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Tax ConsideraTions for Year-end Planning for 30 June 2011

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1A Whatdoesthisdocumentdo?As the 30 June 2011 financial year draws to a close, taxpayers should be considering their year-end tax planning. Tax planning not only requires consideration of income and deductions for the year but also requires you to consider that all of your compliance is in order. This includes the making of appropriate elections within the time requirements, the preparation and maintenance of appropriate documentation and forward planning of your tax affairs.

This document provides an outline of the tax issues that you should be considering before year end, updated for new developments and (where relevant) the 2011 Budget announcements. This document is specifically tailored to address the taxation concerns of our clients in the middle market. However, this document is not intended to cover every single taxation issue that requires consideration. Instead, the document provides you with a broad range of issues that should be considered before the end of the financial year as part of your overall tax planning strategy.

Finally, tax planning may often result in a taxpayer paying less income tax in a given income year. It is noted that the definition of a tax benefit under the tax anti-avoidance provisions includes such a benefit. Therefore the tax anti-avoidance provisions must always be considered as part of your year end tax planning. We have included a number of anti-avoidance provisions in Section 12 for your consideration.

1B Howwillyoufindwhatyouarelookingfor?To assist you in quickly locating the area of tax relevant to you, this document has been subdivided into categories that either relate to a specific type of taxpayer or to a specific tax topic.

We trust you will find this document useful when doing your 30 June 2011 tax planning. Please talk to your Pitcher Partners representative if you want more clarification of some of the issues raised in this document.

1 Introduction

Core Sections

Entity Specific Sections

Specialist Topic Sections

IndividualsSection 7

TrustsSection 4

Capital Gains TaxSection 8

FinanceIssues

Section 9

SuperannuationIssues

Section 11

Integrity ProvisionsSection 12

InternationalTax

Section 10

CompaniesSection 5

PartnershipsSection 6

ExpensesSection 3

IncomeSection 2

TaxConsiderationsfor Year-End Planning for 30 June 2011TaxConsiderationsfor Year-End Planning for 30 June 2011

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The following checklist contains a high level description of the planning opportunities for consideration for 30 June 2011. If you would like to discuss any of the planning opportunities mentioned in the following checklist, we have a detailed year-end tax planning document that provides further commentary and items for consideration. Please contact your Pitcher Partners representative to meet with us to discuss any year-end planning considerations further.

Section2 –Income

Area Summaryofplanningconsiderations

Businessincome Consider the ability to bring forward or defer the recognition of certain forms of business income.

Accrued/unearnedincome

Determine whether you can defer the recognition of income that is accrued or unearned for accounting purposes.

Tradeincentives Consider whether discounts and other incentives are brought to account in the correct income year for tax.

Disputedamounts It may be possible to defer the recognition of disputed income amounts.

Constructioncontracts Consider the different methods of income recognition for construction contracts.

Insuranceproceeds Determine whether insurance proceeds are in fact assessable and when such proceeds must be brought to account for tax purposes.

Grants,bounties,subsidies

Determine whether grants, bounties or subsidies are in fact assessable and when such proceeds must be brought to account for tax purposes.

Disasterreliefmoney Exemptions may be available for disaster relief money received.

Interestincome Examine the timing of interest income closely, especially if TOFA or other accruals regimes apply.

Dividendincome Dividends accrued may not be assessable at year-end. You should also consider the effect of receiving franked distributions.

Trustdistributions Year-end tax planning should take into account the expected tax distribution (rather than the expected accounting / cash distribution amount).

Rental/leasingincome Consider whether the activities are passive or constitute a business and therefore the timing of income.

Foreigntaxes Examine whether tax offsets are available and ensure you gross-up amounts.

Non-assessableamounts

Determine whether amounts received for the year can be treated as non-assessable.

Personalservices Consider the risk of income of a trust or company, being attributed to you as personal services income. This may reduce your deductions.

Extraordinaryitems Review any large transactions that have occurred for 30 June 2011 to determine the tax effect.

Quickchecklistofplanningconsiderations

TaxConsiderationsfor Year-End Planning for 30 June 2011

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Section3 – Expenses


Generalrules Ensure that you review all expenses to determine deductibility, including accrued expenses and transactions that may be of a capital nature.

Capitalexpenditure For (otherwise) non-deductible capital expenditure, review your ability to include the amount as a cost base item or the ability to claim a black-hole deduction over five years.

Baddebtdeductions Consider bringing forward bad debt deductions by writing those amounts off before 30 June 2011.

Tradingstockvaluation

You can choose to value trading stock at year-end at cost, market selling value, or replacement value. Under special circumstances a lower “obsolete” stock value may be used.

Depreciatingassets Review your ability to accelerate depreciation claims for 30 June 2011 using various strategies.

Projectpools Consider whether (otherwise) non-deductible capital expenditure can be claimed as a project pool cost.

