Unit 7 Tax Planning 2 - 1/11/2012 Learning Outcomes Unit 7...

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1/11/2012 1 Unit 7 Tax Planning 2 1 Learning Outcomes • Compare individual income taxation to the taxation of company, partnership, trust and superannuation fund. • Explain the taxation of – Financial securities (shares, fixed interest) – Salary packaging. • Explain the tax administration system in Australia • Analyse essential tax planning situations. 2 Company Income Tax • Companies are taxed in a similar manner as individuals except – Company income tax is flat at 30% since July 2001 • it was 36% between 1995 and June 2000 • it was 34% in the 2000–01 financial year – Capital gains are fully assessable regardless of holding period • The company tax rate sets the rebate level for franked dividends. 3 Income Tax and Partnerships • Partnership does not pay tax but need to file tax returns. • Equal partnership is implied in jointly owned assets such as real estate and shares. • Individual partner pay tax as is the share of partnership income and losses are personal. • This is the only structure that the law permits distribution of losses. 4 A trust is created by the execution of a trust deed. The arrangement involves: the settler who creates the trust by signing the trust deed and providing the original assets of the trust. Income Tax and Trust the trustee who is responsible for administering the trust under the deed and subject to the law; and the beneficiaries who are to receive income and capital payments from a trust. • Managed funds are fixed/unit trusts . – Beneficiary receive pro rata distribution from the trust. • In a discretionary trust , the trustee has the right to decide which beneficiaries are to receive payments from the trust.
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1/11/2012 2 • Trusts must lodge a tax return. • Trusts do not pay income tax on income distributed. If the trust incurs a loss it cannot be • If the trust incurs a loss, it cannot be distributed. It can only be deducted from income made by the trust in later years. 7 • Superannuation funds are trusts but the legislation provides for special tax treatment. • Contributions are deductible but attract tax upfront Superannuation Funds • Superannuation funds – Do not distribute its income or capital unless one of the conditions of release are satisfied. – Pays 15% tax on its income – 10% tax on long term capital gains 8 Comparison across Entities TaxEntity Taxed Tax rate CGT discount Split Income Personal Yes Progressive 50% disc No Super. Yes 15% 33.3% disc No 9 Trust No if distributed 45% if applicable N/A Yes Company Yes 30% No Yes Partnership No N/A N/A Yes Income Tax of Asset Classes • Cash and Fixed interest – Accrued income is taxed • Property • Australian shares
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This note was uploaded on 01/25/2012 for the course FINS 5510 taught by Professor Kingsleyfong during the Three '11 term at University of New South Wales.

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Unit 7 Tax Planning 2 - 1/11/2012 Learning Outcomes Unit 7...

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