This summary provides an overview of the key points related to tax planning and group tax summaries, including legal considerations and best practices for trustees.
- This presentation focuses on tax planning basics and the importance of understanding the "big picture" when managing group tax summaries.
- Effective tax planning is essential to minimize tax liability while staying compliant with tax laws.
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A group tax summary provides an overview of the tax position for all entities within a client group.
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It consolidates tax reconciliations from individual entities to calculate the effective tax rate:
- Effective Tax Rate = Total Tax Liability ÷ Total Taxable Income.
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The group tax summary is useful for discussions with clients during tax return preparation and tax planning.
- Tax Planning involves structuring financial affairs to minimize tax while complying with the law.
- Tax planning is legal when it aligns with the intent of the law, but tax avoidance schemes (designed purely to exploit the tax system) are unlawful.
- Part IVA of the Income Tax Assessment Act 1936 focuses on schemes with the dominant purpose of obtaining a tax benefit.
- The ATO considers several factors, including how the scheme was carried out and its financial impact on the taxpayer and related parties.
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To effectively plan for tax, it is essential to understand the client's personal circumstances, such as:
- Estimated income and deductions.
- Investments, business profits, rental income.
- Major life changes (e.g., marriage, retirement).
- Any planned acquisitions or sales, particularly for capital gains tax (CGT) purposes.
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Distribution Resolutions: Trustees of discretionary trusts need to make resolutions regarding the distribution of income to beneficiaries by the end of the financial year (usually June 30).
- Ensure the trustee has considered all factors, such as trust deed provisions, eligibility of beneficiaries, and any family trust elections.
- Resolutions should clearly outline the beneficiaries' entitlements, and any tax implications (e.g., CGT and dividend streaming) should be carefully considered.
- Distributing income solely for tax savings can be a red flag for the ATO.
- It's essential to check that the trust deed supports the decisions and that resolutions are made in good faith, with all beneficiaries' interests considered.
- Avoid "rolling forward" previous year's resolutions without reviewing the specific details and current year's financial circumstances.
- Tax planning is a continuous process that requires attention to detail and a comprehensive understanding of the client's financial situation.
- Building relationships with clients and asking the right questions is key to effective tax planning and compliance.