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Tutor: Duke
Date: 09/10/2024
LAWS3101 Income Tax Law
Tax Advice Statement 精讲
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Tax Advice Statement
Outline 作业概况
1. Weight: 30%
2. Due date and time: 10 October 2024 5pm
3. Description:
3.1. You are required to prepare typed-up responses to all three problem sets in one Word document submitted
via Turnitin before due date and time. 以 word文档形式上传 Turnitin，要查重
3.2. You are required to conduct research in preparing your responses to the problem sets using four specific
ATO Guides. You must not include references to these ATO Guides in your responses.Therefore, there is no word
limit allocation for references to these ATO Guides. simply use the ATO Guides to formulate your responses. 你需
要用提供的四个澳大利亚税务局的指导文件来答题，但不需要 reference（这四个文件的相关内容在 notes 里基本都有
体现，详情见章节回顾部分）
3.3. You are not permitted to use footnotes, end notes or text boxes. You must not include a separate
bibliography. As a matter of principle, you must reference relevant case law and sections and divisions of the
Income Tax Assessment Acts in your responses that are specifically listed in the Topic Learning Plans. Do not
include other references in your responses,as there is no word limit allocation for other references. 不需要有注释
以及文献目录，但必须要引用相关学过的的法条和案例，应该是类似于平时做的题那种引用。
3.4. The total word limit for your responses that includes all headings, all pages and all words is 2500 words. If
you exceed the word limit,the course staff will only grade the first 2500 words in your submission. 这个应该不需
要特别在意，因为答题一般不会写这么多字，这个只是老师怕一些人胡诌罢了，也不用想着去卡字数，这种作业有什
么写什么，有就是有没有就是没有。
Topics review 章节回顾
1. The Tax Advice Statement will comprise three questions:
1.1. A capital gains tax(CGT) focused question.This question is about Topic 8,discussed in the TW 9 lecture and a
separate recording available on the course site.
1.2. A question about residential rental property.This question will include Topics 3,4,5 and 6.
1.3. A question about companies and dividends, covered in Topic 1 and Topic 7.
2. Companies and dividends
2.1. Topic 1 - Dividend imputation system
• Dividend and its gross up are assessable income
• S44 ITAA36 Dividends
• S207-20 ITAA97 Gross up
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• Gross up can be refundable as franking credits.
• Formula: Dividends * Corporate tax rate / (1 - Corporate tax rate) * % franked.
2.2. Topic 1 - Corporate tax rate
• First step - see Annual turnover
• > $50 million, 30%
• <= $50 million, go second step
• Second step - see proportion of passive income in company’s Assessable income
• What passive income include: rent, (dividend), royalties, bank interests
• Passive income > 80% of Assessable income, 30%
• Passive income <= 80%, 25%
• Note: Company’s turnover are not always equal to Assessable income, be careful!
2.3. Topic 7 Franking accounts
• The franking account has a running balance of its franking credits and franking debits - kept in ‘tax
dollars’ since 1 July 2002
• CREDIT: when a company pays income tax or receives franked dividends (credit by the amount of
the attached franking credit) or incurs a liability to pay franking deficit tax
• DEBIT: when the company pays franked dividends to its shareholders (debit by the amount of the
attached franking credit) or receives a refund of income tax, or under-franks (Apply benchmark
rules).
• Benchmark rules
• (Cr. ATO website) For the first distribution in a franking period, the franking entity can select the
franking percentage. This sets the benchmark percentage for the franking period. Any subsequent
frankable distributions in the same franking period must be franked at the same percentage. 题目中
一般以本年第一次dividend 的% franked 作为 rules
• Penalties apply if use a different franking %
• Example: Corporation tax of 30%
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• Opening credit balance of franking account on 1 July 2023 is $30,000.
• On 1 August 2023, the company makes a PAYG instalment payment of $25,000.
• On 28 August 2023, the company pays dividends totalling $160,000, franked to 90%.
• On 15 November 2023 the company makes a PAYG instalment payment of $27,000.
• On 29 February 2024, the company pays dividends totalling $14,000 with franking credits of
$4,500 attached.
• On 14 April 2024 the company receives fully franked dividends of $21,000
• Franking Deficit Tax (FDT)
• A company is liable to pay at the end of tax year if the franking account is in deficit.
• Deficit means the franking account at the end of the income tax year is credit balance
• Not a tax penalty - generally can apply tax offsets.
3. Rental properties
3.1. Topic 3 - S6-5 Ordinary income
• Must satisfy two pre-requisite:
• Real gain
• Cash or convertible into cash
• Satisfy 1 of 2 characteristics
• Regular and periodic
• 1 of 3 flows
o Income from employment;
o Income from property
o Income from business
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3.2. Topic 4 - Rental income (ATO rental properties Page 3)
• Rental and other rental-related income is the full amount of rent and associated payments that you
receive, or become entitled to, when you rent out your property, whether it is paid to you or your agent.
