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Common Reporting Standard (CRS)

Australia is one of countries that has committed to new global standards – Common Reporting Standard (CRS) on the implementation of automatic exchange of financial account information. CRS is a new information-gathered and reporting requirement for financial institution located in participating OECD countries. The Australian government has enacted laws and entered into international agreements from 1 July 2017, customers might be largely impacted. Financial institutions based in Participating Jurisdictions are required to enforce due diligence procedures, record, and classify reportable accounts under CRS. Also, create a broad reporting mechanism under CRS.

What is CRS?

The main purpose of CRS is to assess and explain the personal financial details that must be exchanged across international boundaries in terms of assets, income, and taxable amounts. The CRS specifies the information that must be exchanged; the financial institutions that must register; the categories of persons that must be informed; and the protocols that must be followed by financial institutions.

CRS has a wide-scope influence and can affect anyone, whether a individual or an organization. Account Holders must be identified, and accounts held directly or indirectly by international Tax Residents must be recorded. Local tax authorities would share this information immediately with the participating CRS Jurisdiction in question.

Who does CRS apply to? Will it apply to me?

Any individual with financial accounts or obligations outside of their country of tax residence is subject to the CRS and the Automatic Exchange of Information. As long as they have a financial account in their home country, practically anyone who stays “abroad” will be subject to the CRS.

All affected customers will be contacted by the Bank to obtain self-certification forms which they will assess their tax residency (include their tax identification number). The Bank is legally obligated to treat the customer as a reportable individual if the customer does not self-certify. If you have obtained a notice from the financial institution(s) with which you have an account, your information will be shared with the relevant tax authorities, that means you are subject to the CRS.

What does tax residence mean?

The word “Tax Residence” refers to a person’s status as a tax resident in a country (tax residence) under local law. For tax purposes, ATO considers you to be an Australian tax resident if you:

  • have always lived in Australia or have stayed in Australia permanently.
  • have been in Australia for six months or more and have worked in the same job and lived in the same location for the majority of that time.
  • have been in Australia for more than six months during 2019-2020, unless your usual home is overseas and you do not intend to live in Australia.
  • go overseas temporarily and you do not set up a permanent home in another country.
  • are an overseas student who has come to Australia to study and is enrolled in a course that is more than six months long.

What types of reportable information are exchanged as part of the CRS?

The following details will be share by CRS (your account):

  • Name.
  • Address.
  • Country (or countries) of tax residence.
  • Taxpayer Identification Number (TIN).
  • Date and place of birth (for individuals or Controlling Persons).
  • Account number.
  • Account balance.
  • Certain payments made into the account.
  • Place of registration/incorporation (for Entities)

What type of information may be reported to tax authorities?

ATO has got the first round of data from international jurisdictions in September 2018. Financial accounts held by Australian tax residents and entities abroad are included in the statistics. Financial accounts that will be reported to ATO include:

  • depository accounts
  • custodial accounts
  • debt or equity accounts
  • cash value insurance and annuity contract accounts.

The data will contain details about each financial account including:

  • the account balances.
  • interest payments
  • dividend payments
  • proceeds from the sale of assets
  • other income.

What should you do?

You must answer all the details that asked by your financial institution. Otherwise, they might be forced to treat you as if you are a tax resident of another country, even though you are not. Remember to prepare all the require materials before open an new account , if not, the financial institution can’t open it for you. When stating your tax residence or providing other details to your financial institution, you should do so truthfully and to the best of your knowledge. You might face penalties if you provide inaccurate or misleading information on purpose or with recklessness.

Finally, if you have accounts with financial institutions outside of your home country, you must make sure that your tax relations are in order. The proper taxes have been declared in all applicable jurisdictions. Failing to declare foreign income and gains and hoping it will not be noticed is simply not an option. This ensures that you must have your affairs in order if you have any undeclared profits or gains from previous years.

 

If you want more suggestions and seek assistance, call BOA & Co. accountants on 1300 952 286 and our Specialist will be pleased to assist you.

