Income Tax Basics 2008 Day 2

Transcription

1 Introduction What is the aim and structure of this seminar? The self-assessment system Complexity of returns has increased Introduction to completing the business return Accounting records vs. tax records Accounting software packages Types of business returns Sole trader Partnership Company Trusts Lodgment of income tax returns Company income tax returns Partnership income tax returns Trust income tax returns Completing the returns from the accounts Small business entities When is a taxpayer a small business entity? Passing the $2 million aggregated turnover test Calculating aggregated turnover The small business tax concessions Summary of the small business tax concessions...15 Income When is income derived for tax purposes? The cash (or receipts) method The accruals (or earnings) method What is (or is not) included in assessable income? Completing Item 6 Calculation of total profit or loss...20 National Tax & Accountants Association Ltd: March 2008 i

2 Label B Certain income received by foreign residents...20 Label A Gross payments where an ABN was not quoted...21 Label C Other sales of goods and services...22 Label D Gross distribution from partnerships...22 Label E Gross distribution from trusts...24 Label X Forestry managed investment scheme income...27 Label F Gross interest...28 Label G Gross rent and other leasing and hiring income...28 Label H Total dividends...29 Label I Fringe benefit employee contributions...31 Label Q Assessable government industry payments...31 Label J Unrealised gains on revaluation of assets to fair value...32 Label R Other gross income...32 Label S Total income Recording net capital gains Tax return obligations for net capital gains or losses Calculating and recording a net capital gain or loss...34 Expenses...57 Advertising and sponsorship expenses...57 Amortisation...58 (a) Amortisation of goodwill...58 (b) Amortisation of leases...59 Bad debts...59 Bank fees and charges...61 Blackhole expenditure...61 Borrowing costs...63 Commercial debt forgiveness...64 Cost of goods sold ( COGS )...64 Depreciation What is a depreciating asset?...65 ii National Tax & Accountants Association Ltd: March 2008

3 2. Calculating depreciation Disposal of a depreciating asset Recording depreciation on the income tax return...69 Directors fees, allowances etc...70 Division 43 deductions...71 Donations...72 Electricity costs...73 Entertainment What is deductible entertainment? Recording entertainment expenses on the tax return...74 Fringe benefits and Fringe benefits tax ( FBT )...74 Insurance premiums, including workers compensation...74 Interest expenses Interest incurred before the derivation of income Interest incurred after an income activity has ceased Interest on bills of exchange Interest paid overseas...77 Land tax on business premises...78 Lease expenses (and hire purchase agreements) Hire purchase agreements Luxury car lease expenses Recording lease expenses on the income tax return Recording HP expenses on the income tax return...81 Legal Expenses Revenue or Capital?...81 Motor vehicle expenses...83 Office stationery...83 Penalties, fines and breaches of the law...84 Phone expenses...84 Postage expenses...85 National Tax & Accountants Association Ltd: March 2008 iii

4 Prepayments Taxpayer is an SBE and has chosen to apply the 12 month rule Taxpayer is not an SBE (or is an SBE who has not chosen to apply the 12 month rule) Eligible service period...86 Provisions and reserves in the accounts...87 Rates on business premises...89 Rent or lease of business premises...89 Repairs and maintenance What is a repair? What is not a repair?...90 Research and development ( R & D ) What expenditure is eligible for the R & D concessions? The R & D tax offset Recording R & D expenses on the income tax return...93 Royalties paid...94 Salaries and wages...95 Subscriptions...96 Superannuation contributions...96 Tax related expenses...98 Trading stock Valuing trading stock for tax purposes Trading stock for manufacturers Trading stock taken for own use Other items become trading stock Recording trading stock on the income tax return Travel expenses Water rates on business premises The tax reconciliation process The reconciliation process iv National Tax & Accountants Association Ltd: March 2008

