?
12.5% rate applies after July 2017, when:
(A) taxable Australian property with a market value of $750k or more
(B) indirect real Australian property interest
(C) option or right to acquire such property
98
What is the 6 step process for calculating CGT?
1. Determine CGT Event
2. Identify CGT Asset
3. Gain / (Loss)
4. Exemptions
5. Apply roll-overs
6. Net capital gains/ (loss)
99
What date did CGT take effect?
20 September 1985
100
What is capital gains event A1?
A1 is Disposal of an asset - e.g. a sale.
Date is when disposal contract entered into.
If no contract, when ownership transfers.
101
What is CGT Event C1?
Loss or destruction.
Event is when proceeds are received (e.g. insurance).
If no proceeds, when loss is discovered
102
Is CGT ordinary income or statutory income?
Statutory income
(s102-5 ITAA97)
103
How is a CGT net gain / loss calculated?
Capital Gains
Less capital losses
Less CGT discount
Less SBE roll-over
= Net Capital Gain
104
If the disposal of an asset is within the ordinary course of business, will this be subject to CGT?
No. This will be ordinary income under s.6-5
105
What is CGT event H1?
Forfeiture of a deposit.
Date the deposit is forefeited.
Only applies where sale does not continue - if it continues, instead of H1 use A1 and include in the proceeds when sold.
106
What is CGT event F1?
Granting, renewing or extending a lease
107
What is CGT event K6?
Sale of pre-CGT shares or trust interest (at least 75% of the assets)
108
What can collectables for CGT include? (s. 108-10)
(a) Artwork, jewellery, antique, coin or medallion
(b) Rare folio or book
(c) Postage stamp
Primarily kept for personal use or enjoyment.
109
What is the relevance of reduced cost base for CGT?
Capital gain is determined in reference to total cost base.
Capital losses however - are determined using the reduced cost base.
Reduced cost base - excludes costs of ownership
110
What are the 5 elements of cost base for CGT?
1. Money paid or required to be paid / market value of the property
2. Incidental costs - no tax deduction allowed (e.g. stamp duty, valuation, conveyancing fees)
3. Costs of owning CGT asset where no tax deduction allowed (e.g. interest, maintaining / insuring, rates)
4. Capital expenditure to increase / preserve asset value or relates to installing the asset
5. Capital expenditure incurred relating to title or right to the asset (e.g. compensation payment).
111
To what assets can CGT indexation be applied?
Any assets acquired prior to 21 September 1999 and owned more than 12 months
112
CGT cost base for assets acquired after 13 May 1997 need to what?
Be reduced by the asset cost component that has already been deducted (e.g. capital works deduction)
113
For CGT, what is the **market value substitution rule**?
Replaces the cost base with the market value at time of acquisition, instead of the actual price paid.
Applies to the 1st Element of Cost Base where:
(a) Gifted or no expenditure incurred by the taxpayer
(b) Expenditure is unable to be valued
(c) Not an arms-length transaction
Doesn't apply when acquisition of asset resulted from another entity doing something that was not a CGT event and proceeds was NOT more than market value
114
Is CGT indexation included in the reduced cost base?
No. The reduced cost base excludes the impact of indexation.
115
What is CGT Event I1?
When taxpayer ceases to be a resident, CGT will apply to all Australian taxable non-property.
In effect, an "exit tax" for assets leaving the Australian jurisdiction.
116
What is CGT Event C2?
Cancellation, surrender or similar endings
Only applies to intangible assets.
Examples include contractual rights, options, leases.
Redeemed, cancelled, released, discharge, abandoned, option exercised
117
What is CGT event D1?
Creation of a legal or equitable right (e.g. agreeing to a restrictive covenant or non-compete clause).
When the contract is entered into.
118
When are CGT gains / losses on collectables and personal use assets disregarded?
**Collectables**: When first element of cost (acquisition price) is **$500 or less.**
**Personal use:** when first element of cost (acquisition price) is **$10,000 or less.**
CGT loss cannot be made on personal use assets, these are disregarded.
119
True or false: capital losses on collectables can be applied against any form of capital gains.
