PPS Investment Account Tax Guide For the year ended 30 June 2009 Macquarie Private Wealth A world of opportunities
Tax policies and general assumptions This Tax Guide provides information on the tax policies and assumptions used and the information the Operator of this service has relied upon to prepare the Tax Report Summary and the Tax Report Detailed in order to determine how amounts received should be treated for taxation purposes. It will help you in the preparation of your income tax return for the year ended 30 June 2009. Our dedicated Wrap tax websites contain detailed tax information relating to tax reporting including: technical information: stapled securities, listed investment companies and much more guides to the Tax Report glossary of terms ATO links and resources ask the experts. Should more detailed information be required, the following links may be useful: advisers refer to the Premium Portfolio Service website accountants macquarie.com.au/wraptax PPS Investment Account is an investor directed portfolio service operated by Macquarie Investment Management Limited ABN 66 002 867 003 AFSL 237492 (MIML). Term deposits may be deposits with Macquarie Bank Limited (MBL) ABN 46 008 583 542. MIML (the Operator) may allow term deposits issued by other financial institutions to be held on the investment menu. Other than term deposits with Macquare Bank Limited, investments made through PPS Investment Account are not deposits with or other liabilities of MBL or of any Macquarie Group company, and are subject to investment risk, including possible delays in repayment and loss of income or principal invested. None of MBL, MIML or any other member company of the Macquarie Group guarantees the repayment of capital or the performance or any particular rate of return of the investments purchased through PPS Investment Account. This document has been prepared as a general guide only. This is not personal advice. This Tax Guide has been prepared without taking into account your objectives, financial situation or needs. Therefore, before preparing an income tax return, you should consider the appropriateness and relevance of the Tax Guide, taking into account your specific circumstances. The Operator recommends that the general assumptions and tax policies section are read thoroughly because in some instances the policies applied may not be applicable to your specific circumstances and if this is the case, particular amounts may need to be recalculated using other reports available. The Operator strongly recommends that your income tax return is prepared in conjunction with advice from an accountant or tax adviser. This Tax Guide covers the tax policies and assumptions in which the Operator has relied upon in preparing your Tax Report Summary and Tax Report Detailed but should not be relied upon as a substitute for professional taxation advice.
Tax Report Summary The Tax Report Summary provides you with a summary of your taxable position in respect of your account for the year ended 30 June 2009. It provides: consolidated tax information required to complete your income tax return references to ATO TaxPacks for individuals, trusts and self managed superannuation funds; and references to the Tax Report Detailed so that you can determine how amounts disclosed in the Tax Report Detailed are used to arrive at the amounts disclosed on the Tax Report Summary. Tax Report Detailed The Tax Report Detailed provides you with a detailed breakdown, on a distribution by distribution basis, of all income that you have derived for the income year 30 June 2009. It also contains information about any asset disposals and any expenses that have been incurred throughout the year. The Tax Report Detailed has the following sections: Cash (C) Managed Funds & Listed Trusts (T) Listed Securities (S) Other Income (O) Disposal of Capital Items (R) Excess Assessable Gains (X) Denied Franking Credits (DF); and Fees and Expenses (F). The Tax Report Detailed will only show those sections of the Report that are relevant to your account. It will not disclose sections where your investments did not distribute assessable income during the year. The Tax Report Detailed will always disclose the Cash (C) and Fees and Expenses (F) sections. 1. Cash (C) Cash income reported includes distributions from the the Operator Cash Management Trust (CMT), amounts paid in respect of term deposits and any interest refunds from margin loans. CMT income is included as assessable income on the date the income is declared. Any interest refunds on margin loans are included as assessable based upon the date of payment of the interest. Any amount paid in respect of term deposits is the gross amount received. Where you have terminated your term deposit early, any break costs have been netted off against the cash received. The amount of interest refunded in respect of your margin loan is the amount provided by your margin lender. Should this not reconcile to information you have received from your margin lender, please contact your margin lender directly. Also disclosed is the amount of any withholding tax deducted where you have not provided a TFN or you are a non-resident. 