The Portfolio Service Investment Essentials

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1 Investment Essentials Tax guide 2014 The Responsible Entity of Investment Essentials is Questor Financial Services Limited ABN AFSL No Locked Bag 4004 Queen Victoria Building NSW 1230 Telephone Facsimile Part of the IOOF group

2 This guide has been prepared to help individual Australian resident taxpayers complete their 2014 tax return. To complete your tax return you will need the following: copy of the Investment Essentials (the Plan) Consolidated taxation statement for the financial year ended 30 June 2014 (taxation statement) a copy of the Plan Statement of capital gains for the financial year ended 30 June 2014 (CGT statement), where applicable copies of schedules from the Australian Taxation Office (ATO): Tax return for individuals 2014 Tax return for individual (supplementary section) 2014 Individual tax return instructions 2014 Individual tax return instructions supplement 2014 Guide to capital gains tax 2014 and You and your shares 2014 if you have capital gain amounts or received franking credits as part of your distribution. If you have received income from other investments held outside the Plan, you will need to combine the information from those investments with the information we have provided. Important information This guide has been prepared by Questor Financial Services Limited ABN AFSL No (Questor/we) and contains general information only. Questor is not a registered tax agent and this information is not a substitute for any instructions from the ATO. You should consider the appropriateness of this information, having regard to your individual circumstances. Australian taxation laws are complex so we recommend you seek taxation advice from a registered tax agent before making any decision based on the information in this guide. Although the information in this guide is believed to be correct at the time of compilation, no warranty as to the accuracy or reliability of the information is given and no responsibility arising in any other way for errors or omissions in the information is accepted by Questor, its officers, employees and agents. Your tax return and your statements In your tax return, you must declare income that you were entitled to during the period 1 July 2013 to 30 June 2014 (the financial year). This may not coincide with the actual cash distribution you have received during the same period. Your Annual reporting package 2014 includes the following statements and, where applicable, you need to refer to them to complete your 2014 tax return. 1 The taxation statement summarises all of the income entitlements on the investments held in the Plan, the deductible amount of expenses paid from the Plan as well as any relevant amounts of tax paid and tax offsets for the financial year. 2 The CGT statement details all capital gains/losses on the disposal of investments held in the Plan during the financial year. You will only receive this statement if you have disposed of investments. 3 The Gain and Loss derived on disposal or redemption of traditional securities for financial year ended 30 June 2014 details all revenue gains/losses on the disposal of traditional securities held in the Plan during the financial year. You will only receive this statement if you have disposed of investments. All items required to complete your tax return are detailed in Part A: Summary of Tax Return of the taxation statement. For capital gains items, you are required to combine the capital gains items detailed in Part A: Summary of Tax Return with the relevant amounts from the CGT statement. 2

3 Understanding the components of your consolidated taxation statement Part A Summary of tax return This section of your taxation statement highlights the major components of your distribution. If you have straightforward circumstances, this information should help you complete your tax return. The tax return label reference in Part A relates to the Individual tax return 2014 and Tax return for individual (supplementary section) The amounts shown in Part A of your taxation statement should be included in your tax return against the corresponding tax return labels. A breakdown of the distribution components is shown in Part C of your taxation statement. 1. Label 10L Gross interest This item represents the total interest income that has been paid or credited to your account from direct investments. 5. Label D8 Dividend deductions This item represents all expenses incurred in respect of deriving dividend income. It is included if you received a listed investment company (LIC) capital gain amount in respect of LIC dividends received during the financial year. Where a LIC pays a dividend that includes a LIC capital gain, you may be entitled to an income tax deduction. This amount is detailed in Part D of your taxation statement. 6. Label 13U Share of net income from trusts, less capital gains, foreign income and franked distributions This item includes interest, unfranked dividends and other income that have been paid or credited to your account from your investment in Australian unit trusts. It excludes capital gains, foreign income and franked distributions which are shown separately on your taxation statement. 2. Label 11S Dividends unfranked amount This item represents the total of unfranked dividends that have been paid or credited to your account from direct investments in Australian companies. 3. Label 11T Dividends franked amount This item represents the total of franked dividends that have been paid or credited to your account from direct investments in Australian companies. 4. Label 11U Dividends franking credit This item represents the amount of franking credits (including cents) attached to franked dividends from direct investments in Australian companies. Franking credits are Australian tax offsets that you may be entitled to claim. Your entitlement to claim franking credits as a tax offset against your Australian tax liability is subject to you satisfying the holding period rule. For further information on the holding period rule, you should consult the ATO publication You and your shares Label 13C Franked distributions from trusts This item includes franked dividends, grossed up for any franking credits that have been paid or credited to your account from your investment in Australian unit trusts. 8. Label 13Y Other deductions relating to distributions This item is the tax deductible expenses charged to your account in the income tax year. These expenses may be deducted against the distribution income you received. If you have incurred additional deductible expenses in relation to your distribution income, these should also be disclosed at this label. 3

