Investors

Simplified imputation: Franking deficit tax liability and franking deficit tax offset – consolidation specific matters

by Yin Zhong on January 17, 2012 · 0 comments

If a consolidated tax entity’s franking account is in deficit at the end of an income year, the entity will be liable for franking deficit tax (FDT). This situation may arise for consolidated tax entities that receive refunds of tax paid in earlier income periods due to retrospective changes made to existing law by the Tax Laws Amendment (2010 Measures No. 1) Act 2010.

An FDT liability will give rise to a tax offset which can be used to reduce any current and future year income tax liabilities.

The tax offset is not refundable, but any excess will be taken into account in calculating the amount of the tax offset in future income years.

If the FDT liability attributable to certain franking debits is greater than 10% of the total franking credits that arose in the franking account, the amount that can be claimed as an FDT offset is reduced. This is called the FDT offset reduction.

The Commissioner can use his discretion to allow an entity to offset the full amount of its FDT liability where the deficit arose due to circumstances outside the entity’s control. In the absence of any manipulation of the imputation system, the Commissioner would generally consider the impact of the retrospective amendments giving rise to later refunds of income tax to be a circumstance outside the entity’s control.

Research and development tax incentive: Q&A

by Yin Zhong on January 9, 2012 · 0 comments

Under the Income Tax Assessment Act 1936, an accounting period is generally a period of 12 months ending on 30 June. However, the Act allows for a substituted accounting period (SAP) to balance on some other date.

If you use a SAP, the answers to these frequently asked questions will help you work out your eligibility for, and how to claim, the research and development (R&D) tax incentive.

Can I claim the R&D tax incentive in my 2011 income tax return if my 2011 income year begins before 1 July 2011 but ends after 1 July 2011?

No, the start date for the R&D tax incentive is determined by when your income year begins, not when it ends. If your 2011 income year begins before 1 July 2011, you cannot claim the R&D tax incentive until your first year of income beginning on or after 1 July 2011.

Example:

Company A has a late-balancing September SAP. Company A’s 2011 income tax return will be lodged for the period 1 October 2010 to 30 September 2011. As its 2011 income year begins on 1 October 2010, which is before 1 July 2011, it will not be able to claim the R&D tax incentive until its 2012 income year, beginning on 1 October 2011.

Can I claim the R&D tax incentive in my 2012 income tax return if my 2012 income year begins before 1 July 2011?

No, if your 2012 income year begins before 1 July 2011, you will not be able to claim the R&D tax incentive until your first year of income beginning on or after 1 July 2011.

Example:

Company B has an early-balancing December SAP. Company B’s 2012 income tax return will be lodged for the period 1 January 2011 to 31 December 2011. As its 2012 income year begins on 1 January 2011, which is before 1 July 2011, it will not be able to claim the R&D tax incentive until its 2013 income year, beginning on 1 January 2012.

I have an early-balancing December SAP with a year of income from 1 January 2011 to 31 December 2011. Can I claim the R&D tax concession from 1 January 2011 to 30 June 2011 and the R&D tax incentive from 1 July 2011 to 31 December 2011?

No, the R&D tax incentive applies to years of income beginning on or after 1 July 2011. You cannot claim the R&D tax incentive for an income year beginning before this date. If eligible, you will be able to claim the R&D tax concession for your 2012 income year and claim the R&D tax incentive for your 2013 income year.

Notice to Electronic Lodging Parties

by Yin Zhong on January 6, 2012 · 0 comments

 

The Personal Property Securities (PPS) Register is part of a national commercial law reform that will commence on Monday 30 January 2012. On commencement of the PPS Register, all the different Commonwealth, State and Territory laws and registers regarding personal property security interests will be migrated and available under one national system. The Australian Register of Company Charges maintained by ASIC will close on the commencement of the PPS Register. From this time you will no longer be able to lodge charges with ASIC.

 ASICs online Charges portal will no longer be available from 8.00pm (AEST) on Friday 27 January 2012.

 ASIC’s online portal for lodging company charges will be disabled on the commencement of the PPS Register. This means that no charge information can be lodged with ASIC after this time. From Monday 30 January 2012, you will need to lodge your charge information with the PPS Register instead.

New R&D provisions — Div 355 – Core R & D Activities

by Yin Zhong on October 21, 2011 · 0 comments

The definition of core R & D activities (355-25) establishes two requirements for an eligible core R&D activity:

1. it must be experimental; and

2. its purpose must be the generation of new knowledge.

 

Activity must be experimental

 

Section 355-25(1)(a)(i) prescribes that the experiment to determine the outcome must be ‘based on principles of established science’.

The steps of the scientific method have been around for a long time — at least as long as the ancient Greek and Persian philosophers. Established science requires a methodology for gathering empirical and measurable evidence. The experiment should be capable of being reproduced. This means that the experiment must be carefully documented at each stage.

A core R&D activity must be experimental — i.e. the outcome must not be known or able to be determined in advance.

The core R&D activity requires an experiment or a series of related experiments.

An experiment entails investigating causal relationships among relevant variables to:

1. test a hypothesis; or

2. determine the efficacy of something previously untried.

Trial and error alone will not qualify as an eligible experiment. Trial and error may however form part of an eligible experiment where the conditions for core R&D are met.

Trial and error can also qualify as a supporting activity where it forms part of a decision to proceed to activities that qualify as core R&D.

 

Purpose of generating new knowledge

 

The focus of the new definition of ‘core R&D activities’ is on the requirement for an experiment that is conducted using the scientific method in order to address a significant knowledge gap, i.e. to acquire new knowledge or information:

The objective of the R&D incentive is to generate new knowledge from the R&D activity rather than merely to subsidize the application of the knowledge produced by the R&D.

New knowledge in the context of s. 355-25(b) means knowledge not already available in the public arena at the time the activities are conducted, in the relevant technology, on a reasonably accessible worldwide basis.

New knowledge can entail generating knowledge of new or improved: materials, products, processes, devices or services.

For an R&D activity to be an eligible core R&D activity it is not enough that existing knowledge is being used or implemented in a different context or location.

The idea being tested (the hypothesis) must be sufficiently novel that it requires the application of the scientific method.

Prepare for new personal property laws

by Yin Zhong on September 29, 2011 · 0 comments

A radical overhaul of personal property laws means that businesses supplying goods on credit must record their interest in the goods on a new national Personal Property Securities Register (PPSR) or risk losing assets to competing creditors should their customers become insolvent.

Prior to the new personal property securities legislation, ROT clauses alone were generally enough to protect a supplier’s ownership of unpaid goods. If the customer went under, the liquidator, receiver or administrator was largely bound to pay out the supplier if the stock was sold on a winding up, receivership or administration.

From October, all that will change. Businesses that do not to take additional steps to register their ROT interests on the PPSR could lose out to competing creditors with registered interests. In most cases, this will be the customer’s bank which typically has a charge over all the customer’s stock and assets as security for its business loans.

Similar legislation has been on foot in New Zealand for some time. In the administration of Borders Bookstores in New Zealand, in assessing the claims of retention of title creditors, the administrators distinguished those creditors who were registered with the PPSR from those that had not registered.

In this environment, prompt registration is crucial. Suppliers of goods should review their terms of trade without delay. For new customers, terms containing ROT clauses should be in writing, signed by the purchaser and registered on the PPSR before the goods are supplied. Given the dramatic changes introduced by the new regime, directors should also ensure sufficient investment in training for key staff on the effect of the new laws and registration requirements.

Reference: http://image.comms.companydirectors.com.au/lib/fe6715707564037e7d11/m/1/BR110913.pdf#page=4

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