2. Managed Fund and Listed Trust Income (T) Managed fund, listed trust and listed investment company income reported may include distributions of: Interest Dividends Capital gains Foreign income Other income Franking credits Foreign tax credits Non-assessable amounts (such as tax deferred, tax free and return of capital amounts); and Expenses paid. Income from managed funds and listed trusts is included as assessable income on an accruals (present entitlement) basis. Any credits distributed through managed funds and listed trusts are disclosed separately under the applicable categories of credits. The Net Cash Distribution received has been grossed up to include TFN amounts withheld (if any) and non-resident withholding tax and income tax deducted (if any). Tax deferred, tax free and return of capital distribution amounts These components require adjustments to the cost base and/or reduced cost base (as relevant) of the asset. Any such adjustments have been made as at the accrual date of the distribution. Listed Investment Companies (LICs) Where you are a resident and you receive a dividend from a LIC, to the extent that the dividend is franked, either fully or partially, then the franking credits attached to that franked dividend are also included in your assessable income on a paid or credited basis. You may be entitled to a tax offset equal to the amount of the franking credits attached to the dividend received. Where the dividend received is unfranked, that amount is the only amount which is included in your assessable income. If you are a non-resident and receive a dividend, the withholding tax rules are applicable. Where applicable, the amount of the allowable deduction associated with the attributable part of a LIC distribution will be reported under the expenses paid column of the Tax Report Detailed, and under Other in the expenses section of the Tax Report Summary. Where you are an investor other than an individual or trust, the amount of the expense will vary depending upon your circumstances. Where an attributable part has been disclosed by the product issuer, you can request from the Operator a copy of the relevant dividend statement where you had a holding in these securities at any time during the 2009 tax year and received a dividend. The Operator will advise at the time of request whether or not this information is available. 3. Listed Securities Income (S) Income from listed securities may include: Franked dividends Franking credits Unfranked dividends Interest income Foreign income; and/or Foreign tax credits. The Tax Report Summary and Tax Report Detailed include income from listed securities as assessable when: Franked or unfranked dividends are paid or credited 1
Foreign income is paid or credited; and/or Interest income from convertible notes is declared. The Net (cash) amount received has been grossed up to include no-tfn amounts withheld (if any) and non-resident withholding tax deducted (if any). 4. Other Income (O) Other income includes any gains or losses made on convertible notes and any product issuer rebates to which you may be entitled. Other income is included as assessable income when the amounts are paid. Convertible notes Interest bearing convertible notes issued prior to 14 May 2002 are generally treated as traditional securities for income tax purposes. Broadly, this means that any profit or loss on the disposal, conversion or redemption of a traditional security is assessable or deductible under special provisions. These amounts appear in the Other Income (O) section of the Tax Report Detailed. For securities issued on or after 14 May 2002, the treatment of conversions and exchanges differs from that described above. In general terms, no assessable gain or deductible loss will arise upon conversion into ordinary shares. Rather, the taxing point will be deferred until the disposal of the ordinary shares that were acquired on conversion or exchange. The gain or loss on the ultimate disposal of the ordinary shares will be subject to the CGT provisions for the period before, as well as after, conversion or exchange. 5. Disposal of Capital Items (R) In calculating capital gains (or losses) for your account, the Operator has made the following assumptions: you are an Australian resident for tax purposes all investments held in your account have been acquired as capital assets only investments held within your account have been included in the Tax Report Summary and Tax Report Detailed. The Tax Report Summary and Tax Report Detailed does not take into account assets which are held outside your account, or assets that have been included in the Portfolio Valuation Report as below the line assets, such as retail managed investments. The Tax Report Summary and Tax Report Detailed does not take into account any prior year losses or other carried forward balances. The Operator has provided advisers, on your behalf, with the ability to make certain elections which will impact the manner in which your realised capital gains or losses are calculated. The three elections open to an adviser are: Specific Parcel Selection allows an adviser to select specific parcels to allocate against securities that have been disposed of during the 2009 tax year. Advisers do not have the ability to select parcels in relation to certain security types, such as instalment warrants, or under certain circumstances, for example some corporate actions First In First Out (FIFO) calculates capital gains and losses such that the first parcel purchased has been deemed to be the first parcel sold; and Minimum Gain disposals will be allocated against the open parcel that will generate the lowest capital gain or maximum capital loss. Where no election has been made by your adviser, the Operator uses the FIFO method to calculate realised capital gains or losses. For assets that have been transferred into the Service, the total purchase price, the acquisition dates and the number of shares or units are based on the information supplied to the Operator at the time of the transfer. Types of capital gains There are three types of capital gains that you may derive. These are: 1. Discounted capital gains These occur when you have held or are deemed to have held an asset for at least 12 months. In this case, you are able to apply a discount that reduces the taxable amount of the capital gain. For individuals and trusts, the discount is 50%. For complying self managed superannuation funds, the discount is 33 ¹ ³ %. Companies are not entitled to any discount. The discount method only applies to assets sold on or after 21 September 1999. 