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Dividends for company shareholders

3 Types of Dividends for Company Shareholders

 

Do you know there are 3 Types of Dividends for company shareholders? 

If you have read our previous post “Comparison on Business Structuresyou will find that company is the only structure that can distribute after taxed retain profits to its shareholders. This is so-called Dividends.

What are the dividends?

When companies make a profit they often reward shareholders by distributing some of this profit by way of dividends. Like individuals who earn an income or profit, companies are also required to pay tax on their earnings at the company tax rate of 27.5%. As such, the dividends received by shareholders may be partially, fully franked, or unfranked (that is, have had the tax partially, fully, or unpaid on that income).

dividend-franking-credit-cash-flow_

Here are 3 types of dividends: 

  1. Fully franked – 100% of company tax paid is attached to the dividend as franking credit to be distributed to shareholders,
  2. Partly franked – less than 100% of company tax paid is attached to the dividend as franking credit to be distributed to shareholders,
  3. Unfranked – No company tax paid is attached to the dividend.

This is called the Dividend Imputation system

Franked-Dividend

 

What Is a Dividend Imputation?

According to the Australian Tax Office (ATO), A dividend imputation is an arrangement in Australia and several other countries that eliminates the double taxation of cash payouts from a corporation to its shareholders. Australia has allowed dividend imputation since 1987.1 Through the use of tax credits called “franking credits” or “imputed tax credits,” the tax authorities are notified that a company has already paid the required income tax on the income it distributes as dividends. The shareholder does not then have to pay tax on the dividend income

 

Fully franked dividends

When companies pay fully franked dividends, they have paid the full amount of tax on their profits. Consider the following example: After making a profit and reinvesting some of those funds back into the business, Company ABC Pty Ltd distributes its remaining profit of $1,000 to investors (shareholders) via fully franked dividends. Investor A owns 10,000 shares in the company, and as such, receives a fully franked dividend of $1,000 (10 cents per share). As the dividend is fully franked, this provides Investor A with $275.00 in franking credits which they can use to offset their personal tax liability.

Depending on Investor A’s marginal tax rate, the impact of the imputation credits is demonstrated in the table below:

 

Personal Effective Tax Rate 0.00% 15.00% 30.00% 37.00% 45.00%
Franked dividend paid by a company $1,000 $1,000 $1,000 $1,000 $1,000
plus Franking Credits $275 $275 $275 $275 $275
Company tax rate 27.50% 27.50% 27.50% 27.50% 27.50%
Assessable Income  $1,275 $1,275 $1,275 $1,275 $1,275
Tax on assessable income $0 $191 $383 $472 $574
less Franking Credits $275 $275 $275 $275 $275
Tax Payable/(Refund or Excess credits for tax offset)  -$275 -$84 $108 $197 $299

 

Claiming a refund of franking credits

 In the example provided, it has been assumed that franking credits have been claimed when an investor lodges their personal tax return. However, this isn’t the only way that shareholders can claim their franking credits. For those people who don’t lodge a tax return, imputation credits can be claimed by completing an ‘Application for Refund of Franking Credits’ form which is available from the Australian Tax Office: ato.gov.au.

 

Unfranked dividends 

Companies are also able to pay unfranked dividends in some instances, in which no franking credits are passed on to shareholders. Using the example below, Investor A would receive a dividend of $1,000 on their shares, but no franking credits, meaning that the income will be taxed at their marginal tax rate:

 

Personal Effective Tax Rate 0.00% 15.00% 30.00% 37.00% 45.00%
Franked dividend paid by a company $1,000 $1,000 $1,000 $1,000 $1,000
plus Franking Credits $0 $0 $0 $0 $0
Company tax rate 27.50% 27.50% 27.50% 27.50% 27.50%
Assessable Income  $1,000 $1,000 $1,000 $1,000 $1,000
Tax on assessable income $0 $150 $300 $370 $450
less Franking Credits $0 $0 $0 $0 $0
Tax Payable/(Refund or Excess credits for tax offset)  $0 $150 $300 $370 $450

 

Do you need professional assistance for your tax concerns? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our SMSF specialist will be pleased to assist you.

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