Investmentallowance

Determine whether the investment allowance can apply for 30 June 2011.

Internallabourcosts Review internally generated assets to determine whether labour costs have been capitalised appropriately for tax purposes.

Employeebonuses Consider whether you can bring forward deductions for employee bonuses for 30 June 2011.

Exemptincomedeductions

Review the deductibility of expenses where the entity derives non-assessable income or exempt income.

Foreignexchange Consider whether the (tax) foreign exchange provisions will give rise to significant adjustments at year end. Consider if there are any opportunities to reduce compliance under the provisions.

Giftsanddonations Review the deductibility of gifts and donations and their impact on tax losses.

Prepaidexpenditure Only certain expenditure that is prepaid can be deducted. Review the provisions closely if you are intending to claim upfront deductions on prepayments before year end.

Servicefees Inter-entity service fee and management charges can give rise to issues concerning the deductibility of the fee or charges.

Tradeincentives Consider whether discounts and other incentives provided are recorded in the correct income year for tax purposes.


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Section4 – Trusts


Trustresolutions Distribution resolutions and distribution plans should be completed before year end.

Meaningofincome Review the trust deed to determine how income is defined to ensure distribution resolutions operate as intended.

Ruleagainstperpetuities

Consider the rule against perpetuities to ensure that trust to trust distributions are not invalidated.

Eligiblebeneficiaries Make sure that you have reviewed the eligible beneficiaries of the trust before making your trust resolutions.

Streamingofincome Consider the new streaming rules if capital gains or franked dividends have been derived during the year.

Trustaccounts Determine whether accounts are prepared consistently with: (1) the trust deed definition of income and capital; and (2) the new streaming provisions.

Trustlossesandbaddebts

Trust losses and bad debt deductions may be denied if a family trust election is not made, or if the trust loss provisions are not satisfied.

Frankingcredits Franking credit flow through may be denied if a trust does not make a family trust election.

Injectionofincome Trust to trust distributions may create deductibility issues if a family trust election is not made.

Interestexpensesanddistributions

Interest deductions may be denied where finance is used to fund distributions to beneficiaries. You may consider alternatives to help protect interest deductions.

Familytrustelections Critically review your family trust election requirements for the year.

TFNwithholding The trustee must obtain all TFNs from beneficiaries before 30 June 2011 to avoid penalties.

Reviewtrustdeeds Consider reviewing your trust deed before 30 June 2011 to ensure that the deed is appropriate for year end resolutions.


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Section5 – Companies


PAYGinstalments Determine whether the PAYG instalment for the fourth quarter can be varied.

Frankingdistributions Carefully consider the estimated franking account balance (including expected post-year end refunds) before franking dividends for 30 June 2011.

Distributionstatements

For 30 June 2011 distributions, ensure compliance with distribution statement requirements.

Debt/equityprovisions

Loans made by companies should be reviewed to ensure that they are not inadvertently treated as equity (and thus interest is treated as non-deductible).

Division7A Consider a review of Division 7A before year end where there is at least one corporate entity in the group.

Carryforwardlosses Review the ability to carry forward prior year tax losses, especially where you expect to utilise these during the 30 June 2011 income year.

Sharecapitaltransactions

Integrity provisions can apply to movements in or out of the share capital account. Document any movement in the share capital account and carefully consider the integrity provisions.

Taxconsolidationchoices

Make sure you have reviewed the list of elections that are required to be made by 30 June 2011.

Rightstofutureincome

Review the Government’s announcement on rights to future income and the retrospective impact of this announcement.

Researchanddevelopment

Review eligible R&D concession expenditure and consider the possible effect of the proposed new provisions on your deductions for 30 June 2011.

Section6 – Partnerships


Varyingdistributions For common law partnerships, consider the ability to vary distribution entitlements before 30 June 2011.

Equitycontributions Certain capital contributions by companies may not give rise to a deemed dividend under Division 7A if recorded correctly.


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Section7 – Individuals


Prepaidexpenses Consider whether the prepayments of certain expenses before 30 June 2011 can give rise to upfront deductions for the current income year.

Interestincome(50%discount)

Consider the proposed 50% discount for interest in 2012 and whether interest income can be deferred.

Salarysacrifice Ensure that you have appropriately considered the requirements for an effective salary sacrifice arrangement where you are considering salary sacrificing amounts (e.g. into superannuation).

Employeeshareschemes

Consider the new ESS provisions where shares and options have been issued to you.

Foreignemploymentincome

Review the income tax and FBT consequences where you have performed foreign employment.

Non-commerciallosses

Review the deductibility of losses related to your business activities under the non-commercial loss provisions.

Selfeducationexpenses

Consider a deduction for self education costs and costs in earning the Youth Allowance.

Carexpenses Ensure that you record your odometer readings for 30 June 2011 and consider a log book for your car (to maximise options for car expense deductions).

