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June 2003 Newsletter

The traditional measures as follows continue to apply to year end tax planning as at 30 June 2003:

Accelerating Deductions

Initiatives to accelerate deductions could include:

• Ensuring Superannuation contributions are paid by year end;
• Review and physically write off bad debts before year end;
• Consider scrapping stock and plant and equipment of nil value before year end;
• Valuing stock to a lower replacement price or market value where appropriate;
• Consider realising foreign exchange losses and deferring realisation of gains; and
• Hold meetings before year-end to ratify bonus obligations.

Capital Gains Tax

Strategies to minimise CGT include:

• Deferring a disposal to a subsequent income year;
• Deferring a disposal to ensure the asset has been held for at least 12 months to (potentially) benefit from the 50% discount;
• Match gains and losses where possible to avoid carrying forward a capital loss, this may mean that when a capital gain has taken place, selling other assets so as to realise a capital loss;
• Seek liquidators' determinations to crystallise a capital loss on valueless shares in a company in liquidation.

Other Issues

Other important matters include:

• Consider making a family trust election where a trust holds shares acquired post 31 December 1997 to maintain franking credit benefits, or losses to be recouped;
• Consider whether the non commercial loss rules apply;
• Do the alienation of personal services income rules apply, is a personal services business determination required or can the rules be avoided through careful planning;
• Consider entitlement to a refund of franking credits; and
• Consider whether non-commercial loans made to a company may be treated as equity under the Debt Equity rules.

From 1 July 2003 the definition of wages for the purpose of payroll tax and workers compensation liabilities has been changed so as to include:

1. Employer superannuation contributions.
2. The grossed up value of fringe benefits.  This was previously the taxable value.
3. Long service leave payments.
4. Directors' fees paid to working directors.
5. Termination payments, including lump sum payments for annual leave, long service leave and sick leave.

In addition distributions to workers as beneficiaries under a trust, where there is a distribution in lieu of wages will also be counted as wages.

Subcontractors

Where a principal contractor who engages sub contractors (for the provision of labour), was liable for workers' compensation when the subcontractor is not covered, this liability may also now apply to unpaid payroll tax connected with work done by the subcontractor.

Loans in existence to shareholders at 30 June 2003 from private companies can be considered deemed dividends unless a Division 7A loan agreement has been entered into and complied with.  Accordingly, please ensure:

• Minimum prescribed repayments are made on existing private company loans;
• Loan agreements are in place prior to the borrowing of funds; or
• Dividends are paid to clear debit loan accounts at year end.

www.whereis.com.au is a website where you can calculate the distance between two destinations and also check on the best route to travel.  The site is an advantage if you wish to check employees claiming reimbursements for travel usage.

www.abs.gov.au is a website where you can obtain the latest statistical releases, including June CPI figures.