Tax Report Guide. Inside this guide. For the year ended 30 June 2012

Transcription

1 Tax Report Guide For the year ended 30 June 2012 Inside this guide Structure of your Account Understanding your Tax Report Explanations and limitations Completing your Tax Return Tax Report Guide A

2 Asgard Capital Management Ltd ABN AFSL Correspondence to: Asgard Capital Management PO Box 7490 Cloisters Square WA 6850 Telephone Facsimile Contact Centre Abbreviations The following abbreviations are used throughout this Tax Report Guide. ABN Australian Business Number Account the Asgard account(s) for which you have received a Tax Report Asgard, we or us Asgard Capital Management Ltd AFSL Australian Financial Services Licence ATO Australian Taxation Office CGT Capital Gains Tax Guide this Asgard Tax Report Guide Investor Report the Investor Report(s) you have received for your Account Non-resident refers to an Australian non-resident for tax purposes St.George Bank St.George Bank is a division of Westpac Banking Corporation ABN AFSL (Westpac) Tax Report the Annual Tax Report you have received for your Account Tax Return the Individual Tax Return 2012 (including supplementary section) TFN Tax File Number RITC Reduced Input Tax Credit B Tax Report Guide

3 hat s inside Asgard Tax Report Guide 2 About this Guide 3 About your Account 4 Understanding your Tax Report 4 Structure of the Tax Report 5 Types of income and expenses 5 Australian source income 5 Foreign source income 6 Non assessable income 6 Other deductions 6 Capital gains and losses 8 General assumptions and limitations 10 Assumptions and limitations for ewrap Accounts holding direct equities 12 Completing your Tax Return 12 Finding the correct Tax Return label 14 Applying the capital gains discount Important information While every care and effort has been taken in the preparation of this Guide and the Tax Report, no liability is accepted by Asgard Capital Management Ltd, ABN AFSL , its related companies or any of their officers or employees for any statements, opinions, errors or omissions, even if made negligently, contained in the Guide and any damages or losses suffered as a result. The information in this Guide is general information and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretations as at 30 June Your individual situation may differ and we strongly recommend you consult your financial accountant or tax adviser should you require information about your personal tax position. This Guide is not intended to be a substitute for the ATO instructions and should be read in conjunction with them. Acknowledgement Tax Return excerpts and references to Tax Return labels in this Guide are taken from the following documents issued by the ATO. Tax Return for individuals 2012 Tax Return for individuals (supplementary section) Tax Report Guide 1

4 bout this Guide This Guide is designed to help you understand the Tax Report you ve received for your Asgard Account. The Guide outlines the tax assumptions and policies Asgard has used to prepare your Tax Report. It will help you to understand your Tax Report summary and the detailed supporting schedules which have been provided as part of our reporting service to assist in the preparation of your 2012 Tax Return. This commentary is only intended as a general guide and doesn t represent tax advice. Some of the assumptions and policies adopted may not apply to your individual circumstances and you may need to use different tax treatments. If a tax policy or any assumptions we ve applied for a particular item are not appropriate to your personal circumstances, you should recalculate that item and use the new amount instead of what is shown in your Tax Report. If any of the limitations noted in this guide apply to your Account you should determine the appropriate tax treatment for that item separately together with your tax adviser. Different tax policies have been applied in preparing your Tax Report depending on your entity type. The different entity types used are: Individual Company We recommend you seek professional advice to complete the Tax Return applicable to your circumstances. You should provide your tax adviser with this Guide and your Tax Report. If your tax adviser is also preparing financial statements, you may need to provide them with your latest Investor Report as well, which will contain transaction details. Please retain the Tax Report and this Guide for income tax purposes. This Guide consists of four parts: Part 1: About your Account Part 2: Understanding your Tax Report Structure of the Tax Report Types of Income and Expenses Part 3: Assumptions and limitations applied in preparing your Tax Report General applicable to all account types ewrap accounts holding direct equities Part 4: Completing your Tax Return Finding the correct tax return label Capital gains and losses Superannuation Fund (complying) Trust Your entity type is shown on the summary page of your Tax Report. The Tax Return references shown on the Tax Report are based on this entity type. If the entity type is incorrect you ll need to consider the impact on your Tax Report and make adjustments where appropriate. You should also advise us so the entity type can be corrected for future years. This Guide also includes examples for resident individuals to help you correctly record the income and deductions shown in your Tax Report on your 2012 Tax Return. These examples are tailored for resident individuals and may not be relevant for Companies, Superannuation Funds, Trusts or non-residents. 2 Tax Report Guide