Section8 – Capitalgainstax


General Ensure that you have considered all contracts and capital receipts for the year to determine whether a capital gain or loss has occurred.

SmallbusinessCGTconcessions

Where you conduct a business, consider your ability to reduce capital gains under the small business concessions.

CGTdiscount Consider whether assets held for over 12 months qualify for the CGT discount and ensure that the amounts will not be treated as ordinary income.

Earnoutpayments The sale of any CGT assets during the income year (or possible year end opportunities) may require your consideration of the earnout provisions.

CGTexemptionsandrollovers

Consider the many CGT exemptions and rollovers that may apply to reduce your capital gain or loss.

Mainresidenceexemption

Ensure you have applied the main residence exemption correctly for any sale of residential property or adjacent land.


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Section9 – Financeissues


Loanrationalisationanddebtforgiveness

Consider the many tax provisions that could operate on a loan rationalisation or debt forgiveness during the year.

Interestdeductibility If you have significant interest or debt deduction costs during the year, you should closely consider whether you are precluded from deducting such amounts.

Capitalprotectedborrowings

Interest deductions may be denied in respect of the funding of capital protected shares, units or stapled securities.

TOFA You should consider whether TOFA applies to change the taxation of financial arrangements, or whether you should make an election before 30 June 2011.


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Section10 – Internationaltax


Taxresidency You should carefully consider whether the relevant entity is a tax resident for 30 June 2011 and the tax implications that may follow.

Temporaryresidentexemption

If you are a foreign citizen and an Australian resident, consider whether you can apply the temporary resident exemption.

Changeinresidence A change in residence may have significant tax implications and may also require elections to be made.

Foreignaccumulationfunds

If you own any non-controlling interests in companies or trusts, you should consider how you will be taxed on your investments.

Controlledforeigncompanies

You should consider whether the controlled foreign company provisions will result in an accrual of income, even if your individual interest is a minority interest.

Transferpricing All dealings with non-residents should be reviewed to ensure compliance with the transfer pricing provisions.

Conduitforeignincome

If the Australian company is a conduit between foreign entities, the conduit foreign income provisions may allow unfranked dividends to be paid to non-residents tax free.

Foreignincometaxoffsets

Consider your FITO position for 30 June 2011 to determine whether there are any excess FITOs that will be wasted. Strategies can be put in place to help reduce FITO wastage.

Non-residentdistributions

Consider whether non-resident distributions (including capital reductions) can or have been made to an Australian entity in a tax free manner.

Non-residentsandassetsales

Non-residents or temporary residents can dispose of certain Australian assets without tax consequence.

Deductionsinearningforeignincome

Deductions may be denied where a foreign operation in the group produces exempt or non-assessable non-exempt income to the group.

Deemeddividends Related party transactions may result in deemed unfranked dividends where benefits are provided by a CFC to a shareholder or associate of the shareholder.

Thincapitalisation In-bound or outbound entities may be denied debt deductions where the thin capitalisation provisions are not satisfied.

Withholdingtaxanddeductions

Non-compliance with the withholding tax provisions may result in deductions for certain expenditure (e.g. interest and royalties) being denied for the income year.

Non-residentbeneficiaries

Consider issues with streaming income to non-residents and any withholding tax issues that may occur.

Non-residenttrusts Consider whether you have an interest in a foreign trust for the 30 June 2011 income year.


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Section11 – Superannuationissues


Deductionsforcontributions

Consider paying superannuation contributions before the 2011 year end where a deduction for such amounts is sought.

Superguarantee Ensure compliance with superannuation guarantee requirements, especially for bonuses paid and payments made to contractors, consultants or members of the board who are not paid via the payroll.

Contributioncaps Consider the ability to utilise the higher concessional contribution caps until 30 June 2012.

Personalcontributions Consider whether the individual is eligible to make a deductible concessional contribution before 30 June 2011.

Excesscontributions When reviewing your superannuation strategy for year end, carefully consider whether payments may breach your contributions cap.

Section12 – Integrityprovisions


PartIVA You should consider Part IVA in relation to any material tax planning strategy that may be implemented for the 30 June 2011 income year.

Relatedpartytransactions

Where tax planning arrangements involve related party transactions, consider carefully the application of the anti-avoidance provisions that may deny deductions incurred by one of the related parties.

Washsales Consider the ATO’s view on wash sale arrangements where assets are disposed of for a loss or gain and substantially the same assets are re-acquired.

1DDisclaimerThe contents of this document are for general information only and do not consider your personal circumstances or situation. Furthermore, this document does not contain a detailed or complete explanation of the law, as provisions or explanations have been summarised and simplified. This document is not intended to be used, and should not be used, as professional advice.

If you have any questions or are interested in considering any item contained in this document, please first consult with your Pitcher Partners Representative to obtain advice in relation to your proposed transaction. Pitcher Partners disclaims all liability for any loss or damage arising from reliance upon any information contained in this document.


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