AT-M2 Cheat Sheet (DRAFT) by ranele15

NOT Assessable Income - [ITAA97 s6.15]
1. Not Ordinary Income [ITAA97 s6-5] and Statutory Income [ITAA97 s6-10]
2. Exempt Income [ITAA97 s6-20]
3. NANE - non assessable and non-exempt income [ITAA97 s6-23]

Usually connected with a source:
1. ACTIVE - e.g. Personal or Business Services
2. PASSIVE - e.g. Income as returns on property /inves­tment

Questions of whether Revenue or Capital Compen­sation?
1. Affects the underlying business structure?
2. Normal trading risk for the type of business?
3. Incidental to carrying on ordinary business?

1. Specific amounts made assessable by the Act
2. ITAA97 s6-10(1) - assessable income which includes amounts that are not ordinary income
3. ITAA97 s.6-10(2) amount not ordinary income but included in AI by provision of assessable income

e.g. Net Capital Gains / Forex Gains / Insurance Bonuses

Case 1: Not Cash or Conver­tible into Cash > Generally NOT an OI > Arise from business relati­onship [s21A applies] > No exception applies (no entert­ainment provided by the client) > ARM's LENGHT VALUE ($2,000) - INCLUDED IN ASSESSABLE INCOME

Case 2 ; Not Cash or Conver­tible into Cash > Generally NOT an OI > Arise from business relati­onship [s21A applies] > EXCEPTION applies [s.21A] - non deductible entert­ainment expense of supplier > Value of Non Cash Business Benefit is REDUCED TO NIL

e.g GST

Quiz: A registered charity sells donated goods tru opshop for $110 incl GST.
* $100 - Exempt income (regis­tered charity) s.50-5
* $10 GST - NANE s.17-5(a)

Foreign investors will not be entitled to any franking credits on the FRANKED Dividends.
*wtax on franked dividends is Zero.

Dividends and Interest Income subject to WTAX, the net amount is now NANE [ITAA36 s128D]

CASH basis - Passive Income (rent, interest, dividends) & Salary and wages

ACCRUAL basis - Business Income (large scale transa­ctions & invoice issuance)

Tax Losses: start of loss year to end of recoupment year
Capital Losses: start of loss year to end of recoupment year
Bad debts: day the debt incurred to end of claim year

BCT is done immedi­ately after COT FAILED, which means,it is not the business of the last year is tested, only the business carried on immedi­ately prior to the change of ownership

BCT is fulfilled if passed this 2 tests - Same & Similar Continuity Test

Similar business test factor:
1. Similarity between assets of former and new business.
2. Similarity between activities of former and new business.
3. Similarity of identity between old and new business
4. To what extent did a new business evolve from develo­pments in old one?

ESP - Eligible Service Period
* A loss or outgoing from an advance payment is usually incurred for s.8-1 purposes when paid (TR 97/7).

* Court have rarely applied the accounting principle matching princi­ples.

* Exception for finance and insurance companies issuing discounted bills [ Coles Myer Finance Ltd v FC of T]

82KZL ► falls under sec 8-1 (Gen. Deduction)
SBE who have NOT CHOSEN to apply s. 82KZMD
INDIVI­DUALS with non-bu­siness expend­itures

Full Deductions if: (1) Expend­iture relates to ESP =< 12 months (no greater than 12 mths); and
(2) Ends by 30 June of the ff income year

Prorata if: ESP > 12 months
► Period in a year / ESP

eg George Ind, with passive rental income

Division 35 purpose - quarantine tax losses from non-co­mme­rcial activity to prevent deduct­ibility against unrelated assessable income (indiv­idual income).

Rules: 1. Carried Forward & 2. Deducted from any future income from that activity.

