| . |
| Companies |
|
|
|
Payments to associates Under s.108 ITAA36 a loan or advance made by a private company to an "associated person" will be deemed to be a dividend if considered to represent a distribution of profits "associated person" means a shareholder, director, or their associates (e.g. spouse, other relatives) The deemed dividend becomes assessable income of the recipient and is not franked Excessive remuneration Where the ATO considers that remuneration paid by a private company to an associated person is excessive (i.e. beyond what is "reasonable") the excess is not allowed as a deduction - s.109 ITAA36 It is deemed to be an unfranked dividend of the company Calculation of taxable income Net Profit compared to Taxable Income The Income Statement is prepared according to accounting standards. Taxable income is calculated according to tax laws Therefore, net profit/loss will not necessarily equal taxable income Continuity of ownership test requires that shares carrying more than 50% of all voting, dividend and capital rights must be owned at all times during the year of recoupment of the tax loss and during the actual loss year - s.165-12 Continuity of business test requires that a company carry on the same business in the recoupment year as it carried on immediately before a change in the beneficial ownership of its shares - s.165-13 Company bad debts A company is allowed a deduction only for bad debts actually written off, provided it satisfies the continuity of ownership test (s.165-123) or continuity of business test -s.165-126 Companies as shareholders A company that receives a franked dividend is required to include in its assessable income the franking credit attached to the franked dividend The company is entitled to a franking tax offset for the amount of the franking credit Imputation system Franking account A company that pays franked dividends must keep a franking account for tax purposes A franking account is an account maintained to keep track of the income tax credits that a company can pass on to its members Franking accounts are basically a running total of all franking credits and franking debits Benchmark rule requires that a company must frank all frankable dividends made during a franking period at the "benchmark franking percentage" – s.203-25 The benchmark franking percentage is the same as the franking percentage for the first frankable distribution made by the entity within the franking period – s.203-30 Franking credits A franking credit arises when a company:
Franking Deficit Tax Franking deficit tax will arise only where the company has a franking deficit at the end of the year (i.e. a debit balance which means that franking debits > franking credits) - s.205-45(2) The franking deficit tax amount is the same as the deficit balance of the franking account Payment of Tax Companies pay their tax under the PAYG system either in a single lump sum or in quarterly instalments Under the PAYG instalments system tax payments are made throughout the year of income to which they relate Such payments will be made in conjunction with the lodgement of a Business Activity Statement (BAS) |
| Definition |
|
s.995(1) defines a company as including "all bodies or associations corporate or unincorporated, but does not include a partnership" Residence Under s.6(1) ITAA36, a company is a resident in Australia if:
Taxation of companies A company when it is registered is taxable in its own right – s.4-1 All resident companies whose total income is $1 or more must lodge a Company tax return Therefore, a company trading at a loss must still lodge a tax return Companies are taxed at a flat tax rate of 30% Private companies Certain payments made by private companies may be deemed by the ATO to be dividends and, as such, may be disallowed as deductions These are: Payments to associates Excessive remuneration Tax losses To be able to claim a deduction for a carry forward loss, a company must satisfy either:
If a company fails the continuity of ownership test it may still be able to carry forward past tax losses if it satisfies the continuity of business test Transfer of losses A company which incurs a tax loss has the right to transfer that loss to another resident company in the same group, provided there is 100% common ownership of the two companies However, group loss transfers are only available provided either the loss company or income company is an Australian branch of a foreign bank or non-bank foreign financial entity. If so, a loss can be transferred between one company in a group and another:
Companies incurring expenditure on scientific research and development activities may claim a number of concessions To qualify for concessional tax treatment the company must be registered with the Industry Research & Development Board and have a minimum of $20,000 in R&D expenditure s.73B(1) ITAA36 allows special deductions for expenditure on research and development activities Systematic, investigative or experimental activities which involve innovation or high levels of technical risk carried on for the purpose of:
Reconciliation A company’s net profit/loss normally will not correspond to its taxable income due to a variety of factors such as:
Therefore, net profit/loss to taxable income must be reconciled. Franking debits A franking debit arises when a company:
|
|
|