BT Investment Wrap Tax Statements. Training manual Issued July 2010

Transcription

1 BT Investment Wrap Tax Statements Training manual Issued July 2010

2 Contents 1 Section 1_Key resources 2 Section 2_Tax statement introduction 6 Section 3_Tax statement summary 9 Section 4_Schedule A Interest 11 Section 5_Schedule B Dividends 14 Section 6_Schedule C Trust Distributions 18 Section 7_Schedule D Net Capital Gains 21 Section 8_Schedule E Foreign Income 22 Section 9_Schedule F Other Australian Income 23 Section 10_Schedule G Expenses 24 Section 11_Summary of Foreign Income Tax Offsets 25 Section 12_Summary of Insurance Premiums 26 Section 13_FAQ Contents Page 27 Section 14_Tax Statement FAQ s

3 1_Key resources Resources Please familiarise yourself with the following resources that will assist you in answering many of the common questions raised by clients and their accountants: > > This Tax Statement Training Manual Including Frequently asked questions provided on pages > > Wrap year end website We have introduced a new website for Wrap advisers and their accounting partners. This site consolidates a large volume of year end related information and is a good reference. This site can be reached via the year end icon on the website or by going directly to year-end-2010 > > Wrap Tax Guide A copy of the Wrap Tax Guide is issued with every tax statement that is sent to clients and is also available on the Wrap Desktop. It contains details of the tax policies and rules that are applied in the preparation of the Wrap Tax Statements. > > Your Complete Guide to the 2009/2010 Wrap Year End Containing essential Year End information, this document is ed to all advisers prior to 30 June. Available on the Wrap Desktop and also via the Wrap YE Communications SharePoint site listed above. 1

4 2_Tax statement introduction Who receives a tax statement? When do Investment Wrap clients receive their Tax Statement How are the clients in each tranche determined? The tax statements referred to in this training manual are relevant to Investment Wrap clients. They are sent to investors as part of the Annual Investor Statement Pack after the end of each financial year, to assist the client with the lodgement of their taxation return. SuperWrap clients will receive their tax statements after the fund s Tax Return is lodged with the ATO around February/March of the following year. Once this has occurred the SuperWrap clients also receive the Year End Tax Adjustment to finalise their share of the funds tax position. These tax statements are not covered in this training course. Wrap Tax Statements are produced in a series of statement runs also called tranches. Tranches are released regularly during the year end period. We cannot predict in which tranche an individual customer s Tax Statement is going to be released as there are a number of factors that will impact this (see next page). Tax component information relating to income distributions is provided to Wrap by Fund Managers and Share Registries throughout the year end period. At regular intervals the Year End project team identify clients for whom we have received all the required information to allow us to produce their Tax Statement. For a particular investor to receive their Tax Statement the following needs to occur: 1_ closing prices must be received and verified for all of the client s investments held on Wrap. Where applicable the final distributions for the year must have been processed to the clients account. 2_ every managed fund or listed trust that a client has invested in needs to provide Wrap Services with a final, audited Tax Statement containing a breakdown of the tax components for the income it has paid to investors during the year. 3_ the Wrap Service team review the managed fund or listed trust Tax Statement to confirm the tax implications for individual Wrap investors. 4_ an internal review process occurs to ensure correct tax treatment has been applied. 5_ all corporate actions that the client has participated in during the year are reviewed to ensure the correct tax treatment has been applied. 6_ any data quality issues impacting the clients account must also be completely resolved. Once these steps have been completed using the information held on our system, an individual s tax position can be determined and a Tax Statement can be produced. 2

5 Tax Statements for non-resident investors A client s Tax Statement is generated based on their residency status in the system at the time of statement generation. If the client has advised us they are a non-resident for Australian tax purposes then the Tax Statement that is issued will only report income that is required to be lodged in an Australian income tax return. The schedules to the Tax Statement will still include the details of interest, dividends and trust distributions received as well as any non-resident withholding taxes withheld that relate to interest and managed fund distributions. Disposals of investments will not be reported in the Net Capital Gains schedule for a Non-resident investor. Where a client has advised Wrap of a change to their residency status during the financial year, there are some specific reporting implications to be aware of. Please refer to Question 15 of the FAQ's in the training manual and also to the Wrap Tax Guide for further details. 3

6 2_Tax statement introduction continued What is included in the Annual Investor Statement pack? Product Investor information Portfolio valuation Reports the quantity and market value of each investment in the client s Wrap portfolio at the financial year end including the Working Cash Account holdings. Cash account statement Details every cash movement within the Working Cash Account for the financial year. Trans History Report Details every stock movement within the Cash Account for the financial year. Annual Income and Expense Reports the movements in the portfolio for the year report (PS148) including income from investments (such as interest, dividends and distributions) and expenses (such as fees, charges and taxes) in a summarised format. Tax Statement Summary Combines all the information required for submitting a Tax Return, into a summarised format. Supporting Tax Statement Schedules These schedules provide the detailed information on the amounts shown in the Tax Statement Summary. Wrap Tax Guide Part 1: Describes the tax assumptions and policies used by BT to prepare the Wrap Tax Statement. Part 2: Provides instructions on how to complete a client s Australian Tax Return for the year ended 30 June Schedule summary Schedule Description Schedule A Schedule B Schedule C Schedule D Schedule E Schedule F Schedule G Other 1 Other 2 Other 3 Interest Dividends Trust distributions Summary and Detailed Net capital gains Foreign income Other Australian income Expenses Summary of Foreign Income Tax Offsets Summary of Insurance Premiums -information only and does not link back to Tax Statement Summary Page) Unrealised Gains and Losses Report Are we required to meet any legislative deadlines We are required by law to have issued every Investment Wrap client with an Annual Income and Expense (PS148) Report by 30 September each year. If a client s Tax Statement is not ready to be released at this time, the client will receive all other reports including the Annual Income and Expense Report by 30 September. The outstanding Tax Statement will be forwarded separately in a later tranche as soon as it is ready. 4