4 9. Label 13Q Share of franking credit from franked dividends This item includes your share of franking credits (including cents) from trusts. Franking credits are Australian tax offsets that are attached to franked dividends from trust distributions you received. Your entitlement to claim franking credits as a tax offset against your Australian tax liability is subject to you satisfying the holding period rule. For further information on the holding period rule, you should consult the ATO publication You and your shares Label 13R Credit for tax file number (TFN) amounts withheld from interest, dividends and unit trust distributions This item represents the amount of tax withheld from income (interest, dividends, and unit trust distributions paid or payable) received by the trust and/or the Plan if you did not supply your TFN. 11. Label 13A Share of credit for amounts withheld from foreign resident withholding This item includes amounts withheld from some payments to specific recipients due to the operation of the foreign resident withholding regime. The credits may be in respect of Australian income you have received as a foreign resident, or managed investment trust withholding. As with other tax credits, the credits for foreign resident amounts withheld may be offset against your Australian tax liability on taxable income. 12. Label 18H Total current year capital gains This item is the total amount of capital gains before any capital gains tax (CGT) discount has been applied. This amount also includes foreign capital gains (if applicable). 13. Label 18A Net capital gain This item is the net capital gain distributed to you. The items making up this amount are detailed in Part B of your taxation statement. Capital gains or losses derived from other sources also need to be taken into account when completing this label. If capital losses are to be applied to a discount capital gain, ensure you offset these losses against the gross capital gains first before applying the CGT discount. The discount rate that has been applied to your discount gains can be found in the section Capital gains information below, with reference to your investor type. Please refer to the ATO publication entitled Guide to capital gains tax 2014 for further information. 14. Label 19K Foreign entities CFC income This item applies to income and gains of foreign companies for which you had a direct or indirect controlling interest. For more information on CFC (Controlled Foreign Company) measures, please refer to the ATO publication Foreign income return form guide Label 20E Assessable foreign source income This item is income from your overseas investments. It comprises assessable foreign dividends, foreign interest and all other assessable foreign income (including foreign tax withheld on income not already shown on your tax return) for which you are liable to pay Australian income tax. It excludes foreign net capital gains (which are to be included at label 18). If you have foreign income or losses from other sources, you need to take these into account when completing this label. For further information, please refer to the instructions in the Individual tax return instructions supplement Label 20F Australian franking credits from a New Zealand franking company This item is the franking credits arising from tax paid in Australia by New Zealand franking companies. The dividends, net of the Australian franking credits from New Zealand franking companies, are included as part of your foreign source income (per label 20E). To check your eligibility to claim these Australian franking credits from a New Zealand company, please refer to the ATO publication You and your Shares

5 17. Label 20M Other net foreign source income This item takes into account all foreign deductible expenses incurred in earning foreign sourced income. The sum of foreign deductions is to be subtracted from your assessable foreign sourced income (shown at label 20E) to arrive at your other net foreign source income. If you have no foreign income deductions, then the amount included at label 20M is the same as label 20E. For further information, please refer to the instructions in the Individual tax return instructions supplement Label 20O - Foreign income tax offset This item is your share of foreign income tax offset (including cents). The foreign income tax offset represents the amount of foreign income tax withheld in another country on income received from foreign investments. If your foreign income tax offset from all sources for the year is no more than $1,000, you can claim this amount in full. If you are claiming more than $1,000, you should refer to the ATO publication Guide to foreign income tax offsets rules 2014 to work out your entitlement. Part B CGT information amounts Part C Income components This section of your taxation statement gives you a detailed breakdown of your distribution income components and capital gain/loss on the sale of your holdings relating to distributions. Information pertaining to the other deductions relating to distributions is provided above at item 8 and is not covered any further in this guide. The additional information in Part C of your taxation statement may be required to complete your tax return. Part D LIC capital gains information A LIC is an Australian resident company, listed on the Australian Securities Exchange, which carries on the business of managing an investment portfolio. LICs offer investors exposure to a diverse and professionally managed portfolio of assets, similar to those found in many unlisted managed funds. Examples of assets may include Australian shares, international shares and infrastructure assets. To determine whether an investment is classified as a LIC, investors should check the LIC classification list which is published on the ASX website. If a LIC pays a dividend to you that includes a LIC capital gain amount, you may be entitled to an income tax deduction. You can claim a deduction if: you were an Australian resident when a LIC paid you a dividend, and This section of your taxation statement gives you a detailed breakdown of capital gains that you received from trust distributions. CGT concession and tax deferred amounts may not need to be included in your tax return. However, these components may affect either the cost base or reduced cost base of your investment and, in some cases, may be required to be included in your tax return. For further information regarding the treatment of these amounts, you should refer to the ATO publication Guide to capital gains tax the dividend included a LIC capital gain amount. A LIC paying a dividend will advise its shareholders how much of the dividend is attributable to a LIC capital gain (the attributable part). An individual, trust or partnership can deduct 50 per cent of the attributable part advised by a LIC. A complying superannuation entity, first home saver account trust or life insurance company can deduct 33 1/3 per cent of the attributable part advised by a LIC. 5