5 art 1: About your Account The legal structure of Asgard s Accounts The table below shows the legal structure of the Asgard Accounts and how the income received from them is assessable. For each of these structures, the Tax Report assumes the investor is absolutely entitled to the underlying investments in the Account. Asgard account type Legal structure Income assessable to Investment Funds Account (including Managed Profiles and Separately Managed Accounts Funds Investment Account and Elements Investment Account) Trustee Funds Account ewrap Accounts (including ewrap Investment Account and Infinity ewrap Investment Account) Master Trust: All managed investments held through this Account are acquired in the name of Asgard as responsible entity. Income distribution notices are issued in the name of Asgard but are deemed to be income received directly by the investor in the name in which their Account is held. An Investor Directed Portfolio Service for managed investments which are held in the name of Asgard as custodian for the investor. An Investor Directed Portfolio Service for managed investments and custodial shares which are held in the name of Asgard as custodian. ecash/cash Connect (the Cash Account for ewrap Account) and sponsored shares are held directly in the investor s name. The investor continues to receive bank statements for the ecash or CASH Connect Account and dividend statements for sponsored shares. This income is assessable to the investor and must be included in their Tax Return, even if they haven t made any withdrawals from their Account. The income is assessable to the investor and must be included in their Tax Return even if they haven t made any withdrawals from their Account. This income is assessable to the investor and must be included in their Tax Return, even if they haven t made any withdrawals from their Account. Tax Report Guide 3

6 art 2: Understanding your Tax Report The amounts shown in your Tax Report relate solely to investments held through an Asgard Account. If you ve any other investments, you must add them to the amount on your Tax Report and transfer the total to the relevant label on your Tax Return. If you ve transferred investments into an Asgard Account during the year, the Tax Report will only include income earned after the transfer date. If you have more than one Asgard Account, you ll receive a separate Tax Report for each Account. An annual Tax Report is issued to all investors who had a taxable transaction on the Account during the tax year, including closed Accounts. Structure of the Tax Report Your Tax Report is split into the following sections: Statement of Annual Taxation Summary The Statement of Annual Taxation Summary (Statement) contains all the figures you need to complete your 2012 Tax Return. The labels at items on the tax return are the white letters inside coloured boxes on the Tax return. If you choose to use a tax agent to prepare your income tax return, please advise them to rely on the information in this statement rather than information that may be displayed in the tax agent s pre-filling service. The Statement has been prepared based on the Entity Type shown at the top of the statement (i.e. Individual/ Trust/Company/Superannuation Fund). All tax return labels on the statement are based on your Tax Return for that entity type. The CGT discount has been calculated/adjusted based on the entity type. Supporting Schedules The Supporting Schedules provide detailed information relating to your investment in the Account, including a full breakdown of the figures shown on the Statement and various schedules in support of the Statement. Trust Distributions Receivable Distributions paid by listed and unlisted trusts are included in your Tax Report on a present entitlement basis. This includes distributions that may have been paid after year-end to which you were presently entitled at 30 June. The Trust Distributions receivable schedule is provided to assist you in reconciling your Tax Report to transaction reports such as your Investor Report which include information on a cash basis. Unrealised Capital Gains Report This schedule is not part of the main tax report and is additional information provided to self managed superannuation funds only. This information is provided to assist self managed superannuation funds in calculating estimated unrealised CGT which may be required in preparing financial statements. The schedule is based on information as at 30 June and may not be updated for subsequent cost base adjustments. The figures shown on the Supporting Schedules have been included in the Statement and are for your reference only. Type of income Interest income Dividend income Trust distribution income Other income Source Money market investments Cash Holding Account Cash Management Account ecash Account Cash Connect Account Direct shareholdings Managed investments Direct holdings in listed unit trusts Fee rebates from managed funds Gains on the sale of traditional securities 4 Tax Report Guide