7 Investment types There is a wide range of investments types available on Wrap. Here are the main types to be aware of: 1_ Equities: These are publicly listed companies and generally have a three letter ASX code (eg WBC = Westpac). The only income type equities can pay is a dividend which is reported on Schedule B of the Tax Statement. 2_ Listed Trusts: These investments are also listed and traded on the Australian Stock Exchange. Being a Trust, investors buy and sell units instead of shares. The income from a Listed Trust is a Trust Distribution and is reported on Schedule C. 3_ Other ASX listed investments: Other ASX listed investments available on Wrap include Instalment Warrants (have a six letter ASX code), Rights, Options, Listed Income Securities/Debentures and Stapled Securities. These each have their own specific tax treatment and are referred to separately in the Wrap Tax Guide. 4_ Managed Funds - are unlisted therefore investor's buy and sell their units by requesting BT to place application or redemption orders directly with the fund manager. The price paid or received is determined daily by the fund manager who prices the units based on the asset values of their fund. A managed fund is an unlisted trust, therefore it pays income in the form of trust distributions which are reported on Schedule C. 5_ Term Deposits: The income from these Term Deposits will be reported in Schedule C of the Tax Statement, with the tax component being classified as 100% Australian interest. The income will be assessable on a cash basis, ie the date it is paid. 5

8 3_Tax statement summary Investment Wrap Account Types Investment Wrap clients can select from the following account types which will be determined based on the entity type their investments are held in: > > Individual > > Joint/Partnership > > Trust > > Superannuation Fund > > Company. The account type for a particular investor is provided on the top section of the Tax Statement Summary page. This information is also available on the Client Details section of the Wrap DeskTop. It is important to take note of the relevant account type for an investor as different taxation treatments apply to different entity types. For example, investors may be entitled to Capital Gains Tax discounting where an asset held for greater than 12 months is disposed of. The discount rate that applies is determined by the account type ie 50% for Individuals, Partnerships and Trust, 33.33% for Superannuation Funds, 0% for Companies. Sponsored v Custodial Holdings For ASX listed investments, clients have the following two CHESS holding options available to them on Investment Wrap: > > Sponsored Holding where the client is the legal owner of the listed securities (ie securities are held directly by the client) and they will receive any relevant documentation from the share registry. This option allows the client to nominate any bank account for the proceeds received from dividends or distributions to be deposited. This is normally the client s BT Working Cash Account. However, there may be instances where the client has elected a cash account other than the BT Working Cash Account in which case we are unable to determine where the cash has been paid to. > > Custodial Holding a service offering where the Administrator (BT Portfolio Services) takes the role of legal owner (the client still remains the beneficial owner) of the listed securities. All relevant share registry documentation is managed by the Administrator and will not under normal circumstances be sent to the client. Any proceeds received from dividends and distributions will be deposited only into the client s Working Cash Account. 6

9 Summary This section can be used to input figures directly into an Income Tax Return using the ATO s Tax Pack. Amount ($) These figures are shown in the Tax Statement details below. Tax statement This section can be used to input figures directly into an Income Tax Return using the enclosed document BT Wrap Tax Guide Part 2. Tax Return Reference Reference figures correspond to specific areas within an Income Tax Return. Schedules Where a Schedule is mentioned there is greater detail to follow as to how this figure was obtained. Tax guide reference References correspond to the BT Wrap Tax Guide Part 2. 7

10 Schedules Where a Schedule is mentioned, there is greater detail to follow as to how this figure was obtained. Total trust distributions This figure gets split between distributions from trust and total foreign income when it appears on the summary page. 8

11 4_Schedule A Interest Important Info This Schedule discloses information relating to the assessable interest income the client has received from their interest bearing holdings. > > Interest earned from the Working Cash Account is calculated daily and paid to the client quarterly on the first day of the next quarter: Interest Period Date Paid to clients WCA 1 July 30 September 1 October 1 October 31 December 1 January 1 January 31 March 1 April 1 April 30 June 1 July > > Schedule A will also report income received from Interest bearing securities that are listed on the Australian Stock Exchange (ASX). Some Investment Wrap clients (sponsored only) may instruct the share registry to pay these to a bank account other than the Wrap Working Cash account. The Wrap tax statement will still report this income on Schedule A so it is important that the client does not include this income in their tax return twice. > > Interest is included in the Tax Statements based on the date the cash amount was paid to the client. If the pay date falls within the financial year then it will be reported on the Tax Statement for that year. > > If the client has not provided us with a valid TFN/ABN or exemption notice, then TFN Tax is withheld from their WCA interest at the top marginal tax rate of 45% + 1.5% medicare levy. These amounts will be reported in the TFN deducted column and can be claimed back when the client lodges their taxation return. > > There are very few investments on Wrap that pay Infrastucture bond interest. Clients have the option of treating Infrastructure bond interest as either taxable and rebateable, or exempt from tax. For portfolios that are not complying Superannuation funds, infrastructure bond interest is treated on the Tax Statement as tax exempt. > > Clients may be expecting to see interest income from Westpac Term Deposits on this Schedule. However, Term Deposit interest is reported on Schedule C as 100% Australian interest. 9

