BFA714 Topic 7 Companies 117

BFA714 Topic 7 Companies 117 - TASMANIAN SCHOOL OF BUSINESS...

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TASMANIAN SCHOOL OF BUSINESS AND ECONOMICS Topic 7: Companies Australian Tax Law BFA714
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What is a company? The definition of a ‘ company ’ is broader under tax law compared to corporations law (which focuses on incorporation): Tax law definition: s 6(1) ITAA36 : includes all bodies or associations corporate or unincorporated, but does not include partnerships. BFA714_14 2
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Separate Legal Entity A company is a separate legal entity (from its shareholders, directors, employees and creditors) A company works out its own taxable income and pays its own income tax. BFA714_14 3
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Classification of companies Private company defined in s 103A(1) ITAA36 as: A company that is not a public company Public company defined in s 103A(2) ITAA36 as: A company that is listed on a stock exchange or is a subsidiary (i.e. greater than 50% of its shares) of a company listed on a stock exchange, Included in definition of “ Widely Held Company” A company with > 50 members unless 20 people or less were: able to acquire 75% or more of the paid-up capital capable of exercising 75% or more of the voting power paid 75% or more of the total dividends during the income year (s 103A(2) ITAA36) BFA714_14 4
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Why is it important? Division 165 & 166 ITAA97 provides less strict rules for public companies to carry forward losses than private companies Division 7A ITAA36 which treats certain loans (including debts forgiven) and payments made by private companies to associated persons as dividends. Section 109 ITAA36 which treats excessive payments (remuneration) made by private companies to associated entities such as directors, shareholders or associates as dividends. BFA714_14 5
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