7 Types of Income and Expenses Income can be derived from a number of sources, depending on the type of Asgard Account. This section explains the amounts of Australian Source Income, Foreign Source Income, Non Assessable Income, Capital Gains and Losses and Other Deductions shown on the Tax Report: Australian source income Interest This amount is Australian interest income received on your cash balance, together with any other interest income (such as that received from a fixed interest investment) and any interest income from the following accounts: Asgard or Macquarie Cash Management Accounts ecash or CASH Connect Account (through Asgard ewrap Accounts). Interest income has been included as assessable income on the date of receipt. Other Income The other income disclosed in the report will include any fee rebate amounts received during the year and any gains on traditional securities. Dividends from shares If the investment is through Asgard ewrap Accounts, dividend income from shares is summarised on the Statement of Taxation Summary under the items Unfranked Dividends, Franked Dividends and Franking Credits. This income is shown in detail on the Dividend Income Schedule. Dividends have been included in assessable income on the date of payment of the dividend. Dividend income which forms part of a trust distribution is included in the Trust Distributions amount. An unfranked CFI amount represents an unfranked dividend received from an Australian company to the extent the dividend is declared to be Conduit Foreign Income (CFI). The unfranked CFI amount is included as part of unfranked dividends in the Tax Report. Franking credits A franking credit represents an allowance for tax already paid by a company paying a dividend. You may receive a franking credit on a dividend you receive from direct shares or as part of a distribution from a listed trust or managed investments. The amount of any franking credits is included in your assessable income for the year, but is also allowed as a credit against any tax payable on assessable income. The credit is known as a tax offset. A tax offset for franking credits may not be claimable in certain cases. The investor may be affected if their interest in shares was acquired on or after 1 July 1997 and they didn t hold that interest at risk for more than 45 days (or 90 days for preference shares) excluding the day of purchase and sale. Asgard has reviewed some of the investments in managed investments in your Account (see Part 3: Assumptions and limitations applied in preparing your Tax Report). For the managed investments reviewed, your Tax Report includes the following information: those investments held for 45 days or less franking credits which are at risk of being denied pursuant to this legislation. Any franking credits attached to investments identified as being at risk are disclosed as a footnote to your Tax Report, but haven t been deducted from the amounts shown on the Statement of Taxation Summary or supporting schedules. The availability of franking credits detailed in your Tax Report depends on individual circumstances. We recommend you consult your tax adviser to determine whether these franking credit tax offsets are allowable. These measures, which limit the availability of a franking credit tax offset, don t apply to individuals whose total entitlement to franking credits (including those franking credits from trust distributions) is equal to or less than A$5,000. Trust distributions This amount represents the Australian sourced income component of trust distributions from managed investments and listed funds. Distributions are shown in the Trust Distributions Schedule in the year the investor becomes entitled to the income. This may be different to the year in which the distributions are received. The tax components of trust distributions have been calculated based on actual percentage components, as advised by the relevant fund manager or registry. Foreign source income We ve reported all foreign source income and foreign income tax offsets in the Foreign Income Schedule. We ve apportioned expenses against foreign income (see the Expense Apportionment item) and these are shown on the Statement of Annual Taxation Summary. Australian franking credits from a New Zealand company The Trans-Tasman imputation measure allows New Zealand resident companies to choose to enter the Australian imputation system. If the fund you ve invested in is an Australian shareholder of a New Zealand franking company and received franked dividends with Australian franking credits attached directly or indirectly from a New Zealand franking company, then you ll need to show these amounts in your Tax Return. Tax Report Guide 5

8 Net foreign loss quarantine Changes to the net foreign loss quarantine rules were introduced with effect from 1 July As such, you may need to consider the ability to use any carried forward losses in accordance with the transitional rules. Foreign income tax offsets If you ve received foreign income tax offsets, you will need to consider your eligibility to claim these offsets. Refer to the Guide to Foreign Income Tax Offset Rules , available from the ATO website, for further guidance relating to foreign income and foreign income tax offsets. Non-assessable income The distribution(s) received via your account may include tax-exempt income, tax-free income, taxdeferred income and/or return of capital. These amounts are generally not assessable for income tax purposes, but may affect the calculation of any capital gain or loss on disposal of the investment. The adjustments to the cost base and/or reduced cost base for these amounts have been made for the purposes of your Tax Report at the payment date of the distribution. Expense apportionment Asgard has added together all attributable expenses, paid via the account, which you may be entitled to claim as an income tax deduction in relation to trust distributions. The expenses have been apportioned across Australian source trust distributions, foreign source trust distributions, interest income and dividend income and are shown in the relevant sections of the Statement of Annual Taxation Summary. You should consider the deductibility of these expenses based on your individual circumstances. These expenses may include the following items: management costs and other expenses (for example, trustee fees and monthly administration fees) interest paid to St.George Bank for monies borrowed to invest via the account St.George Bank loan expenses (for example, stamp duty). Contribution fees/upfront fees which you ve paid are not included as expenses in the annual tax report. These fees are treated as a cost of acquisition and included in the cost base of the investments you purchased. Other deductions Premiums for Income Protection You may be able to claim a tax deduction for Income Protection insurance premiums shown on the Tax Report under this heading. Interest and dividend deductions Where there are investments in either interest bearing or direct investments (shares), we ve attributed some of the expenses paid during the year to these deduction items. These expenses may include the following: management and other expenses/losses, for example, trustee fees interest paid to St.George Bank for monies borrowed to purchase shares via the account St.George Bank loan expenses (for example, stamp duty) bank fees and government charges attaching to the Asgard Cash Management, Macquarie Cash Management Account or Asgard ecash/cash Connect Account. The deductibility of bank fees and government charges attached to your Cash Management Account and Asgard ecash/cash Connect Account will depend on the types of transactions for which the account is used. To the extent the Account is used for private purposes (withdrawals to cover private expenses), these fees will need to be apportioned into deductible and nondeductible components. We ve reported the full amount of these fees in your Tax Report. Gearing deductions (for example, interest or fees) for investments with Asgard are not reported in your 2012 Tax Report where gearing is provided by sources external to Asgard. Gearing Interest Deductions on the Tax Report shows the full amount of interest paid during the financial year. If you re an individual or a small business entity, you can claim outright prepaid interest if it satisfies the 12-month rule whereby it s paid for a period within 12 months and the period covered ends in the next financial year. If you re a medium or large business, or a nonindividual that isn t carrying on a business, prepaid interest may be apportioned over the periods to which it relates. Expenditure less than A$1,000 is deductible immediately. Borrowing costs are recorded at the time of undertaking a borrowing, but are shown as deductions on the Tax Report over the lesser of the term of the borrowing or a five-year period. Capital gains and losses The capital gains shown in your Tax Report are derived from two main sources: trust distributions from fund managers and listed unit trusts (refer to the Income Received column). the sale of investments (refer to the Gains/Losses on Sales column). Trust Distributions Schedule The Trust Distributions Schedule contains detailed information on the capital gains from trust distributions. 6 Tax Report Guide