6 Example of consolidated taxation statement for the financial year ended 30 June 2014 Part A: Summary of tax return Amount Tax return label Tax return Gross interest $5, L Dividends - unfranked amount $1, S Dividends - franked amount $18, T Dividends - franking credits $12, U Dividend deductions $ D8 Tax return (supplementary section) Share of net income from trusts, less capital gains, foreign income and franked distributions $13, U Franked distributions from trusts $ C Other deductions relating to distributions $8, Y Share of franking credit from franked dividends $ Q Share of credit for tax file number amounts withheld from interest, dividends and unit trust distributions $ R Share of credit for amounts withheld from foreign resident withholding $ A Total current year capital gains $ H Net capital gain $ A CFC income $ K Assessable foreign source income $3, E Australian franking credits from a New Zealand franking company $ F Other net foreign source income $3, M Foreign income tax offsets $2, O Part B: Capital gains tax information Amount Capital gains - discount method $ (grossed up amount) Capital gains - indexation method $ Capital gains - other method $98.20 Total current year capital gains $ Capital gains tax (CGT) concession amount $ Tax deferred amounts $

7 Part C: Income components Income and expense Tax paid and offsets Taxable amount Australian income Dividends - Franked (share) $18, $12, $30, Dividends - Franked (trust) $27.66 $49.80 $77.46 Dividends - Unfranked (share) $1, $1, Dividends - Unfranked (fixed interest) $0.00 $0.00 Dividends - Unfranked (trust) $18.46 $18.46 Dividends - Unfranked CFI $37.35 $37.35 Interest (fixed interest) $5, , Interest (trust) $1, $1, Interest not subject to NRWT $31.81 $31.81 Other income $11, $11, TFN Tax Deducted $ $ Total Australian income $38, $12, $51, Capital gains Discounted method (TARP) $42.88 $42.88 Discounted method (NTARP) $97.45 $97.45 Indexation method (TARP) $33.20 $33.20 Indexation method (NTARP) $80.23 $80.23 Other method (TARP) $27.66 $27.66 Other method (NTARP) $70.54 $70.54 Total current year capital gains $ $ Foreign income Foreign source income $1, $2, $3, Attributed CFC income $33.20 $33.20 Australian franking credits from NZ company $0.00 $ $ Assessable foreign source income $1, $2, $3, Other non-assessable amounts Tax-exempt $15.37 Tax-free $59.02 Tax-deferred $ CGT concession amount $ Total non-assessable amounts $ Total distribution $41, $15, $55, Less TFN amounts withheld $0.00 Less Non-resident withholding tax $ Net cash distribution $40, Other deductions Other deductions relating to distributions $8, LIC deductions $ Part D: LIC capital gains information amount Amount Attributable part of dividend $

8 Capital gains information To determine the total current year capital gains and net capital gain amounts which you are required to disclose in your tax return, you need to combine the capital gains items detailed in the taxation statement with the relevant amounts from the CGT statement. For general information on capital gains, you may need to refer to the ATO publication Guide to capital gains tax The following table summarises the types of capital gains details in both the taxation and CGT statements. Capital gain/(loss) calculation method Other capital gain Discounted capital gain Indexed capital gain TARP and NTARP Relevant section of your statement Nominal gain/ (loss) Nominal gain/ (loss) Frozen Indexed Gain Description These gains relate to assets held for less than 12 months which were not eligible to apply the indexation method. The entire amount of the gain is taxable. These are capital gains that relate to assets that have been held for longer than 12 months and, accordingly, are eligible for the CGT discount. This amount represents the grossed up nominal gain or loss you have made on the redemptions of investments held for greater than 12 months. The entire amount of the gain has been distributed to you. Nominal gains are eligible for the discount method after the application of any current or carried forward capital losses. For an Australian resident individual, the appropriate discount factor to apply is 50 per cent. For other CGT discount rates, please see the Understanding the components of your CGT Statement section in this guide. These are capital gains that are eligible to apply the indexation method. The capital gains amount shown here has been indexed accordingly. For Australian resident investors, the split between Taxable Australian Real Property (TARP) and non-tarp (NTARP) capital gains can be disregarded for the purposes of completing your tax return. The split of the capital gains between TARP and NTARP is only relevant for nonresident investors who generally only pay Australian tax on TARP capital gains. If you are a foreign resident investor, you may be entitled to an exemption from CGT on capital gains derived from assets that are classed as NTARP. Please note that the law has been amended to remove or reduce the CGT discount on capital gains made after 8 May 2012 by non-resident individuals. Please refer to the ATO publication Guide to capital gains tax 2014 for further information. We suggest that you seek professional taxation advice regarding the application of the CGT regime to your own individual circumstances. 8