You must include your share of the full amount of rent you earn in your tax return.
• Rental income may be in the form of goods and services instead of money - market value
• It includes:
• Rental income
• Bond
• Insurance
• Letting or booking fees
• Reimbursement or recoupment for deductible expenditure eg.
o Compensation received from tenants of damages;
o Government rebate for purchasing depreciating assets
3.3. Topic 5 - Rental expenses (ATO rental properties Page 6 to 8, 13)
• Rental expenses not deductible:
• Expenses not incurred by the taxpayer eg. Water usage charged by tenants;
• Expenses not related to your rental property;
• Expenses that relate to holding vacant land
• The cost of certain second-hand depreciating assets
• Acquisition and disposal costs of the property - subject to CGT
• S26-31: Travel expenses to inspect a property before you buy it and, in certain circumstances,
when you own the property - unless it is carrying on a business
• Expenses incurred in relocating assets between rental properties prior to renting
• Expenses for rental seminars about helping you find a rental property to invest in
• Rental expenses immediately deductible: you actually incurred and related with residential rental
properties - See list in Page 7 and 8
• Apportionment of deductible rental expenses - part-year rental
• Rental expense * Days rented / 365 days
• Page 13: Interest charged on loan to purchase the rental property is deductible - not for private
purpose
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3.4. Topic 6 - Specific deductions (ATO rental properties Page 16 to 19)
• S25-10 Repairs and maintenance allows a deduction for expenditure that you incur for:
• Repairs to business premises (or parts of premises) or
• A depreciating asset that you held or Used solely for the purpose of producing assessable income.
• Producing assessable income
o Repair is the restoration of an income-producing item to its previous condition
o Must be in need of restoration
• No deductions if it is a capital expenditure:
o Additions and improvements
o Initial repairs
o Replacing the entirety of an asset capable of independent operation
• But these may qualify for Div 40, Div 328 or Div 43 capital allowances
• Borrowing expenses
• Borrowing costs are not the amount of loan, but the cost to borrowing money
• It includes:
o Application fees for loan
o Loan establishment fees 贷款设立费
o cost of preparing and filing mortgage documents
o Title search fees charged by the lender
o mortgage broker fees
o stamp duty charged on the mortgage 贷款的印花税
o fees for a valuation required for loan approval
o lender’s mortgage insurance (LMI) billed to the borrower
• Not include:
o Insurance policy premium when taxpayers are died, disabled or unemployed - private
expense
o Stamp duty charged on transfer of the property or to acquire a leasehold interest in
property 物业转让以及获得租赁收益的印花税
o Interest expenses - have been deductible under S8-1
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o The loan amount, or repayment of principal against the loan balance.
• S25-25 Specific deductions on borrowing expenses - Calculation
o If the total borrowing expenses are $100 or less - deduct the whole amount in the year
incurred
o If more than $100:
▪ Deductions claimable = Borrowing expenses amount x the loan days in relevant
income year / Total loan periods(in days)
▪ If loan period < 5 years, adapt the loan period
▪ If loan period >= 5 years, adapt 5 years. 把 loan period 和 5年作比较，选短的
3.5. Topic 6 - Capital allowances (ATO rental properties Page 19 to 28)
• You can claim decline in value (tax depreciation) each your for your newly residential rental properties
• If it is second-hand, cannot claim deductions unless it is carrying on a business
• Div 40 For depreciating assets in residential rental properties - consider prime cost/diminishing value
method
• Prime cost method: Asset’s cost * Days held / 365 days * 100% / effective life
• Diminishing value method: Base value * Days held / 365 days * 200% / effective life
• Immediate deduction for asset’s cost $300 or less
• If asset’s cost is between $300 and $1,000 - see whether it has low value pool
o 18.75% of Asset’s cost - decline in value
o 37.5% of Opening adjustable value - Pool’s decline in value
• For tax depreciation of residential rental properties - Div 43 Capital works deductions
• Construction cost * 2.5% * Days held for producing assessable income / 365 days
• Apply Tables from ATO rental properties page 37 to 47 to determine whether it is depreciating assets or
capital works, and effective life
3.6. Topic 6 - depreciable assets (ATO depreciable assets page 10, 19)
• Used mainly to produce non-business assessable income
• For example: Freestanding furniture in a residential rental property that was purchased as new
after 9 May 2017 and had never been used previously
• To claim the deduction, you must:Use this depreciating assets more than 50% for producing
non-business assessable income
o Apportionment is not required if the rest is business purpose
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• Depreciating asset used for a non-taxable purpose
• Balancing adjustment - compare the assets its selling price and adjustable value
o If adjustable value > selling price, deductions
o If adjustable value < selling price, Assessable income
• Apportionment - only include the proportion of taxable purpose
4. Topic 8 Capital Gains Tax (ATO Personal investors Page 14-17)
4.1. First step: Any Capital Gain/Loss?
• Question 1: What CGT events happened?