9 If you re a non-resident investor, you should seek professional advice for your own circumstances as this guide is tailored specifically for resident investors. The Trust Distributions Schedule includes the CGT components as declared by each fund. In some cases, the capital gains distributed are not split equally between the assessable discounted gain and the exempt concessional component (this will depend on each fund manager s distribution policies). The CGT discount rate applying to distributed capital gains has been adjusted based on the entity type shown on the Statement of Annual Taxation Summary. If the entity type is incorrect, your CGT calculation will be affected. We recommend you seek tax advice if this is the case. The adjustment is shown in the Adjustment or Tax Credit column on the Statement. Capital gains and losses on sales are reported on the date the investment is sold (or deemed to be sold). Capital gains on the sale of investments are shown in the Capital Gains/Losses Schedule after the relevant CGT discount has been applied. Where losses are to be offset against discount capital gains, the discounted capital gain will need to be grossed up to the prediscount amount. We have not calculated the net capital gain in your Tax Report as this may need to be adjusted if you have capital gains or losses from other sources or if you ve carried forward capital losses. Please refer to the capital gains and losses worksheets in Part 4 of this Guide for information on how to calculated the net capital gain or loss. For example, if the discounted capital gain is $100 (after the 50% discount) then the grossed up gain is $200. Trust/Individual after adjustments, the taxable discounted gain is $100 (50% discount). Company after adjustments, the taxable discounted gain is $200 (no discount). Superannuation fund after adjustments, the taxable discounted gain is $133 (33 % discount). The Additional Information section of your Tax Report separates capital gains from trust distributions into capital gains classed as Taxable Australian Real Property (TARP) and Not Taxable Australian Real Property (NTARP). This split is relevant for nonresident investors. Capital Gains/Losses Schedule The Capital Gains/Losses Schedule contains calculations of capital gains and losses as a result of the sale of investments. This schedule calculates the capital gain on each asset sale using both the Non Discount Method (the Indexed Method applies if assets are held for more than 12 months and acquired before 21 September 1999 or, the Other Method applies if assets are held for less than 12 months) and Discount Method. The lowest gain amount is transferred to the body of the Tax Report. We ve assumed all profits and losses from investment sales are assessable as capital gains or losses and not as ordinary income. If the investor is a trader in securities or otherwise considered to hold investments on revenue account, or has been classified as such by the ATO, the investor should seek separate advice as to how the tax provisions apply. Tax Report Guide 7

10 art 3: Assumptions and limitations applied in preparing your Tax Report The preparation of the Tax Report is based upon a number of policies, assumptions and limitations. We recommend you: seek professional tax advice about the impact of these assumptions and limitations on the accuracy of the information to include in your income tax return check the accuracy of any Corporate Actions processed on your Account (if applicable) against any documentation that you received from the share registry. General applicable to all account types Following is a list of the policies, assumptions and limitations we ve made in preparing your Tax Report: General preparation Your Tax Report shows amounts in whole dollars for Tax Return disclosure purposes. Totals have been calculated using the full amounts including cents and then rounded. Your Tax Report was prepared using information from our records, together with data provided by investment managers and share registry managers, plus other sources of relevant information including the ASX website. Your Tax Report was prepared on the basis of the investor being the type of entity disclosed in the header on the summary page of the Tax Report. Your Tax Report isn t specifically designed for preparing financial statements as it s been prepared on a tax basis. When preparing financial statements you may also need to refer to your Investor Report and transaction reporting which includes transactions on a cash basis as well as portfolio balances. TFN Withholding Tax TFN Withholding Tax may have been deducted from the Australian Interest income and Trust Distributions you received if you have not provided your TFN to us. Any TFN amount withheld will be disclosed on your Tax Report (except as noted below in relation to direct equities). Non Residents The Tax Report was prepared on the assumption the investor has been a resident of Australia (for tax purposes) for the whole income tax year. If you re a non-resident, or if you change your country of residence, you must advise us so we can withhold the correct amount of tax on your investment income. If you ve advised us you re a non-resident for tax purposes, we will have withheld tax on income paid to you. Any amounts withheld are shown in your Tax Report (except for withholding tax on income paid on sponsored share holdings as discussed below). If you re a non-resident for tax purposes, you ll need to consider which items are relevant to your Australian and Foreign Tax Returns based on your individual circumstances. We strongly recommend you obtain professional tax advice. Taxation of Financial Arrangements ( TOFA ) We have not applied the Taxation of Financial Arrangements (TOFA) legislation to determine the tax treatment of gains and losses from financial arrangements in your portfolio for the current year. If you believe that these provisions apply to your investments, please consult your tax adviser to confirm the appropriate tax treatment applicable. Net Investment Losses Certain expenses incurred on investments may result in the investments making a loss, referred to as a net financial investment loss. A net financial investment loss is required to be shown at item IT5 on your Tax Return and is used in certain income tests to work out liability for the Medicare levy surcharge and HELP repayments plus whether you re entitled to receive a range of government support programs and tax offsets. Please consult your financial accountant or tax adviser to determine if you have a net financial investment loss. We haven t calculated the net investment loss in your Tax Report. 8 Tax Report Guide