2. Indexed capital gains These occur when you acquired an asset prior to 21 September 1999, and held it for at least 12 months. The indexation method allows the cost of the asset to be increased by an indexation factor that is based on the CPI movements up to September 1999. Where this method is chosen, the discount method cannot apply. 3. Other capital gains These occur when an asset has been held for less than 12 months, and are calculated by simply taking the proceeds from the sale and deducting the cost base of the asset. Note that you may only have a capital gain or loss in respect of an asset that was purchased after 20 September 1985. For any assets that you have transferred into your account with an acquisition date prior to 20 September 1985, they will be treated as a pre-cgt asset and no gains or losses will be reported in respect of these assets. Taxable Australian Real Property (TARP) vs Non-Taxable Australian Real Property (Non-TARP) Gains TARP capital gains arise where: An investor has a more than 10% interest (direct or indirect) in an asset; and The total underlying assets related to real property (by way of market value) are more than the total value of the underlying assets not related to real property. Australian residents are assessed on both TARP and non-tarp capital gains they derive during an income year. Nonresidents are only assessed and subject to non-resident income tax on TARP capital gains they derive during an income year. In addition, intermediaries (i.e. those entities which are residents for Australian tax purposes but have non-resident investors) may need to use TARP and non-tarp breakdowns to determine their own withholding tax obligations. Where you have disposed of an asset you hold in the Service, the Operator has assumed that you do not hold a greater than 10% interest in that asset and as such has disclosed the resulting capital gain as a non-tarp capital gain. 2
Where you have received a distribution of a capital gain, the Operator has relied upon the product issuer statement for the classification of TARP and non-tarp capital gains. The amount disclosed on the Tax Report Summary reflects the disclosure provided by the Product Issuer. The Tax Report Detailed does not separately identify TARP and non- TARP capital gains. Instead, the amounts reported are the combined total of TARP and non-tarp gains distributed. Rollover relief for capital gains (and losses) The Operator has adopted a consistent methodology for the treatment of gains (and losses) realised on securities eligible for scrip for scrip rollover relief and/or demerger rollover relief (as relevant) during the tax year. Where eligible for relief, the Operator has elected to apply the relief to defer CGT consequences for investors in the securities affected. Where ineligible to elect rollover relief, the Operator has realised those shares and/or units and subsequently reacquired the same value of shares and/or units in the newly merged, acquired or demerged entity. Capital gains or losses reported on the Tax Report Summary and Tax Report Detailed have been included when the asset was disposed during the current tax year. 6. Excess Assessable Capital Gains (X) These arise where the following has taken place: an asset has made payments of tax deferred and/or return of capital amounts these non-assessable payments have reduced the cost base of the asset; and the cost base of the asset has been reduced to zero. Where this has occurred, any further distributions of non-assessable amounts will give rise to an immediate capital gain at the time the non-assessable distribution is paid or declared depending on the source of the payment. Where the asset is a unit in a managed fund or listed trust, this type of capital gain is known as an E4 capital gain. Alternatively, where the asset is a share, this type of capital gain is known as a G1 capital gain. Note that you cannot make a loss as a result of a G1 or E4 event. Normal discounting rules and indexation may apply to reduce the amount of capital gain. Where the relevant conditions have been met, the Operator has applied the discount method to reduce the amount of the capital gain. An E4 gain will be recognised on an accruals (present entitlement) basis. A G1 gain will be recognised on the date the non-assessable distribution is paid. 7. Denied Franking Credits (DF) The Operator has applied the 45 Day Rule, being the most common of the franking credit anti-avoidance rules, to determine if any franking credits attributed to you within the Tax Report Summary and Tax Report Detailed have been denied. In disclosing the credit amounts that may have been denied under the 45 day rule, the Operator has undertaken broad based calculations having regard to the assumptions as stated below and the limited information regarding your personal