5 2. Differences in accounting and tax Income for accounting purposes, but not taxable Assessable income, but not included in accounting income Expense for accounting, but not tax deductible Deductible expense, but not included for accounting Performing a tax reconciliation Consolidated example tax reconciliation Tax reconciliation worksheet Completing the calculation statement Calculating the tax liability Label A Taxable or net income Label B Gross tax Label C Rebates/tax offsets Tax assessed Label D Foreign tax credits Label E Franking deficit tax (FDT) offset Label G Total of labels D and E Tax payable Label H Section 102AAM interest Label T PAYG instalments raised Label V Credit for interest on early payments amount of interest Label I Credit for tax withheld foreign resident withholding Label W Credit for tax withheld where ABN not quoted Label Y Tax withheld from interest/investments Label U R & D tax offset Label Z Other refundable credits Label R Total of labels T, V, I, W, Y, U and Z Label S Total amount of tax payable or refundable National Tax & Accountants Association Ltd: March 2008 v

6 Financial information disclosure Label N Functional currency translation rate Label O Functional currency chosen Label A Opening stock Label S Purchases and other costs Label B Closing stock Trading stock election Label C Trade debtors Label D All current assets Label E Total assets Label F Trade creditors Label G All current liabilities Label H Total liabilities Label J Total debt Label K Commercial debt forgiveness Label R Shareholders funds Label J Franked dividends paid Label K Unfranked dividends paid Label M Franking account balance Label F Balance of conduit foreign income Label G Conduit foreign income distributed during the income year Label H Excess franking offsets Label L Balance of unfranked non-portfolio dividend account at year end Label N Loans to shareholders and their associates Label Z Intangible depreciating assets first deducted Label A Other depreciating assets first deducted Label P Termination value of intangible depreciating assets Label E Termination value of other depreciating assets Label D Total salary and wage expense vi National Tax & Accountants Association Ltd: March 2008

7 Label Q Payments to associated persons Labels R, S, B, C, U, V, W, X, O, I and Y Schedules (a) Dividend and interest schedule (b) Capital allowances schedule (c) Capital gains tax (CGT) schedule (d) Other schedules Franking account rules the simplified imputation system ( SIS ) The franking account return Franking account and company tax return labels Operation of the franking account Franking credits Franking debits Franking a distribution of dividends STEP 1 The benchmark rule STEP 2 Allocating franking credits to the distribution STEP 3 Distribution statements STEP 4 Franking account Companies receiving franked distributions Other franking account matters Over and under franking Franking deficit tax ( FDT ) Franking deficit tax offset Franking account disclosure requirements Refund of excess franking credits No wastage of losses Trans-Tasman imputation regime Summary table of franking credits and debits National Tax & Accountants Association Ltd: March 2008 vii

8 Partnerships and trusts Primary production v non-primary production Partnerships Revenue losses incurred by a partnership Net capital gains and losses Partner salaries Completing the Statement of Distribution (Item 61) Trusts Trust income vs. net income When is a beneficiary assessable? When is the trustee assessable? Revenue losses incurred by a trust Franking credits in a loss trust Net capital gains and losses Distributions by family trusts Completing the statement of distribution (Item 61) The BIG picture Personal services income ( PSI ) Definition of PSI When will income not be PSI? Completing the PSI Schedule for Completing the 2008 income tax return Personal services income losses Non-commercial losses Fringe benefits tax ( FBT ) Interaction of FBT with the tax return Impact of PAYG on salary and wage expense Goods and services tax ( GST ) The effect of GST on allowable deductions viii National Tax & Accountants Association Ltd: March 2008

9 Record keeping requirements Penalties for not keeping proper records Income tax records Keeping the records Capital gains tax ( CGT ) Records that must be kept Fringe benefits tax ( FBT ) Record keeping exemption Goods and services tax ( GST ) Pay as you go ( PAYG ) ATO compliance activities Individual taxpayers Business taxpayers Dividend, interest and income Capital gains tax Losses General return preparation information National Tax & Accountants Association Ltd: March 2008 ix