11 Passive investor We ve assumed you ve acquired all assets as a passive investor and therefore applied the capital gains tax provisions to your investments (except for certain direct securities refer to next section ewrap Accounts holding direct equities ). Parcel Selection The order of sale of tax parcels for a particular asset will depend on the particular accounts invested through. For ewrap Accounts, tax lot selection for managed investments is offered at the time of sale, while for shares you have an opportunity to select from four choices of allocation methods during the year. For other accounts (or where no selection is made in ewrap Accounts), a stated order of sale will apply. This stated order of sale is set out in the relevant offer documents. If you used a different method for selecting parcels when completing your income tax return in prior years, the gains and losses from the disposal of investments shown on your statement may need to be recalculated. CGT rollover relief Where CGT rollover relief is available on an optional basis at the election of the investor, we re not able to reflect this election in your Tax Report as the choice of the election will depend on each investor s particular circumstances. If optional rollover relief is elected, both current and future Tax Reports may not be accurate. In-Specie transfers into the account For managed investments or listed securities that have been transferred into your ewrap Account, the purchase cost, date of acquisition, number of shares or units and adjusted cost base information is based on information supplied to Asgard at the time of transfer. The gain or loss calculated for any parcel you ve sold will be incorrect if any of the transfer data provided is incorrect. Please review all disposals to ensure the details of the transfer are correct for each parcel sold. In addition, if managed investments or listed securities were transferred into the Account during the year, your Tax Report will only include income received from the date the transfer was processed. You ll also need to include any income received from these managed investments or listed securities prior to the transfer in your Tax Return. In-Specie transfers out of the account A CGT event generally doesn t arise on the transfer of assets out of the Account provided the beneficial ownership of the assets does not change. Currently, our view is that the account holder is the beneficial owner of the Account and that there s no change of beneficial ownership where assets are transferred to another Investor Directed Portfolio Service ( IDPS ) account held in the same name. If you ve transferred assets from an Asgard Investment Funds Account or an Asgard Trustee Funds Account to an ewrap Account with Asgard the capital gains treatment will depend on the account you transferred to. In some cases a CGT event will be reported where you advised us the account was held in a different name. If the account holder is not the beneficial owner of the assets, we may not have identified the change of ownership and you ll need to calculate any capital gain/ loss on the transfer. For example, this may occur if the account is held on trust for another party. For all other transfers of assets, including transfers between ewrap Accounts and from ewrap Accounts to an external IDPS operator, we ve assumed there was no change of ownership on the transfer and no CGT event will be reported in your annual Tax Report. If this isn t the case, you ll need to calculate and include in your Tax Return, the capital gain/loss on the transfer. You should review all transfers and ensure that a capital gain/loss has been correctly calculated for any transfers where there s a change of beneficial owner. The 45-Day Rule Currently, our Tax Reports are only able to check on the 45-day rule status of franking credits for managed investments fund distributions for the Asgard Investment Funds Account and Asgard Trustee Funds Account. In performing this check, we ve assumed these managed investments are held at risk for the entire period they re held. We re only able to test the impact of the 45-day rule in relation to the holdings in your Account. If you have similar holdings in a different Account or in your own name, this may impact the availability of franking credits on your account. If you have holdings in another account (either with Asgard or elsewhere) or hold investments in your own name, you should seek professional advice in relation to the availability of franking credits. Any franking credits attached to investments identified as being at risk are disclosed as a footnote to the Tax Report, but haven t been deducted from the amounts shown on the Statement of Taxation Summary or Supporting Schedules. The availability of franking credits detailed on your Tax Report depends on individual circumstances. We recommend you consult your tax adviser to determine whether these franking credit tax offsets are allowable. Capital Losses We have reported current year capital losses only and haven t taken into account any prior year losses that may have been carried forward. Net Capital Gain We haven t calculated your Net Capital Gain as this will depend on your personal circumstances. We ve reported the total discounted gains, non-discounted gains, and capital losses in the Tax Report summary. Please refer to the examples on pages for examples of how to calculate the net capital gain using these figures together with any other capital gains/ losses you may have. Tax Report Guide 9

