Companies lecture notes PDF

Preview

Summary

Download Companies lecture notes PDF

Description

Companies exam notes -

Company definition (s.995-1(1)) Companies are separate legal entities under the Corporations Act 2001 Taxpayers = the company and the shareholders - separate 30% tax rate Calculate taxable income like other taxpayers with some modifications: * some payments are deemed to be dividends (made dividends by certain provisions) - Must lodge Income tax return - self assessment system - Lodgement of tax return is deemed assessment (s.166A) - Tax collected during the year by installments and a net refund or payable results on ledgement of the the return Public Officer - every company needs to represented for tax purposes. (s.252)

Dividend imputation - dividends are paid out of profits, company paid tax and issues a dividend - s.44(1) assessable to shareholder Overview: - Imputation/franking Credit - a credit for tax paid by the company is passed onto the shareholders with the dividend - Credit - tax offset (available to resident shareholders as a tax offset)

Imputation system: - Not assessed twice - Company profits distributed to shareholders are effectively assessed at the ‘shareholders marginal tax rates’ - Undistributed company profits are taxed at the company level only (30%)

E.g . shareholder is on highest marginal rate, plus medicare levvy. Company Level

Shareholder Level

Taxable Income

$100

Dividend

$70

Tax (30%)

$30

Gross-up Amount

$30

After tax profits

$70

Amount in tax income

$100

Dividend Paid

$70

Tax (45% + 2%)

$47

Less Imputation Credit

$30

Tax Payable

$17

-

The total tax payable in respect of the $100 company profit is $47. Company pays $30 and Shareholder pays $17 The tax paid by shareholders on a dividend is determined by their marginal rate

Operation of the imputation system Dividend can be: - Fully franked - all taxed - Partially franked - part taxed - Unfranked - no tax paid **Process required to identify the tax paid by a company and is able to pass on as imputation credits with dividend. Can only issue franked dividends to shareholders when they have actually paid tax on the profits that its made.

Franking Account - Keep track of the tax paid on company profits by keeping a franking account. - Every company must keep a franking account (s.205-10) - From 1/07/02 the balance in the franking account represents the tax the company has paid on profits plus imputation credits on dividends received less imputation credits on dividends paid. - Franking Credit formula (s.202-60(2)) = dividend x 1 / 2.333 x %franked

Franking Deficits 1 July - Always will be credit balance or 0

Benchmark OVERFRANKING - NO CREDIT - do not credit this UNDER FRANKING - debit to account

Shareholder Effect - The company can own shares in another company - Gross-up already taken to the tax office - shareholder does not receive it (statutory income) - Other income and deductions are all tabulated and tax payable tabulated - subtract PAYG installments or withholding THEN: the individual would then be entitled to a tax credit (imputation credit) of $300 per s.20720(2)....