• CGT events A1 - Disposal of a CGT asset
o Cause: Change of ownership from you to another entity
o Timing: The event is taken to occur when:
▪ Enter into contract with the disposal; or
▪ If no contract, when the change of ownership occurs.
▪ Selling to your family home? Usually use settlement date
o Gifts assets to other?
▪ CGT event A1 without cash changes on hand: cost base = market value
▪ Proceeds modified in step 2 = market value
• Question 2: Is the asset an CGT asset? ATO CGT guide Page 12
• On time:
o Pre-CGT assets: The assets acquired before 20/9/1985 - Disregard any capital gain/loss
o Post-CGT assets: The assets acquired after 20/9/1985 - That is what we should care
• Types of CGT assets:
o Category 1: Collectable assets - Personal use and enjoyment -S180-10 Definition
▪ Artwork = Painting, sculpture, drawing, engraving, photograph, reproductions
▪ Jewellery
▪ Coin, medallion, postage stamp
▪ Rare folio, manuscript, book
▪ Antique = > 100 years at disposal
▪ Special rules
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• Acquired for ≤ $500 (E1) - disregard gain or loss
• When usually sold as a set, cannot split a set to get E1 ≤ $500
• STEP 2: Cost base never includes non-capital costs of ownership (E3)
• STEP 3: Capital losses, only use against capital gains from collectables
o Category 2: Personal use assets
▪ Personal use and enjoyment assets not collectable - not on S180-10 lists
▪ Never land and buildings
▪ Special rules:
• Acquired for ≤ $10,000 (E1) - disregard capital gain OR;
• When usually sold as a set, cannot split a set to get E1 ≤ $10,000
• STEP 2: Cost base never includes non-capital costs of ownership (E3)
• STEP 3: Capital losses always disregard
• Option to acquire or sell personal use asset = personal use asset
o Category 3: CGT asset (Other assets) - Assets not collectable or personal use
▪ Assets kept for business or investment purposes: See Page 15
▪ Special case: Dividend reinvestment plan (ATO CGT guide Page 120-121): Any
cash payment sourced from dividend, or additional shares in Dividend
reinvestment plan is subject to CGT, and included in Assessable income.
▪ Real Estate (ATO CGT guide Page 161) Includes: Vacant block of land, business
premises, rental properties, holiday houses, and hobby farms.
• Question 3: Exception or exemptions?
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• Main residence exemption (ATO CGT guide Page 180-216)
o To get the full exemption from CGT:
▪ the dwelling must have been your home for the whole period you owned it
▪ you must not have used the dwelling to produce assessable income
▪ any land on which the dwelling is situated must be 2 hectares or less
▪ you must not be an excluded foreign resident at the time the CGT event occurs.
o Whole period is between the settlement date of purchase contract and sale contract.
o Partial exemption if:
▪ the dwelling was your main residence during only part of the period you owned
it
• For example: rent out for a period
• Short absence (holidays) does not affect
▪ you used the dwelling to produce assessable income, or
▪ the land on which the dwelling is situated is more than 2 hectares.
▪ Capital gain = Total capital gain * (Number of days not lived in / Whole period)
o If the dwelling was not the main residence for the whole time you owned it, some special
rules may entitle you to a full exemption or extend your partial exemption:
▪ Choose to treat the dwelling as your main residence, even though you no
longer live in it;
▪ Moved into the dwelling as soon as practicable after its purchase
▪ Are changing main residences
▪ Are yet to live in the dwelling but will do so as soon as practicable after it is
constructed, repaired or renovated and you will continue to live in it for at least
3 months
▪ Sell vacant land after your main residence is accidentally destroyed
o Special case: running a business in part of a home
▪ Partial exemption: Capital gain * % of floor area not used as main residence * %
of period of ownership when that part was not used as main residence
4.2. Second step: Calculate capital gain/loss
• Capital gain = Capital proceeds - Cost base
• Capital loss = Reduced cost base - Capital proceeds
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4.3. Capital proceeds (ATO CGT guide Page 19 to 22)
• Normally, the amount of money you received or entitled to receive
• Market value substitution rules: Cost base = Market value
• No proceeds
• Unable to value
• Not arm’s length price 价格不公平
• Apportionment rule (land and buildings if pre-CGT land):
• Reasonably Attribute capital proceeds when they relate to
o more than one CGT events
o One CGT asset and something else
• Non-receipt rule
• Reduce capital proceeds if taxpayer is not-likely to receive some or all proceeds without faults;
• Must include if later received unpaid amount
• Repaid rule
• Reduce capital proceeds if taxpayer is required to repay some or all of the capital proceeds from a
CGT event - Reduced amount = amounts repaid
• Assumption of liability rule - Rarely used
• Increase capital proceeds if another entity assumes a liability in connection with a CGT event.
4.4. Cost base (ATO CGT guide Page 22 to 25)
• Normally, the cost of asset when bought it
• E1: The acquisition cost of assets
• Rule 1: Money paid or Market value of other property given to acquire the asset
• Rule 2: Market value of asset when you acquired it via gift or non-arm’s length transaction
• Less: Compensation for part of asset if damaged/ result of court proceedings
• Less: Capital allowances claimed to date of disposal
• E2: Incidental costs of acquisition and disposal (Eg. Example 1: brokerage fees)
• A definitive list of incidental costs.
• Remuneration for services: adviser, valuer, agent, broker, consultant etc 中间费
• Costs of the transfer
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• Stamp duty or other similar duty - Transfer duties/Duties
• Costs of advertising to find a seller or a buyer
• Costs of obtaining a valuation or apportionment value
• ‘Search fees’ relating to a CGT asset
• Cost of a conveyancing kit 转让工具费
• Borrowing expenses [ not deducted under S25-25 ITAA97]
• E3: Cost of owning the asset (Non-capital holding costs)
• Only if you haven’t yet claimed the costs as tax deductions! 抵扣和 cost base E3 不能同时计算
• Examples - Not for producing assessable income 因为如果用于创收就得抵扣
o Interest
o Repairs, maintenance
o Insurance
o Rates and land taxes
• Special rules:
o Only applies if the asset was acquired after 20 August 1991;
o No E3 for collectables or personal use assets
o Cannot index E3
• E4: Enhancement expenditure
• Cost to increase value of asset - But reduce by value of capital allowances claimed
• Examples include:
o Extensions or major renovations to a property
o Non-deductible initial repairs
o Landscaping works
o Swimming pools
o Driveways
o Solar panels
o Ducted air-conditioning
• E5: Costs of defending title
• Costs to establish, preserve or defend the taxpayer's title to the asset
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• Example: legal and courts costs with consenting a land resumption order by government
o Legal fees, capital in nature, cannot claim under S8-1 ITTA97
o Add to the cost of asset, claim Div 40 or Div 328 capital allowance
o Add to the cost base of the asset for CGT purpose = E5
o Claim S40-880 ITAA97 black hole
4.5. For CGT in depreciating assets (ATO CGT guide Page 51-52)
• Capital gain arises when the selling price(termination value) > cost base
• Only consider the part of private use in capital gain - the taxable use is capital allowance.
4.6. Calculation method (ATO CGT guide Page 56-61, 63; Personal investors Page 10-12)
• Discount method:
• Indexation method:
• Index your elements of cost base (except for E3) if the assets was acquired before 21 September
1999: Expenditure of element * indexation factor = indexed element
• Indexation factor = 68.7 / Index of the quarter the assets acquired
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总结：
1. 对于个人，如果资产是在 99 年 9月 21 号之后购买，且持有超过 12 个月，用Discount，在第三步的最后乘以 50%；
2. 如果资产是在 99 年 9 月 21 号之前购买，要同时使用 Discount 与 Index 因为 99 年的基本都持有超过 12 个月了，
得出两种Capital gain 并在第三步比较哪种方式对纳税人最有利，另外 Index 不能为 loss，结果是负数则取 0；
3. 如果资产是在 99 年 9月 21 号之后购买且持有不超过 12个月，则用Other methods，即两种方式都不用。
4.7. Special case: Identify the shares or units you bought at different times (ATO CGT guide Page 101)
• For example:
• 4000 shares, 1000 bought in 1998, 3000 bought in 2003;
• In 2024, sell 1500 shares, some in 1998 (Index&discount), some in 2003 (discount)
• If so,
• See any records can prove the source of particular units 先看具体有没有凭证能证明；
• If not, can select “First in, First out” method (1000 in 1998 and 500 in 2003)
4.8. Step 3 Aggregate your net capital gain (ATO personal investors Page 17-30)
• When capital loss
• Capital loss: Capital proceeds less than reduced cost base (cost base excludes E3)
• Special case: Reduced cost base <= capital proceeds <= cost base, no capital gain or loss
• List all gains and losses calculated at the end of Step 1 and 2
• Use Losses from current year reduce gains
• Then use unapplied losses from previous year
• *50% discount to remaining discount gains
• Specific order to apply losses to return the lowest net capital gain
• Against capital gains that are not discount gains, nor indexed gains.
• Against capital gains that attract indexation and CGT discount - Compare and select
o Indexed gain less losses = Answer.
o Discount gain less losses = Answer x 50% general discount.
o Choose the lowest answer
• Against capital gains that are only discount gains.
• Then if any gains are left from discount gains - Apply the 50% discount
• Finally, S102-5 Net capital gain xxx