12 Managed Investment Distributions Where managed investments income distributions are received on a basis other than annually (for example, quarterly or monthly), we determine the tax components of each distribution by allocating the total of each tax component for the full year proportionately across each distribution received. GST Expenses shown in your Tax Report are inclusive of any GST payable and net of any input tax credit or RITC that we have claimed within the Account. Where we haven t claimed an input tax credit or RITC, we ve included the total GST in the expense. If you ve claimed an RITC on these fees directly in your own Business Activity Statement, you ll need to reduce the expense amount by the RITC you ve received. ewrap Accounts holding direct equities This section includes additional policies, assumptions and limitations applying to ewrap Account clients holding direct equities, which may include certain complex transactions or assets. Your financial adviser can provide you with a list of the particular investments to which these rules have been applied. We recommend you seek professional tax advice if you hold any of the assets discussed below. Bonus Shares The issue of bonus shares is generally not treated as a dividend or included in assessable income. Instead, as the bonus shares issued are taken to have been acquired at the time the original shares were acquired. A revised CGT cost base is determined by apportioning the original cost base across both the original shares and the bonus shares. Some companies offer Dividend Election Plans (DEPs) under which an investor can choose between receiving bonus shares or receiving a dividend. Where a dividend is chosen, it may be taken as a cash dividend or by participating in a Dividend Reinvestment Plan (DRP). As a general rule, under these circumstances, the ATO will treat the bonus share as a dividend (and therefore taxable). However, where the company offering the choice meets the following criteria, these bonus shares will not be treated as a dividend, but as a bonus share (as outlined above): the company is a listed public company the company does not credit its share capital account in connection with the issue of the bonus shares the dividend is not a minimally franked dividend (franked to less than 10%). For the purposes of preparing your Tax Report, we ve assumed a DEP would only be offered where these conditions are met and have therefore treated shares issued under a DEP as bonus shares. Where an investor chooses to take their dividend as a DRP, the amount of the dividend is included in assessable income and is treated as the cost base of the shares acquired. Stapled Securities Where a security is a stapled security, an investor s stapled holding may represent a combination of underlying entities which may include both shares in a company and units in a unit trust. Where such stapled securities include both dividend and trust distribution amounts, these amounts have been split and reported separately under each category according to the reporting rules for each category. Where a group of securities are stapled to become a single listed security, the individual holdings (either shares or units) in the underlying entities are still considered to be separate assets for CGT purposes (although they cannot be traded separately). In some cases, we ve recorded a single acquisition date for the stapled securities. This may result in incorrect reporting of capital gains discounting where newly stapled securities are disposed of within twelve months of the stapling date and where an interest was previously held in only some of the underlying entities before the stapling. Pooled Development Funds A Pooled Development Fund (PDF) is a special investment vehicle that invests in certain types of investments and receives concessional tax treatment for both the PDF and the investor. PDFs are only taxed at a rate of 15% or 25%, but continue to be able to pay franking credits at the 30% company tax rate. In addition, investors in PDFs receive the following: an exemption from income tax on unfranked PDF dividends a choice to treat franked PDF dividends as either exempt income (with no franking credits) or assessable but with the investor being entitled to the franking credits an exemption from deriving a capital gain or loss on sale of the PDF shares (if it s a PDF at the time of sale). For the purposes of preparing your Tax Report, we ve assumed all PDF dividends are to be treated as exempt from tax. If investors wish to include franked dividends as assessable income and claim franking credits, they should refer to the dividend statement provided by the PDF for details of the franked dividend amount and attached franking credits. Listed Investment Companies Investors who hold investments in a Listed Investment Company (LIC) are entitled to special taxation treatment where the LIC distributes a dividend that is attributable to a capital gain, known as the attributable part. Where a LIC pays such a dividend, eligible investors are able to benefit from the CGT discount on assets realised by the LIC on or after 1 July 2001, provided the asset has been held for 12 months. To obtain this benefit, individual Australian resident investors are entitled to claim a deduction equal to 50% of the attributable part of the dividend at the time it s paid. 10 Tax Report Guide