12 4_Schedule A Interest continued Source Date for tax purposes Infrastructure bond Interest not assessable 1_Cash Account 2_ Coupon interest from listed securities 1_Cash Account = date of receipt 2_ Coupon Interest from listed securities the coupon pay date is used as the relevant date. General rule: interest income is included as assessable income upon receipt. Notes any infrastructure bond interest received and treats it as tax exempt. As a result, these amounts will not be shown in the Tax Summary. Amount TFN deducted Total income received from each investment and source. Withholding tax deducted from each parcel, should the client fail to provide a TFN. These totals will appear on the tax statement as interest. 10

13 5_Schedule B Dividends This Schedule includes information relating to the assessable income generated via the payment of dividends from Australian Equity holdings. Terminology > Dividend the type of income that a company pays to its shareholders. A dividend can be franked or unfranked, depending on whether or not the Helpful Hint A quick way to calculate the correct franking credit on a dividend is to multiply the franked amount of the dividend by 30/70 (or %). For example, a franked dividend amount of $200 30/70 will carry an associated franking credit of $ company has already paid tax on the profits being paid out. > > Franked dividend where a company has paid tax on its profits it is able to pay a franked dividend to their shareholders. The company tax rate is currently 30%. A fully franked dividend means that the whole dividend carries a tax credit at the applicable company tax rate. > > Unfranked dividend There are various tax deductions that companies are entitled to claim, which result in them not always paying the full rate of tax on its profits in a particular year. The result may be that a company has not paid enough tax to attach a franking credit to the whole of the dividend that it pays to shareholders. Unfranked dividends are those to which no franking credits apply. > > Unfranked Conduit Foreign Income (CFI) Dividend For a resident investor, there is no difference between an Unfranked dividend and an Unfranked CFI dividend. The difference in classification is only relevant to Non-residents and the associated Withholding Tax treatment. For Nonresident clients the share registry will not apply withholding tax to Unfranked CFI dividends. > > Dividend ex-date and pay-date An investor is entitled to the dividend paid by a company, provided they have contracted to purchase the shares prior to the published ex-date. Once the ex-date arrives, the share price will generally drop to reflect the fact that it no longer includes the dividend that is due to be paid. The dividends pay date is generally 2 4 weeks after the ex-date and is the day the company or its Share Registry physically pay the dividend. Dividends are included in the tax statement based on the pay-date. 11

14 5_Schedule B Dividends continued Important info > > Dividends paid into the Working Cash Account (WCA) from investments held outside of Wrap are not reported on the Tax Statement. A dividend is only reported on the Tax Statement where it relates to shares that are held within the clients Wrap account. > > Dividends paid prior to transferring listed securities onto the Wrap platform are not reported on the tax statement. > > TFN Withholding Tax amounts deducted from dividends are not reported on the Tax Statement. The reason for this is that for sponsored clients we are not able to see whether the client or their adviser has provided the TFN details to the Share Registry. Often the dividend is deposited into an account outside of Wrap. In this case the client or adviser will need to refer to the dividend statement received from the Share Registry to confirm the TFN amounts withheld. For custodial clients it is Wrap s responsibility to advise the share registry of the client s TFN to ensure taxes are not withheld. In the event that any TFN amounts are withheld, these are identified and credited back to the clients Working Cash Account at the earliest opportunity. TFN Withholding Tax only applies to the unfranked amount of a dividend. This is because the company has already paid the relevant tax on the franked portion of the dividend. 45 Day Rule The 45 Day rule is applied in the Tax Statements to determine if an investor is entitled to claim franking credits arising from their investments in shares or unit trusts. Investors who receive franked income are required to hold the relevant asset at risk for 45 days before they are entitled to the franking credits attached to that income. Where a client has purchased an asset within 45 days of 30 June, their Tax Statement may need to be held back from the earliest tranches until we can determine if the investor is entitled to the franking credits. For this reason, those investors tax statements will not be prepared until after 45 days have passed assuming all other components and requirements have been received. If the client s total franking credits from all sources are $5,000 or less for the financial year, then the 45 day rule does not apply and they are able to claim all of the credits. Please refer to the Wrap Tax Guide for more information regarding the eligibility to claim franking credits or dividend rebates for different entities. 12