circumstances. In applying this rule, the following has been taken into consideration and/or assumed: no consideration has been given to positions that may reduce the overall exposure to an underlying security by more than 30% for a particular distribution or share buy-back all assets are held at risk there are no related payments all buys and sells between the dividend declaration date and the ex-dividend date are cum dividend; and for preference shares, the 90 day rule has been applied taking into consideration all buy and sell transactions up to 15 August 2009 only. The amount of credits which have been denied have been disclosed in the Tax Report Summary and in the Denied Franking Credit (DF) section of the Tax Report Detailed. The amount of denied credits has been separately disclosed for listed securities and managed funds and listed trusts. 8. Fees and Expenses (F) Included in expenses on the Tax Report Summary and Tax Report Detailed are: Government charges Administration fees Adviser fees; and Interest paid on margin loans. All fees reported on the Tax Report Summary and Tax Report Detailed include Goods and Services Tax (GST) unless expressly stated otherwise. To the extent that you have claimed a credit for the GST reported on the expenses disclosed, the fees reported may need to be adjusted depending on your individual circumstances. Government charges and Administration fees Government charges and Administration fees have been classified as fully deductible. You may wish to seek independent taxation advice as to the deductibility of fees and charges. Adviser fees The tax treatment of Ongoing fees and Transaction fees is determined by the nature of the services provided by the adviser directly to you. The Operator has provided Macquarie Private Wealth with the ability to elect how to treat these fees in the Tax Report Summary and Tax Report Detailed. As Macquarie Private Wealth has instructed the Operator that the Adviser fees are unallocated, the Operator has reported Adviser fees in the Unallocated column of the Tax Report Detailed. The Operator has relied on Macquarie Private Wealth s instructions and has not considered whether the treatment is correct. You may wish to seek independent taxation advice in relation to the treatment of these fees and discuss the appropriate treatment with your adviser. Establishment fees have been treated as non-deductible. Interest on margin loans Interest reported on the Tax Report Summary and Tax Report Detailed in respect of margin loans has been provided by the margin lender and may include prepaid interest (where applicable). The Operator has assumed that the amount of interest on your margin loan is fully deductible. This may not be the case depending on your individual circumstances and the Operator strongly recommends that you seek independent taxation advice as to the deductibility of interest on the margin loan. If you have changed your margin lender throughout the year, interest shown on your Tax Report Detailed and Tax Report Summary will only apply to the lender applicable to your account as at 30 June 2009. Please note that the amount of interest reported is the amount provided to the Operator by your margin lender. 3
Should this, together with any refunded interest amounts as disclosed in the Cash (C) section of your Tax Report Detailed, not reconcile to the information you have received from your margin lender, you should contact your margin lender directly. Where your margin loan is jointly held across two or more Wrap accounts, please note that the Operator equally splits the margin loan interest across those accounts. The Operator recommends that you seek independent taxation advice in order to assess whether or not this split is correct and make the appropriate amendments where required. 9. Specific Security Treatments Pooled Development Funds (PDFs) The Operator has elected to treat any franked dividends from PDFs as assessable and has reported any such income on the Tax Report Summary and Tax Report Detailed. Any expenses incurred by you in relation to these dividends may be deductible. Instalment warrants The Tax Report Summary and Tax Report Detailed reports all income derived from the underlying asset associated with an instalment warrant in the respective Managed fund and Listed trust (T) section or the Listed securities (S) section. Capital gains and losses on the disposal of an instalment warrant are also reported in the Disposal of Capital Items (R) section. The Tax Report Summary and Tax Report Detailed do NOT report: the borrowing costs (deductible or non-deductible) associated with an instalment warrant; or any deductible interest on instalment warrants. A separate report, the Instalment Warrant Details Transaction Basis Report is provided which reports, on a cash basis, the borrowing costs and interest expense for the year. The expense recognition rules associated with instalment warrants may differ between warrant issuers and may depend upon the type of taxpayer you are. You and your accountant should undertake independent calculations to determine which amounts (if any) of the expenses reported in the Instalment Warrant Details Transaction Basis Report are deductible in the current financial year. Stapled securities Some listed securities are stapled to other listed securities, listed trusts, managed investments, property trusts or a combination thereof. Income from these may include both dividends and trust distributions in their returns to investors. Where this is the case, this income