9 Understanding the components of your CGT statement For each investment sale recorded on the CGT statement, it is possible to have an amount in either the nominal gain/(loss) column or the frozen indexed gain column or both. Where an amount appears in the nominal gain/(loss) or frozen indexed gain column, this is the amount that needs to be used in respect of that particular investment sale in determining your overall capital gains position. Where an amount appears in both the nominal gain/(loss) and frozen indexed gain columns, you need to make a choice as to which amount you select, depending on your individual circumstances. Assumptions In calculating the net capital gain or loss on your redemption of investments, we have made the following assumptions: The first parcel of investments you redeemed was all or part of the first parcel of investments purchased. This is referred to as the first in, first out method. The application for your initial investment was made with cash or a cash equivalent. The CGT provisions apply to you. You have a financial year end for Australian income tax purposes. Once an amount has been selected in respect of each investment sale, you need to add these amounts along with the total current year capital gains from trust distributions (taken from your taxation statement) and any other capital gains you have made during the year. This amount needs to be disclosed at tax return label 18H. You then need to determine the net capital gain. If you have selected any amounts from column nominal gain/(loss) and have no capital losses, you need to apply the appropriate discount rate to these amounts in determining your net capital gain. Where you have a capital loss (either from the current year or prior years), these need to be applied first before discounting any capital gains. The net capital gain from all sources needs to be disclosed at tax return label 18A. Note: If you have any prior or current year capital losses, we recommend that you seek professional taxation advice as to how you apply them. If any of these assumptions do not apply to your investment, then the calculation of the net capital gain or loss on the redemption of your investments disclosed on the CGT statement may not be appropriate. Again, you should seek professional taxation advice. CGT discount rates The table below lists the discount rates used to calculate your discounted capital gains according to your entity type: Entity Discount rate (%) Company 0.00 Individual Partnership Superannuation fund Trust

10 Capital gains taxation information statement Examples of statement of capital gains for the financial year ended 30 June 2014 Investment Date sold Date of Units sold Sale Adjusted Nominal Frozen purchase proceeds cost base gain/(loss) indexed gain Investment option 1 Investment option 2 Investment option 3 Investment option 4 30/11/2013 3/03/ $ $ $ $ /04/2014 6/06/ $10, $7, $3, $2, /01/ /12/ $8, $6, $2, $2, /07/2013 1/08/1995 4,000 $7, $10, $(3,225.00) We have used the figures from the sample statement of capital gains for the financial year ended 30 June 2014 shown above and the sample Investment Essentials consolidated taxation statement on pages 6 and 7 of this guide to illustrate how to calculate net capital gains. We have assumed that there are no net capital losses carried forward from previous years. This is a guide only and may not be applicable to your personal circumstances. You should seek professional taxation advice. The sample statement of capital gains for the financial year ended 30 June 2014 shows that the client has incurred a capital loss of $3, on the disposal of investment option 4. Capital losses may be offset against capital gains, such as trust distributions of capital gains and/or arising from the disposal of units/shares, in the order that minimises your overall net capital gain. Please note that the sequence in which capital losses have been offset in this example may not necessarily be suitable in your circumstances. 10

11 Traditional Securities Information The below information is only applicable to Australian residents who are not subject to the Taxation Of Financial Arrangement (TOFA) rules. Holders who are subject to TOFA should seek their own professional taxation advice. A traditional security is, broadly, a security that is not issued at a discount of more than 1.5 per cent, does not bear deferred interest or is not capital indexed. A traditional security may be, for example, a bond, a debenture, a deposit with a financial institution or a secured or unsecured loan. Shares and units in unit trusts are not traditional securities. If an Australian resident disposes of or transfers their traditional securities and the proceeds from their disposal exceed their cost, the resulting gain will generally be assessable income in the financial year in which the disposal or redemption takes place. This gain will be taxed as ordinary income and will not be a capital gain. Consequently, the Australian resident may not be entitled to apply the capital gains discount in respect of the gain and may not be entitled to apply any capital losses against the gain. Conversely, if the proceeds of disposal are less than the cost of the traditional securities, the resulting loss may be an allowable deductible in the financial year in which the disposal or redemption takes place. 11

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