15 _Source 2_Date for tax purposes Notes the source of income, eg AMP, TLS etc. Dividend income is included in assessable income on a paid basis. This is the date the money reached the client s account. 3_Quantity 4_Unfranked amount Total number of shares held. Represents dividends paid out of company profits that have not been subject to Australian tax at the maximum corporate rate. These never have a franking credit attached. 5_Franked 6_Franking credit amount Represents The tax credits, which dividends that relate to the amount of tax have franking already paid by the credits Australian resident attached to company. them. Franked These amounts are Dividends are required to be added to the those paid by investor s assessable Australian income and accordingly resident will flow through as a companies, separate item on the Tax which have Statement. (Companies are been taxed at excluded from this rule). the maximum corporate rate (ie 30%). 7_ Amount of franking credit allowable The amount of tax credit allowable is calculated with reference to the 45 Day rule. Amount of franking credit allowable will show the portion that can be claimed (NB if the full amount can not be claimed, the residual amount will carry across to the Franking credits denied shown on the tax statement. Unfranked CFI amount Conduit Foreign Income received will be treated as an Australian unfranked dividend and hence will be assessable income in the hands of a resident individual investor. If the dividend is paid to a non-resident investor no withholding tax is applicable. 13

16 6_Schedule C Trust Distribution This Schedule includes information relating to the assessable income (in the form of Trust Distributions) generated via the payment of distributions from managed funds and listed trusts. Terminology > Present Entitlement Date An investor is eligible to receive a distribution from a managed fund or listed trust if they own the units at close of business on the ex-date or present entitlement date. > > Accruals Basis Income from a Trust is assessable for income tax purposes on an Accruals Basis. This means it must be reported in the tax return for the financial year that the ex-date or entitlement date falls in. This is in contrast to interest and dividends which are assessed on a cash (date paid) basis. > > Cum-Price includes the amount of the distribution that is due to be paid. This price is used in the Portfolio Valuation report. > > Ex-price is the quoted price of a fund that does not include any distribution. This price is used in the Unrealised Gains and Losses report which accompanies the tax statement > > TARP refers to capital gains that are derived from Taxable Australian Real Property. This type of capital gain is commonly paid out by listed or unlisted property trusts which have disposed of Australian property. > > NTARP stands for Non Taxable Australian Real Property and effectively captures all gains that fall outside of the TARP definition. NTARP is a combination of all foreign capital gains and any Australian capital gains that do not relate to property. Important info Schedule C is split into two parts: 1_ Trust distributions summary provides a summary of total cash received/ income distributed from each managed fund or listed trust for the year. This figure then adjusted for amounts that are receivable at the beginning and end of the financial year to ensure that each payment is assessed correctly. 2_ Trust distributions details provides the tax component breakdown of every trust distribution received by the client that is assessable in the relevant financial year. The tax component information is based on information provided to Wrap by fund managers during the year end period. Our experience from prior years is that this Schedule together with Schedule D is the one that will generate the most number of enquiries. 14

17 Income distributed Less July 2009 entitlement Add July 2010 entitlement This is the total amount of cash distributions that have been processed during the financial year. This distribution was paid within the 1 July 2009 to 30 June 2010 financial year. However it was reported for taxation purposes in the last financial year period ending 30 June This distribution was paid in the 2008/2009 financial year but should be reported in 1 July 2009 to 30 June 2010 financial year. Total Cash distribution Tax adjustments Distributions from trust This is the total amount of distributions that the Managed Fund or Security has distributed for the 2009/2010 financial year. This figure can be calculated as: Income distributed Less July 2009 entitlements + Add July 2010 entitlements. This figure is calculated using amounts from the detail contained in Trust distributions detail Schedule C. Refer to example spreadsheet that confirms how this is calculated on page 17. This is the final amount of the distribution that the customer will be assessed on. This is the figure that will be transferred to the Tax Summary, Distributions from Trust. 15

18 These amounts have been transferred to Net Capital Gains Schedule D. These amounts are included as foreign income as per the Tax Summary page. TFN witholding tax amounts are calculated during the year and based on provisional components. After the end of the financial year, BT will receive the final components. If an adjustment is required to the correct figure, this will be shown under heading Other. 16

19 6_Schedule C Trust Distribution continued Tax Statement Example How to calculate the Tax Adjustments figure from Trust Distributions The below example demonstrates how the Tax Adjustments figure from Schedule C Trust Distributions Summary is derived. Plus (+) and minus ( ) indicate adjusted values. Row labels without a plus or minus are values not used in this adjustment as they are all part of the total Trust Distribution figure that flows through to the Tax Statement Summary page: Tax statement sample client Total cash distribution $ Tax adjustments Interest Australian Infrastructure bond interest Gains not eligible for discount Undisclosed TARP NTARP Discounted capital gains Undisclosed TARP NTARP Foreign trust and CFC income FIF or FLP income Foreign Income Dividends Unfranked amount Unfranked CFI amount Franked amount Franking credit Franking credits denied Other Australian income CGT Concession Tax free Tax deferred Tax exempt Less Foreign Income Tax Offset TFN tax withheld by BT TFN tax withheld by Fund Manager + 1,

20 7_Schedule D Net Capital Gains This Schedule provides details of the Net Capital Gains relating to investments that are held within the clients Wrap Portfolio during the financial year. Terminology > Capital Gains Tax (CGT) a tax that is levied on entities who have made a profit through the ownership and subsequent disposal of an asset that is deemed to be a CGT asset. > > Cost base the original price paid to acquire an investment, including associated costs such as transaction fees or brokerage. > > Tax free this component of a trust distribution reduces the cost base but only when calculating a capital loss. > > Tax deferred this component of a trust distribution reduces the cost base of an asset when calculating either a loss or a gain. > > CGT Discounting Method This method of calculating a capital gain (the difference between cost and selling price) can be applied where an investment is sold but has been held for 12 months or more. The discounting percentage is determined by the type of entity that has disposed of the asset: Individuals 50.00% Partnerships 50.00% Trusts 50.00% Superannuation Fund 33.33% Companies 0.00% > > Indexation method this method of calculating a capital gain can be applied where an investment was acquired prior to 1 July The cost base of the asset is indexed for inflation which reduces the profit of the disposal. For investments acquired before 1 July 1999 and held for 12 months or more, Wrap will calculate the capital gain using both the indexation and discount method to determine which one gives the client the optimal outcome. Important Info Within Wrap there are two ways in which a capital gains tax event can occur: > > When the client disposes of their investment in a managed fund or listed security. > > Where the managed fund or listed trust incurs the capital gain at a fund level and passes it on to the client as part of the trust distribution. Any capital losses from a prior year will not be carried forward on the Tax Statement. These will need to be recorded separately by the client and applied to the current year capital gain calculation separately where required. 18

21 1_Source 2_ Date of disposal for tax purposes 3_Quantity 4_Proceeds 5_ Date of acquisition for tax purposes 6_Original cost 7_ Non-assessable amounts from distributions Identifies the investment that the capital gain/loss relates to: eg AMP, TLS, Colonial First State W/sale Imputation Fund etc. The date shown is the contract date of the asset sale. The number of units or shares that have been sold. The dollar amount received by client on disposal net of any transaction costs. This date will be the Contract date if purchased whilst in Wrap. For an asset that was transferred into Wrap from an outside source, this date will be advised on the tax history spreadsheet. The cost of asset inclusive of transaction cost (excluding any cost base adjustments for CGT purposes). This will consolidate the Tax Free, Tax deferred and Concessional amounts where applicable. Based on whether it is a capital gain or loss, the system will only use the relevant factors. 8_ Reduction factor Represents an offset of non-assessable distribution components where the managed fund passes on a concessional component. 9_Capital losses Notes any capital loss amounts incurred on the disposal of the asset. Capital losses can only be used to offset capital gains not income. Capital losses are always applied prior to any discounting of capital gains 10_ Optimal capital gains position This column automatically selects the best outcome for the client when calculating the Capital gain liability. The system identifies which gain provides the lowest total capital gain amount ie the optimal position. As such, some may in fact select the Not eligible for discount parcel as per the general rule of thumb that it is best to apply losses against indexed/ other parcels, then against eligible for discount (as this parcel can be reduced by the discount). The parcel/method selected will show a dollar figure, whereas the parcel/method not selected will show A sample of Schedule D follows and has the above sections marked so you can easily locate the information. 19

22 20 7_Schedule D Net Capital Gains continued

23 8_Schedule E Foreign Income This Schedule includes information relating to the assessable foreign income (foreign dividend/interest income/other) generated via ASX listed investments. Schedule E breaks down the foreign income into the correct tax components as per legislative requirements for any foreign interest/dividends received from foreign securities listed on the ASX. Important info Foreign interest Disposal of foreign revenue assets Foreign dividends The dividend is grossed up for any withholding tax deducted. If Australia has an income tax treaty with the relevant country, a credit for the withholding tax is generally restricted to the lower of the amount deducted or 15% of the gross dividend. Examples of securities that pay foreign dividends are: > > FBU Fletcher Building Company (NZ) > > NWS News Corporation (US) > > OSH Oilsearch (PNG) > > TEL Telecom of New Zealand (NZ). The interest is grossed up for any withholding tax deducted. If Australia has an income tax treaty with the relevant country, a credit for the withholding tax is generally restricted to the lower of the amount deducted or 10% of the gross interest. It is quite rare to see any listed securities on Wrap that pay foreign interest income. Taxable gains or losses on the disposal of traditional securities or any other non-cgt foreign asset (calculated as the difference between the selling price and the cost of the investment) are included as part of disposal of revenue assets. 21

24 9_Schedule F Other Australian Income Includes a summary of Australian income from sources other than those noted on schedules A, B, C and D. Important info Miscellaneous income has been included on the date received. Examples of items that are reported on this schedule include: > > Management Fee Rebates > > Good value claims > > Disposal of revenue assets (includes taxable gains or losses on the disposal of traditional securities or any other non-cgt asset ). 22