False.
Capital losses on collectables can only be used on other collectables.
120
What is involved or modifications are considered with the proceeds for CGT?
(RAM-MAN)
Cost base is usually amount paid, with consideration of:
R - Repaid rule
A- Assumption of liability rule
M - Misappropriation rule
M - Market Value Substitution
A - Apportionment
N - Non-receipt rule
121
When does the market value substitution rule apply for CGT proceeds?
Used when:
- No proceeds are received (gifts)
- Proceeds cannot be valued
- Was not on arms-length basis
- C2 event and actual proceeds differ from market
122
What is the non-receipt rule for CGT proceeds?
Reduced by any amount not received (reasonable steps must be taken)
123
What is the repaid rule for CGT proceeds?
Reduced by any non-deductible amount a taxpayer has to repay (e.g. sued post-settlement).
124
What is the definition of dwelling for main residence purposes?
Unit of residential accommodation.
Includes building, caravan, houseboat or mobile home.
Includes land under unit of accommodation.
125
Can adjacent land be claimed in the main residence exemption from CGT?
Yes, if:
- private and domestic use
- total land is under 2 hectares
126
How long can a taxpayer be absent from dwelling, earn assessable income and still claim the main residence exemption?
Maximum of 6 years per absence.
Indefinite period if not used in producing assessable income.
127
Taxpayer lives in their main residence for several years, moves out on X date, then earns assessable income. What happens for CGT cost base purposes?
If stops claiming the main residence exemption, the cost base (element 1) is deemed to be the market value at X date ... the date that the property started earning assessable income.
128
Are Foreign Residents entitled to the Main Residence exemption for CGT?
No. Any time as a non-resident means that the Main Residence Exemption (full or partial) cannot apply.
Exceptions for "certain life events" - non-resident for less than 6 years and they / spouse had a terminal medical condition.
129
Does homesickness count as a "significant life event" for Foreign Residents / Main Residence exemption purposes?
No.
Only terminal medical conditions and other specified conditions (and must be non-resident for less than 6 years).
130
When will the CGT exemption on granny flats arise?
Since 1 July 2021, where:
1. Formal written agreement with family / other person tie (commercial rental will not be covered).
2. Agreement includes creation, termination or variation of granny flat arrangement.
3. Must be for an older person or person with a disability.
131
You sub-divide and sell part of the block of land. This is sold separately from the main block.
Can you get the main residence exemption on the sub-divided sale?
No.
Sub-divided land MUST be sold together with the main residence. It cannot be a separate sale.
132
What rollover provisions are available for CGT?
1. Transferring Assets to a Company
2. Replacement Asset Rollover
3. Small Business Restructure
4. Demerger Relief
5. Same Asset Rollover
133
What key points are required to apply the CGT rollover relating to transfer of assets to a company?
- Change in entity owning the assets (no longer individuals, trustees or partners)
- Same beneficial ownership of assets
- Must be a wholly owned company
- Consideration in the form of non-redeemable shares
- Shares must be same market value of the assets
134
What key points are required to apply the CGT rollover relating Replacement Assets?
New asset is required following existing asset ended. CGT disregarded and cost base and date of new asset is replaced with old asset.
Can apply where:
- Involuntary disposal - compulsory acquisition, whole or partial loss
- Scrip for scrip exchange, when 80% of voting rights retained.
- Trust restructure- transferring to a company
135
What key points for the CGT rollover for Small Business Restructure?
- Transfer of assets to one or money entities
- Meet SBE aggregated turnover of less than $10million
- Transfer is after July 2016.
- Genuine restructure, not contrived.
- No change to ultimate economic ownership (all owners same)
136
What circumstances can the Same Asset CGT rollover apply to?
126-A
137
Capital Gains upon death are generally disregarded (s128-10).
What are the exceptions?
Where CGT asset passes to:
1. Beneficiary is a Tax exempt entity
2. Trustee of Complying Superannuation Fund
3. Foreign resident and asset is not taxable Australian property
138
Capital Gains upon death are generally disregarded (s128-10).
What are the exceptions however?