13 In preparing your Tax Report, we have included a deduction for the attributable part of any dividends received from LICs. The deduction is based on 50% for individuals and trusts and 33 % for superannuation funds. Details of the LIC deduction included can be found in the supporting schedules. Traditional Securities The gains or losses arising on disposal, conversion or redemption of some types of securities are treated as assessable income or allowable deductions under tax law. These securities are known as traditional securities and generally include investments such as stocks, bonds, debentures and various notes, including convertible notes (refer below). Any gains arising on traditional securities in your Account are included in the Tax Report as Other Income, while losses on traditional securities are shown as Loss on sale of traditional securities. Income on these types of securities is shown in your Tax Report as part of the interest component in the Trust Distributions item or in the Dividends item, based on the information provided by the registry. Convertible Notes Convertible notes are one type of security that can qualify as a traditional security. However, for convertible securities issued after 14 May 2002, the tax treatment differs from other traditional securities. For these securities, no assessable gain or deductible loss will arise to the investor on conversion into ordinary shares. Instead, the gain or loss is deferred and determined under the CGT provisions as a gain or loss on the ultimate disposal of the ordinary shares acquired by the conversion. The cost of the convertible note, together with conversion costs (if any) will be treated as the cost base for the shares acquired on conversion. Any capital gain or loss resulting when the ordinary shares are eventually disposed of will be included in the Capital Gains/Losses Schedule in your Tax Report. These rules only apply if the note is converted into an ordinary share of the issuer or a connected entity or otherwise disposed of to the issuer or a connected entity. If this isn t the case, the gain or loss is still treated under the traditional security arrangements. Warrants Due to the nature of warrants and the lack of readily available information required to perform tax calculations for warrants, we re not able to correctly report all relevant tax information relating to warrants. In preparing the Tax Report in relation to warrant holdings, we ve included all dividend information relating to the underlying shares that make up the warrant. Your Tax Report does not include: any capital gains on either the warrant or the underlying shares any tax deductible components of the warrants such as interest and borrowing costs. In order to complete your Tax Return in relation to warrant holdings, refer to the tax reporting information supplied by the warrant issuer. Trust Distributions year end other than 30 June Where a trust has a year end other than 30 June, investors are required to include the relevant components of the distribution in their assessable income in the financial year during which the trust s year of income ends. For example, if a trust has a year end of 31 December 2011, all distributions in respect of the year from 1 January 2011 to 31 December 2011 must be included in your Tax Return for the year ended 30 June Interim distributions for the halfyear ending 30 June 2012 should be included in your 30 June 2013 Tax Return. Amounts are included in the Trust Distributions Schedule of the Tax Report on the basis of these rules. Rights Issues For the purpose of preparing this Guide and your Tax Report, we ve assumed rights issues are on capital account. Franking Credits We haven t applied the 45 day or 90 day holding period tests to any investments held through ewrap Accounts. You should consider your eligibility for any franking credits. Please refer to Franking Credits in Part 2 for further information. TFN and non-resident withholding on direct equities As we re not advised on the amount of TFN withholding tax or non-resident withholding tax that share registries have deducted from dividend payments during the year, your Tax Report doesn t include any amounts of withholding tax deducted from dividends. Any withholding amounts deducted from dividend payments will have been reported by the share registry on the dividend statement provided to the investor. Foreign Withholding Tax Where a company pays a dividend and that dividend is subject to withholding tax in a country outside Australia, Australian tax law requires the full amount of the dividend to be included in assessable income by the investor receiving the dividend. A foreign income tax offset may be claimed (in certain circumstances) for the foreign tax withheld. For trust distributions, the net amount after withholding tax is shown as Cash Distributions and the tax withheld is shown as Foreign Income Tax Offsets in the Trust Distributions Schedule. For dividends paid by foreign companies, the rate of the withholding tax depends on the investor s personal circumstances. As we re not aware of the rate of withholding tax applying in each case, your Tax Report shows the full amount of the dividend before withholding tax, but doesn t show an amount for withholding tax paid. Investors wishing to claim a foreign income tax offset for this withholding tax should identify the relevant amount from their dividend statement. Tax Report Guide 11

14 art 4: Completing your Tax Return Finding the correct tax return label This section is designed to help you complete your Tax Return using your Tax Report. The following is a sample Tax Report showing you how to use your report to find the correct tax return question and label for each item of income or expense. An example of completing a Tax Return using the Tax Report Sample Tax Report Excerpt Excerpt only Statement of Annual Taxation Summary for year ended 30 June 2012 Income Components Income Received Gains/ Losses on Sales Adjustment or Tax Credits Taxable Tax Return Label Australian Source Income Interest (Question 10) L Sample Tax Return Excerpt Excerpt only Individual Tax Return 2012 INCOME 10 Tax file number amounts Gross interest withheld from gross interest M, Gross interest L, The question numbers and labels in the Tax Report will be different depending on your entity type. All examples in this Guide are based on Individuals and relate to the Individual Tax Return 2012 or the Tax Return for Individuals (supplementary section) 2012 which are collectively referred to as the Tax Return. This Guide is not intended to be a substitute for the ATO instructions and should be read in conjunction with them. 12 Tax Report Guide

15 Capital gains and losses The capital gains section of your Tax Report shows the indexed, other, discounted (after discount) and CGT concession amounts as well as the capital losses. The following pages contain three examples, with corresponding worksheets, to help you ascertain how to apply the CGT discount and determine the net capital gain or net capital loss. 1. Capital gains and no capital losses. 2. Capital losses exceeding your capital gains. 3. Capital gains exceeding your capital losses Please note, these examples don t consider the impacts of capital gains or losses you may have from outside this Account, or capital losses carried forward from prior years. If these situations apply to you, you ll need to adjust your Tax Return accordingly. If your Account is in the name of a trust, company or superannuation fund, the following examples are not tailored for you and there may be differences in the way you need to apply the CGT discount. An example of the Capital Gains section of the Tax Report Capital gains distributed by trusts Capital gains/losses on the sale of your assets Adjustments increase or reduce the taxable amount: Includes the adjustment to the Discount Gains where your discount rate is less than 50% based on your entity type Tax report excerpt item Income Received Gains/Losses on Sales Adjustment or Tax Credits Taxable Capital Gains (Question 18) Indexed Method Other Method Discount Method (After Discount) Capital Gains Concession 60 0 (60) 0 Capital Losses Total Capital Gains 473 Total of the first 3 columns. Total is before offsetting losses. Use these figures to determine the net gain using worksheet 1,2 or 3. This is the total gain required for disclosure in the tax return at 18-H Tax Report Guide 13