25 10_Schedule G Expenses Summarising the expenses incurred during the financial year relating to the management of the clients investments and Wrap account. Important info Expenses have been included as an allowable deduction on a date paid basis. Expense types include account keeping fees and ongoing advice fees. Transaction fees associated with buy and sell orders are not reported on schedule G. Instead they are added to the cost base (in the case of a buy trade) or applied to reduce the proceeds of the disposal (in the case of a sell trade). These costs will be reflected on Schedule D Net Capital Gains when an investment is disposed of. Initial set up fees are not automatically tax deductible to all investors as this will be highly dependent on their individual circumstances. As such, Initial Establishment Fees will show in Schedule G in the Non Deductible column. All expenses include any amount of GST paid. If a client has advised us that they are registered for GST, we have not included the RITC (Reduced Input Tax Credits) amounts that they would have received as a refund from the ATO. RITC arises mostly from self-managed super funds. It is essentially a reduction of the GST paid. Interest payments on margin loans are not included in the Tax Statement clients will need to refer to the statement from their margin lending provider. 23

26 11_Summary of Foreign Income Tax Offsets This schedule provides a total of all of the Foreign Income Tax Offsets a client has received for the year from various sources. Every item on this page has flowed through from the subtotals of one of the earlier Schedules in the Tax Statements (eg Schedule C Trust Distributions or Schedule E Foreign Dividends). 24

27 12_Summary of Insurance Premium 25

28 13_FAQ Contents Page The aim of this section is to provide an insight into some common questions that arise regarding the tax statements. These have been categorised based on the tax statement schedules that the question relates to: Tax Statements General Q1_ Why has my client received their Annual Statement, but not their Tax Statement? Q2_ Why is there a delay between Wrap receiving tax information and a tax statement being issued? Schedule B Dividends Q3_ Why is there a negative amount on Schedule B - Dividends? Q4_ Why doesn t the dividend amount reported on the tax statement match the amount deposited into the cash account? Q5_ Why are there dividends or trust distributions that have been paid into the Working Cash Account that are not appearing on the Tax Statement? Schedule C Trust Distributions Q6_ Why don t all of the Trust distributions received in the client s Working Cash account during the financial year match the amounts reported in the Schedule C of the Tax Statement? Q7_ Why don t all of the Trust distributions received in the client s Working Cash account during the financial year match the amounts reported in the Schedule C of the Tax Statement? Q8_ Why is the Discounted Capital Gains amount different to the CGT Concession amount for some distributions in Sch. C. Schedule D Net Capital Gains Q9_ Is the cost base of a security or managed fund showing correctly in Schedule D? Q10_ My client has transitioned investments from one account to another, why are these transactions not appearing as disposals on Schedule D? Q11_ Why do the non-assessable amounts from distributions reported in Schedule D not match up with tax deferred amounts in Schedule C for a particular security? Stapled Securities Q12_ What is a Stapled Security? Q13_ How is income received from a stapled security reported in the client s tax statement? Q14_ How does Wrap work out the cost base of the assets comprising the stapled security? Non Residents on Wrap Q15_ What are the impacts to the client s tax statement if they advise of a change in residency status during the year? 26

29 14_Tax Statement FAQ s Tax Statement General Q1_ Why has my client received their Annual Statement, but not their Tax Statement? Q2_ Why is there a delay between Wrap receiving tax information and a tax statement being issued? Wrap is legally required to ensure all clients have received their Annual Statement within 3 months from the end of the Financial Year. Where there is still outstanding tax information relating to a client s investments, Wrap is not in a position to issue the related tax statement. A client in this scenario will still receive their Annual Statement report pack by the end of September and their tax statement will be issued as soon as all required tax information has been received. Once final tax component information is received from Fund Managers or Share Registries the information must be reviewed and processed by the Wrap Services team. Before this data can be used in clients tax statements, it goes through an internal review process to ensure the correct taxation treatment has been applied. For securities with complex tax components this process can be quite complex and may take a number of weeks. Tax information relating to all of a clients investment holdings must be received before Wrap are in a position to generate and distribute a tax statement for that client. Schedule B Dividends Q3_ Why is there a negative amount on Schedule B Dividends? If a Listed Investment Company (LIC) pays a dividend to a client that includes a LIC capital gain amount, then the client may be entitled to an income tax deduction. Wrap clients who are entitled to these LIC deductions will see them reported as a negative dividend amount on Schedule B of the tax statement, under the same ASX code as the investment it relates to. The method of calculation of this deduction varies slightly depending on the entity type of the shareholder (eg Individual, Trust or Superannuation Fund). Company investors are not entitled to claim an LIC deduction therefore it is not reported on their tax statement. Sponsored clients can reconcile this amount with the dividend statement they receive from the company or share registry. Q4_ Why doesn t the dividend amount reported on the tax statement match the amount deposited into the cash account? The most common reason for this discrepancy is that the share registry has applied TFN Withholding Tax to the dividend, usually because the clients Tax File Number has not been provided by the time the dividend is paid. Notes on TFN Withholding Tax: > > TFN withholding tax is applied to the unfranked component of a dividend at the rate of 46.5%. 27