has been split and reported separately under each category. The timing of this income has been reported according to the rules for each category as outlined above. Where you have disposed of a stapled security throughout the year, the Operator has reported a separate capital gain and/or capital loss in respect of the underlying assets of some stapled securities. For a list of these staples, please refer to the Premium Portfolio Service website. For all other stapled securities, the Operator has reported a consolidated position in respect of the disposal. Foreign Investment Funds (FIFs) and Controlled Foreign Companies (CFCs) The Tax Report Summary and Tax Report Detailed separately report any unrealised income that may accrue in relation to FIF and CFC investments. If you have an investment in a FIF or CFC, the Operator recommends that you seek independent taxation advice in relation to any specific FIF and CFC taxation treatment (as you may fit into one of the exemptions available). Conduit Foreign Income Any conduit foreign income that you have received from assets held within the IDPS Service has been disclosed as Australian unfranked dividend income in the Tax Report Summary. It is separately disclosed in the Tax Report Detailed. 10. No Tax File Number (TFN) Provided If you have chosen not to provide your TFN or have not notified the Operator of an exemption by the record date of the distribution or dividend, TFN withholding tax may be withheld by share registries for investments in ASX listed securities, and by the Operator for managed investments. If an amount has been withheld, it is disclosed on the Tax Report Summary and Tax Report Detailed. This amount may be claimed as a credit in your income tax return. 11. Non-Resident Withholding Tax If you are a non-resident, withholding tax may be deducted on certain income received from listed equities and unlisted managed funds. For listed equities, the share registry will deduct any nonresident withholding tax and remit these amounts to the ATO. The amount disclosed on the Tax Report Summary and Tax Report Detailed is the amount of which the Operator has been notified by the relevant share registry. For unlisted managed funds, the Operator undertakes the following procedure: a flat 15% withholding tax is deducted on the cash amount of distributions received throughout the year post year end, once all income components of unlisted managed fund components are known, a reconciliation is performed for open accounts comparing the amount that was deducted and the amount that should have been deducted in performing the reconciliation, the correct rates of withholding tax are taken into account (Double Tax Agreement (DTA) rates for interest and unfranked distributions and 22.5% for TARP capital gains and Australian other income where you live in a country with which Australia has an effective Exchange of Information Agreement. The rate will be 30% where you live in a country where no such agreement has been negotiated.) where too much tax has been deducted throughout the year, a credit is made to your CMT where not enough tax has been deducted, a debit equal to the amount of the tax shortfall is made from your CMT note that there will be no net adjustment amount disclosed in respect of listed equities. This is due to the fact that the share registries are responsible for the deduction and remittance of withholding tax. 4
Deloitte Touche Tohmatsu Ltd ACN 092 223 240 The Directors Macquarie Investment Management Limited 20 Bond Street Sydney NSW 2000 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1219 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 19 June 2009 Dear Directors Independent Taxation Review PPS Investment Account Tax Guide For year ended 30 June 2009 We have reviewed the above Tax Guide ( the Tax Guide ) for Macquarie Investment Management Limited ( MIML ) for the year ended 30 June 2009. We have conducted an independent taxation review to determine whether, in our opinion, the Tax Guide contains any material misstatements or omissions in relation to taxation matters. This opinion has been prepared for MIML to be satisfied that it has obtained reasonable assurance in relation to the integrity of the Tax Guide having regard to its overall responsibilities and subject to the comments noted below. No responsibility will be accepted for any reliance on the opinion to any other person, or for any purpose other than which it was prepared. Scope of Review Our review of the Tax Guide has been limited to determining that based on the information that has been made available to us, we are not aware of any material statement that is false or misleading with respect to the technical principles as advised by MIML and referred to in the Tax Guide or any material omissions from the Tax Guide. The scope of our review did not extend to a review or testing of the systems, nor a review of the technical principles beyond those disclosed in the Tax Guide. Our review is based on the taxation laws, rulings and administrative practice of the Australian Taxation Office as at the date of this opinion. Statement Based on the review procedures outlined above, we are not aware of any issues that would cause us to believe that the contents of the Tax Guide for the year ended 30 June 2009 contains a material misstatement or omission. Yours sincerely, Adele Watson Director, Deloitte Touche Tohmatsu Ltd Liability limited by a scheme approved under Professional Standards Legislation.
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