CGT asset is passed to:
- Beneficiary who is Tax Exempt
- Trustee of a complying super fund
- Foreign resident and relates to Australia
139
How to calculate net capital gains?
Capital Gains
Less capital losses
Less CGT discount
Less CGT small business concessions
140
For companies, what has to be satisfied to offset prior year capital gains?
COT - Continuity of ownership test
OR
BCT - business continuity test
141
If asset purchased before Sept 1985, owner passes away and transfers ownership to beneficiary, what is the cost base and acquisition date?
Element 1 is market value at the date of death.
Acquisition date for CGT is the date of death.
142
If asset purchased after Sept 1985, owner passes away and transfers ownership to beneficiary, what is the cost base and acquisition date?
If previously main residence - cost base is the market value at the time of death. Acquisition date is the date of death.
If not previously main residence, cost base is the existing cost base of the original owner. Acquisition date is date of death.
143
True or false -
CGT discounts are calculated / applied before capital losses are applied?
False.
You must apply all capital losses BEFORE any CGT discount is calculated.
144
Taxpayer has capital losses carried forward from prior year, and a capital loss from this year.
Does it matter which order these are applied?
Yes.
Prior years applied first, current year is applied last.
If multiple Prior years, must apply in order made (FIFO).
145
True or false -
A company is able to apply a 50% CGT discount to any capital gains
False.
CGT discounts are only available for:
- individuals, trusts (50%)
- Complying Superannuation funds and life insurance companies (33.33%)
146
What is the 12 month rule for discounting CGT events?
Taxpayer must have held asset for at least 12 months before the CGT Event.
Period excludes date of acquisitions and day of event.
Period of 365 days must elapse.
147
True or false -
CGT discounts apply to all events.
False.
Certain events are not eligible for the CGT discount:
D1
D2
D3
E9
F1 Leases
F2
F5
J2
J5
J6
J10
148
For a SBE to be eligible for CGT concessions, what basic conditions must be met before the tests are considered?
- CGT event happens in income year (does not apply to D1)
- CGT asset satisfies the active asset test
- One of the following are met:
1. CGT small business entity (aggravated turnover < $2 million)
2. Meet maximum net asset value test
3. Partner in a partnership that is CGT entity
149
What turnover must be met to be a SBE for CGT concessions purposes?
Aggravated turnover less than $2 million.
150
What is the maximum net asset value test for CGT SBE purposes?
Entity, including related entities / affiliates, have net assets of no more than $6 million (excluding personal use asset).
151
What is the Active Asset test for CGT SBE purposes?
Taxpayer must have had the CGT asset for either:
- If 15 years or less ownership, then active for half the period
- If over 15 years ownership, then active for at least 7.5 years
Period = time after acquiring the CGT asset.
Active Asset = taxpayer owns it and use it or hold ready for use in their business or is an intangible asset connected to the business
152
What is the CGT non-concessional cap?
Allow individuals to make non-concessional super contributions, up to the lifetime cap ($1.705m in 2023-24).
Applies to gains associated with CGT SBE concessions (retirement and 15-year exemption).
153
What are the 4 types of CGT Small Business Concessions?
15-year exemption
50% reduction
Retirement exemption
Rollover
154
What is the 15-year exemption regarding CGT Small Business Concessions?
Business continuously owned active asset for 15 years.
Tax payer is aged 55 and retiring, or permanently incapacitated.
= No assessable capital gain.
155
What is the CGT Small Business Concession 50 percent reduction?
Reduction of capital gain on active asset by 50%.
(CGT normal discount applies in addition).
156
What is the CGT Small Business Concession Retirement Exemption?
CGT exempt up to a lifetime limit of $500k.
If taxpayer is under 55, must be paid into complying super fund or retirement savings account.
157
What is the CGT Small Business Concession Rollover?
Taxpayer makes election to rollover.
Amount must be rolled over to new asset or capital upgrades within 2 years.
158
What happens if the taxpayer uses the CGT Small Business Concession Rollover and new asset or existing upgrade to active asset is not completed by the end of the 2 years?
Rollover will reverse.
Taxpayer will be subject to CGT liability.
