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Trust distributions · Make sure a trustee resolves to distribute the net income of the trust before 30 June 2007, or by 31 August 2007 (relying on Tax Office administrative concessions). · Remember that year-end trust distributions and income injections may affect a trust’s ability to recoup prior year tax losses and bad debt deductions. · Where the trust has derived capital gains, consider the Tax Office’s Practice Statement in relation to the taxation of beneficiaries and the trustee on the trust income and capital and the different potential approaches available. |
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Family trust elections · Consider whether a family trust election should be made because of losses or bad debts in trusts. · Ensure optimum utilisation of franking credits and consider making a family trust election where a trust holds shares acquired post-31 December 1997. · Make sure no distributions are made outside the family group to avoid any potential liability for family trust distributions tax. · Where a company is owned by discretionary trusts, there may be a need for family trust elections at the trust level if the company has losses. Elections may also be required to enable utilisation of franking credits as noted above. |
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Simplified imputation · Ensure all dividends paid within a franking period have been franked to the same extent. · Ensure that there are adequate franking credits. · Ensure a company paying a franked dividend has issued a distribution statement in the approved form. |
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Other key issues Other important matters include the following: · Consider the effective lives of depreciable assets using the Tax Office’s updated Taxation Ruling TR 2006/15. · Where individuals incur losses from business activities, the non-commercial loss rules should be considered because, under the rules, such losses may not be eligible for offset against other assessable income during the year. · Where a private company provides loans to shareholders, a careful review of the loan arrangement must be undertaken, as certain rules may deem the loan to be an unfranked dividend. It may be necessary to ensure appropriate loan agreements are in place and repayments are made. · Review any similar loans by trusts where a corporate beneficiary has an unpaid present entitlement to trust income. These loans can also result in deemed dividends. · Where an individual applies personal efforts and skill in performing services to third parties through an interposed entity (e.g. a company), the personal services income rules may deem the individual to be assessable on the income generated. Careful consideration of such arrangements should be undertaken to avoid the application of the rules. |
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Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval |