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Top Tax Tips – 14 June

Reduced corporate tax rate and imputation problems

For the year ending 30 June 2017, the company tax rate is calculated based on that year’s turnover measured at the end of the year (i.e. if the turnover in that year is less than $10 million, the company tax rate will be 27.5% provided the company is carrying on a business).

However, the franking percentage (i.e. the amount of credit for tax paid by the company that will be passed on to shareholders when dividends are paid) will be calculated based on the turnover in the previous 2016 income tax year (but applying the 2017 threshold of $10 million.

This can lead to the following different franking percentages:

  • if the turnover in 2016 is less than $10 million, the franking percentage will be 27.5%
  • if the turnover in 2016 is $10 million or more, the franking percentage will be 30%.

This may result in over-franking or under-franking by 2.5%.

Your Nexia Edwards Marshall Adviser NT will be pleased to advise you more on the new franking rules whose application will be reflected in completed financial accounts and tax returns for the year ending 30 June 2017.

What to do with automatic reversionary and death benefit pensions pre 1 July 2017

Reversionary pensions are usually paid to the spouse of a deceased member of a superannuation fund.With the advent of the new superannuation laws applying after 1 July 2017, concern has been expressed that the balance in the deceased member’s account that has been transferred to the surviving spouse’s superannuation account may cause that person’s account to exceed the new $1.6 million limit.

Where the surviving spouse is receiving a reversionary pension at or before 30 June 2017 and their total superannuation balance exceeds $1.6 million, they may transfer the excess to their accumulation account.The decision to do so must occur before 1 July 2017 and be recorded in relevant documentation.

In contrast, a reversionary pension that breaches the $1.6 million transfer balance cap after 1 July 2017 cannot be retained in accumulation and must be paid out of superannuation (i.e. cashed out).

The above rules apply equally to death benefit pensions paid by a superannuation fund.

Holiday homes – know when you can claim a tax deduction

If you own and rent a holiday home, you can claim tax deductions against rental income for expenses such as interest on loans, borrowing expenses, repairs, rates, land tax, depreciation and capital works spending in respect of the time the holiday home is actually rented out or genuinely available for rent.

For the period the holiday home is not rented out or not genuinely available for rent, you will not be allowed to claim a tax deduction (i.e. deductions must be reduced to reflect that non-income producing period).  Also, if your holiday home is rented out to family or friends at a rate lower than market value (e.g. mates’ rates), your deductions will be limited to the actual (lower) amount of rent received in that period.

When the holiday house is sold, capital gains tax will be payable if the sale proceeds exceed the costs associated with the property’s acquisition and sale, plus any improvement costs not previously claimed as a tax deduction.

Make your trust resolutions before 30 June

Trustees of discretionary trusts are reminded to make trust resolutions (i.e. decide how to distribute the income of the trust to the beneficiaries) before 30 June 2017 (or an earlier date if the trust specifies such an earlier date).

Failure to make such a trustee resolution may lead to a trustee assessment at the top marginal tax rate on all of the trust’s net income (if the trust deed does not contain a default/balance beneficiary clause).

Because the tax laws dealing with trusts are very complex, please speak to your Nexia Edwards Marshall NT Adviser about your trust’s 2017 resolution and potential strategies when dealing with trusts.

How can Nexia Edwards Marshall help you?

For any questions or to discuss any of the above in relation to your personal situation, please contact Sarah McEachern or your Nexia Edwards Marshall NT Advisor.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall NT. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall NT Advisor.

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