30 14_Tax Statement FAQ s continued > > Sponsored Clients The adviser or client is responsible for providing TFN/ ABN details to the share registry. Where this does not occur in time and TFN tax is withheld, the Share Registry websites will generally contain the required information to ensure clients can claim the withholding taxes back in their return. Most widely held listed securities can be viewed on the following two registry websites: If a Sponsored client cannot see the dividend in the cash statement, then it may have been deposited into one of their personal bank accounts. The Share Registry websites should also be used by the adviser/client in this case to confirm payment details. > > Custodial Clients Wrap are responsible for providing TFN/ABN details to the share registry on behalf of the client. This occurs each time a client purchases a new security. If the shares are purchased very close to the ex-date of the dividend, the share registry may not receive the TFN/ABN details in time and may still withhold the tax. Wrap identifies cases where this has occurred and ensures the TFN tax is credited back to the clients account as soon as possible. > > TFN withholding tax amounts relating to Listed Securities are never reported on Schedule B of the Wrap tax statements. Q5_ Why are there dividends/ distributions that have been paid into the Working Cash Account that are not appearing on the tax statement? The tax statement will report all income entitlements (dividends and distributions) attributable to the client during the financial year for investments that are held within Wrap. It is possible that the client may also hold some investments outside of the Wrap platform, but have nominated the associated income to be paid into the Working Cash Account. Income received from non-wrap holdings will not be included in the client s Tax Statement. Schedule C Trust Distributions Q6_ Why don t all of the Trust distributions received in the client s Working Cash Account during the financial year match the amounts reported in the Schedule C of the Tax Statement? Trust distributions received from managed funds are included in the tax statement on an accruals basis (based on their ex-date). This differs to dividends from equities which are included in Schedule B based on their pay date. For example a trust distribution relating to the period ended 30 June 2010 that is paid to the client in August 2010 will be included in the clients 2009/10 Wrap tax statement. Schedule C Trust Distributions Summary reconciles the cash distributions actually received by the client during the financial year against those that are required to be included in the client s Tax Statement. 28

31 Q7_ How do the Capital Gains tax components appearing in Schedule C Trust Distribution Details flow through to the front page of my clients Tax Statement? The Trust Distribution Detail schedule provides the tax component breakdown for every distribution received by the client relating to the relevant taxation year. This includes the following tax components relating to Capital Gains amounts being distributed by the fund: > > Gains Not Eligible for Discount (TARP and NTARP) > > Discounted Capital Gains (TARP and NTARP) > > CGT Concession. To calculate the optimal Capital Gains position for the client, the totals of Gains Not Eligible for Discount and Discounted Capital Gains each flow through to the bottom section of Schedule D Net Capital Gains. This allows them to be included in the overall Net capital gain calculation for the client s Wrap holdings. The Gains Not Eligible for Discount total figure does not change as it flows through to Schedule D. Discounted Capital Gains from trust distributions are required to be grossed up by 50% (doubled) when they flow through to Schedule D. This enables any available Capital Losses to be applied before CGT discounting then occurs at the correct rate for the entity type (50% for Individuals, Partnerships and Trusts, 33.33% for Superannuation Funds). The client s Total Net Capital Gain/Loss is then determined taking into account any asset disposals by the client and this amount flows through to the Summary section of the tax statement. Q8_Why is the Discounted Capital Gains amount different to the CGT Concession amount for some distributions in Schedule C. The annual tax components for each fund are provided to Wrap by the respective Fund Managers. The Fund Managers determine the proportions and income types that their funds distribute to investors and the tax statements are prepared based on this information. The tax component proportions provided for the Discounted Capital Gain amount and the CGT Concession amount are not the same in all cases. The tax statement therefore grosses up the Discounted Capital Gains amount, rather than just add the two amounts together for capital gains tax purposes. This ensures that the optimal capital gains position is calculated for the client. Once the tax components for a fund have been entered into our system, they are put through an extensive internal review process before we allow that fund to be included in a Tax Statement tranche release. This review process ensures that we have accurately and consistently processed the tax component information.

32 14_Tax Statement FAQ s continued Schedule D Net Capital Gains Q9_Is the cost base of a security or managed fund showing correctly in Schedule D? The cost base of an investment can change during the year if certain conditions or events occur. Corporate actions such as capital returns, takeovers and demergers can all result in an adjustment to the cost base of an investment. For managed funds and listed securities that make nonassessable (tax deferred) distributions the cost base will also be adjusted in the client s Tax Statement to reflect this. Questions regarding any concerns with the reported Cost Base of an investment can be directed to the Wrap Adviser Relations on Q10_ My client has transitioned investments from one account to another, why are these transactions not appearing as disposals on Schedule D? Q11_ Why are the non-assessable amounts from distributions reported in Schedule D different from the tax deferred amounts in Schedule C for a particular investment? Whether or not a transfer of assets will appear as a disposal on Schedule D will depend on whether the transfer has resulted in a Change in beneficial ownership (CBO): > > Change in beneficial ownership = Yes then CGT event triggered, disposal reported on Sch. D > > Change in beneficial ownership = No then No CGT event, disposal not reported on Sch. D A transfer of assets from one Investment Wrap account to another will be a CBO where the investments are being moved from one entity to another (eg an individual transferring stock from their own name into their DIY Superannuation Fund). For this transaction to be completed the adviser needs to supply Australian Standard Transfer Forms which specify the date and value of the transfer, and the names of buyer and the seller of the asset. These documents should be viewable through Earthrise and can assist with queries of this type. Where a CBO has occurred, the asset will be recorded in the new account with new cost and acquisition date details, based on the date the transfer was affected, and the market value of the asset at the time of transfer. The tax deferred amounts reported in Schedule C only relate to the distributions applicable to the current financial year. The non-assessable amounts from distributions that are reported on Schedule D represent a cumulative total of all tax deferred distributions received by the investor since they acquired the asset. For example if the asset was acquired in March 2003, all non-assessable amounts from distributions paid by the fund since that time will be calculated and populated in Schedule D (and also in the Unrealised Gains/Losses report). This also applies to assets that have been transferred into Wrap making it important that the original cost base details are loaded into the system at the time of transfer. 30