Applied to: (1) Indivi­duals conducting a business (2) Sole Trader or Partner
Does Not Apply To: (1) Passive Investment Income (2) Hobbies**

Outward investor takes priority if also an inward investor (Foreign Contro­lled)
Debt attributed to foreign permanent establ­ishment is excluded from adjusted average debt
Only Australian operations are subject to thin capita­lis­ation rules

Debt Deduction (Interest & Finance chargers) against Assessable Income in Australia

Assets : Au Property 20x6 ($50m) 20x7 ($52m)
Au Plant 20x6 ($5m) 20x7 ($5m)

Liability: Bank loan 20x6 ($40m) 20x7 ($40m)
Leave Prov 20x6 ($1m) 20x7 ($1m)
Interest Expense - $3mil

Exception means THIN CAPITA­LIS­ATION DO NOT APPLY

►NO Allowance - ALL Expense must be substa­ntiated
►If substa­nti­ation is required and no receipt is received from supplier - taxpayer can create the invoice only when: (1) Expense =<$10 and (2) Max. =<$200 p.a.
►Can use bank statement if no date in the receipt
►If nature of the expense not stated, taxpayer can enter details

Straight Line Deprec­iation

First Year with second element

Change Year
* Must adjust the formula in s.40-75(1) and it occurs in 2 situat­ions:
1. Recalc­ulate effective life; or
2. Include a 2nd element cost amount in a year after the instal­lation year..

Effective Life = 9.17years
= 10 years -0.83 years (304/365)

Can be used on Assets held post 9th May 2006
Dimini­shing Value Method Not Eligible for intangible assets (except for Copyright)

First Year ► Base Value = Asset's Cost
Sub Years ► Base Value = Opening Adjustable Value + New Second Element Costs

Sub Year ► Base Value = Opening Adjustable Value + New Second Element Costs
= $83,343 + $5,000
= $88,343

For a Change of Effective Life = Calculated for the Entire Year,
No prorata decline calcul­ation for part of the year

Case:
Pool opening adjustable value (OAV) is $20,000.
$800 low-cost asset and low-value asset with OAV of $800 added to pool, both with 80% taxable purpose.
No second element costs incurred in the year.
One pooled asset used 50% for a taxable purpose sold this year for $200.

Intang­ibles Effective Life
* In-house software = 5 years
* Registered design = 15 years

Acquired asset from associates - use the same

(Subd 40-D)
Assessable Income = Termin­ation Value > Adjustable Value
Deduction = Termin­ation Value < Adjustable Value

*Reduced for any non -taxable use of asset

Termin­ation Value s40-300
1. Generally, what you receive in respect of the event (sales proceed or insurance claim)
2. Can be deemed market value (when not dealing at arm's length)

Rollover Relief
* Available where deprec­iating assets are transf­erred bet certain related entities (and CGT rollover relief is available)
* Rollover relief simply ignores a balancing adjustment (deferred)
* The tax attributes are transf­erred to another entity along with the asset.

Normally Blackhole Expend­itures is spread over 5 years.

SBE start-up costs can deduct in year incurred.

* if the Terminated Value puts the Closing balance to Zero = the excess will be included in Assessable Income
 
* If the Closing Pool Balance is < the instant asset write-off threshold ($150k) ► Immediate Deduction

Rates:

15% - used for assets in the first year they are allocated
30% - decline rate for pool opening balance
18.75% - low-value pool decline rate when low-cost assets are initially pooled.
37.5% -30% - low value pool rate applied to the previous year's closing pool

Deduction Rate is based on the date constr­uction commenced but

Deductions are only available from the *Date Constr­uction was completed (assuming the asset is used for income producing or R&D)

Stock Closing > Opening ► Adjusted to Assessable Income
Stock Closing < Opening ► Adjusted to Deductions

Stock On Hand Valuation on each item/per item:
1. at cost
2. at market selling value
3. at replac­ement value

if there's a transfer price benefit, the Commis­sioner will substitute the arm's length price for tax purposes:
1. taxable income - income tax
2. capital gains/­losses - that attracts CGT

Rates Applied:

*Capital Gains = 12.5% (contract price >= $750k) if foreign resident seller

Events arise from:
1. the Right expires - e.g., withdrawal from the foreign curren­cy-­den­omi­nated account
2. the Right to Receive is exting­uished. cash is received from overseas debtor under sales contract denomi­nated in foreign currency.

Event Sample:
1. the Obligation expires
2. the Forex currency is Paid e.g. Obligation to pay is exting­uished.