16 Net capital gains: examples and worksheets for individuals Sample Tax Report Excerpt The table below provides an excerpt from the Tax Report for each of the examples. Note that the Taxable column in the Tax Report is the total of capital gains from distributions and sales. Capital gains Example 1 No capital losses ($) Example 2 Losses exceeding gains ($) Example 3 Gains exceeding losses ($) Indexed Method Other Method Discount Method (after discount) Capital losses for 3a (or 400 for 3b) Total capital gains The figures shown in the Total capital gains row are not net figures. These figures represent the total capital gain before losses are offset and before discounting is applied, which is required to be disclosed in the Tax Return for individuals. This figure is calculated as: Indexed Method + Other Method + (2x Discount Method (after discount)). Sample Tax Report Excerpt Worksheet 1 no capital losses The net capital gain is calculated as shown in the table below. Example from above ($) Indexed Method 210 Worksheet for you to use Other Method Discount Method (after discount) 60 = = = Net capital gain (Question 18, Label A) 413 Sample Tax Return Excerpt 18 Capital gains Did you have a capital gains tax event during the year? G NO YES Did this CGT event relate to a forestry managed investment scheme interest that you held other than as an initial participant? Total current year capital gains Net capital losses carried forward to later income years Q NO H V YES 4 7 You must print X in the YES box at G if you received a distribution capital gain from a trust. Net capital gain A Tax Report Guide

17 Sample Tax Report Excerpt Worksheet 2 capital losses exceed capital gains The net capital gain is calculated as shown in the table below. Example from above ($) Indexed Method 210 Worksheet for you to use Other Method Discount Method (after discount) Gross up the discounted gain* Capital losses (700) = = = Net capital loss 227 (Question 18, Label V) *The discounted gains have already been reduced by 50%. Losses must be offset before the discount is applied. As such, the discounted gain needs to be grossed up. Sample Tax Return Excerpt 18 Capital gains Did you have a capital gains tax event during the year? G NO YES Did this CGT event relate to a forestry managed investment scheme interest that you held other than as an initial participant? Total current year capital gains Net capital losses carried forward to later income years Q NO H V You must print X in the YES box at G if you received a distribution capital gain from a trust. YES Net capital gain A Tax Report Guide 15

18 Sample Tax Report Excerpt Worksheet 3 capital gains exceed capital losses The net capital gain is calculated as shown in the table below. 16 Tax Report Guide Example 3a (Losses are less than non-discount gains) ($) Step 1: Losses applied against non-discount gains Example 3b (Losses are more than non-discount gains) ($) Indexed Method Worksheet for you to use Other Method Capital losses (200) (400) = = = = Step 1 total: Sub-total after offsetting losses against non-discount gains Step 2: Remaining losses applied against discount gains Discount Method (after discount) 153 (47) Gross up the discounted gain* Losses after Step 1 (if any) N/A (47) = = = = Sub-total after offsetting losses against discount gains *50% *50% *50% *50% Step 2 total: Discounted capital gains after losses and discounting applied Step 3: Add remaining non-discount and discount capital gains from Step 1 and Step 2 Step 1 total (if a positive number) 153 N/A Step 2 total Net capital gain (Question 18, Label A) *The discounted gains have already been reduced by 50%. Losses must be offset before the discount is applied. As such, the discounted gain needs to be grossed up. Sample Tax Return Excerpt 18 Capital gains Did you have a capital gains tax event during the year? G NO YES Did this CGT event relate to a forestry managed investment scheme interest that you held other than as an initial participant? Total current year capital gains Net capital losses carried forward to later income years Q NO H V You must print X in the YES box at G if you received a distribution capital gain from a trust. YES Net capital gain A Capital gains Did you have a capital gains tax event during the year? G NO YES Did this CGT event relate to a forestry managed investment scheme interest that you held other than as an initial participant? Total current year capital gains Net capital losses carried forward to later income years Q NO H V 3 YES Net capital gain A You must print X in the YES box at G if you received a distribution capital gain from a trust

19 Completing a CGT Schedule You may need to complete a CGT Schedule if your capital gains or capital losses exceed A$10,000. However, individuals who lodge paper Tax Returns are not required to complete a CGT Schedule. If you need to complete a CGT Schedule, please take note of the following information: capital gains from realised gains are included under the Non-active assets labels as shares and units capital gains from the various fund manager distributions are included in the CGT Schedule under the Non-active assets labels as Other CGT assets. Refer to the Personal investors guide to capital gains tax (issued by the ATO) for the steps to complete the CGT labels in the Tax Return. Tax Report Guide 17

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