33 Stapled Securities Q12_What is a stapled security? A stapled security is created when two or more securities are contractually bound (bundled) together so that they cannot be sold separately. Each stapled security can then be traded on the stock exchange under the one ASX code. Different types of listed securities can be stapled together. For example, many property trusts have their units stapled to the shares of a company to which they are closely associated. Although the stapled security must be bought or sold as a whole, the underlying individual securities are treated separately for taxation purposes when it comes to disposal of the asset. Due to their complexity and the associated tax treatment for different client scenarios, stapled securities often require a large amount of manual review. Q13_ How is income received from a stapled security reported in the client s tax statement? Stapled securities commonly consist of one share in a company and one unit in a unit trust. Income paid to the investor could therefore comprise of a dividend paid from the share (eg $0.10 per share) and a distribution paid from the unit in the unit trust (eg $0.05 per unit). The total cash received by the investor will be the combination of the dividend and the distribution (eg $0.15 per stapled security), but the separate income types are required to be reported in different schedules in the Tax Statement. Dividends will be included in Schedule B and distributions will be included in Schedule C. In addition, if a stapled security makes a combined dividend/ distribution payment where the ex-date and pay date fall in different financial years (eg ex-date on or before 30 June 2010 but paid to investors on or after 1 July 2010), it is possible that the distribution will appear in the 2010 Tax Statement, but the dividend will be reported in the following year s Tax Statement. The reason for this is that dividends are required by law to be reported on a cash basis. ASX Code Name of Stapled Security ASX Code Name of Stapled Security ABP Abacus Property Group DUE Duet Group AIO Asciano Group DXS Dexus Property Group AIX Australian Infrastructure Fund FKP FKP Property Group AJA Astro Japan Property Group MGR Mirvac Group ALZ Australand Property SGP Stockland Group APA APA Group SPN SP Ausnet BEC Becton Property Group TCQ Trinity Group CMW Cromwell Group WDC Westfield Group 31

34 17_Tax Statement FAQ s continued Q14_ How does Wrap work out the cost base of the assets comprising the stapled security? As each underlying asset comprising a stapled security is a separate CGT asset, a separate cost base is recorded for each of them within the Wrap system, based on information provided by the issuer. On disposal of the investment, the separate details for each of the Assets are taken into account when the disposal is reported in Schedule D Net Capital Gains. For stapled securities that were acquired prior to stapling and disposed of during the year ended 30 June 2010, we have reported the disposal of each separate asset making up the stapled security. However, we have reported realised and unrealised gains and losses relating to stapled securities at the consolidated level in all other circumstances. If a client held stapled securities during the year ended 30 June 2010, we strongly recommend they obtain independent tax advice in relation to the taxation treatment of the stapled securities and their distributions. Non Residents on Wrap Q15_ What are the impacts to the client s tax statement if they advise of a change in residency status during the year? A client s tax statement is generated based on their residency status at the time of statement generation. There are two scenarios to consider where a client has informed Wrap that their residency status has changed during the year: > > Client changes from Resident to Non-resident The client will receive a Non-Resident tax statement. Any non-resident withholding taxes will be reported on the tax statement. TFN tax withheld prior to the residency change will not be reported. Wrap services will provide an insert with the paper copy of the clients tax statement containing details of the TFN withholding taxes incurred while the client was registered as a Resident. > > Client changes from Non-resident to Resident The client will receive a Resident tax statement. Any TFN withholding taxes will be reported on the tax statement. Non-resident taxes withheld prior to the residency change will not be reported. Wrap services will provide an additional insert with the paper copy of the tax statement specifying details of any Non-resident withholding taxes incurred. The Wrap Tax Guide contains some important information regarding Non-residents which should be read in conjunction with the tax statement. 32

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36 For more information > > See your Business Developer Manager > > Call BT Portfolio Services Ltd ABN (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers SuperWrap including SuperWrap Essentials (SuperWrap). Trust Company Superannuation Services Limited ABN is the trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to Wrap and SuperWrap (Wrap Products) is limited to distributor only. This information has been prepared without taking account of any individual s objectives, financial situation or needs. This document has been prepared and is provided solely for the general guidance of advisers. The information it contains is given in good faith and has been derived from sources believed to be accurate at its issue date. However, it is general information only and should not be considered a comprehensive statement on any matter nor relied upon as such. No company in the Westpac Group or any of their related entities, employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way including by reason of negligence for errors or omissions. This disclaimer is subject to any contrary requirement of the law. BT Portfolio Services Ltd. This document may not be copied, used, reproduced or otherwise distributed or circulated without the prior written consent of BT Portfolio Services Ltd. Issue date June BT bt