Tax Guide A guide to completing your tax return for your ING DIRECT Managed Investments

Transcription

1 Tax Guide 2006 A guide to completing your tax return for your ING DIRECT Managed Investments

2 Getting Started TAX GUIDE 2002 Guide to completing your tax return Important Information We have prepared this document as a guide to assist investors with completing their tax return, in line with tax law as at 30 June It is not specific advice and cannot cover the situation of every investor. It has been prepared for individual Australian resident investors who have invested in ING DIRECT Managed Investments. If you hold other investments which have earned income you will need to add these to the amounts shown on your ING DIRECT Managed Investments Taxation Statement and Capital Gains Tax Statement before completing your tax return. If you are unsure you should consult a professional taxation adviser. The images from TaxPack 2006 included in this publication are copyright of The Commonwealth of Australia and have been reproduced by permission.

3 We d like to help make completing your annual tax return straight forward. This guide has been designed to accompany your 2006 Taxation Statement and Capital Gains Tax Statement, and provides guidance on how the information on your statements should be reported in your annual tax return. Now that the ING DIRECT Managed Investments have been wound up, this will be the final year that you will receive a Taxation Statement and Capital Gains Tax Statement. All you have to do is follow the simple step-by-step instructions in this guide and match them to the numbers on your 2006 Taxation Statement and Capital Gains Tax Statement. It s that straight forward. What you ll need before you get started To complete the relevant sections of your tax return, you will require the following: Your 2006 ING DIRECT Taxation Statement Your 2006 ING DIRECT Capital Gains Tax Statement (if applicable) A copy of TaxPack 2006 (including the TaxPack 2006 Supplement) A Calculator Useful Resources The Australian Taxation Office produces a number of publications which provide more detailed information about completing your tax return. You can download these publications from their website at or by calling Getting Started 3

4 Non-Primary Production Income Question 12 in your 2006 Tax Return Supplementary Section 12 Partnerships and trusts Primary production Include and deferred non-commercial business losses from a prior year at X or Y as appropriate and insert the relevant code in the TYPE box. Distribution from partnerships N Distribution from trusts L Landcare operations and deduction for decline in value of water facility I Other deductions relating to distribution X Non-primary production Share of credit for tax withheld where Australian business number not quoted P Share of franking credit from franked dividends Q Share of credit for tax file number amounts withheld from interest, dividends, R and unit trust distributions Share of credit for tax paid by trustee S,,,, Net primary production distribution Y net Distribution from partnerships, Show distributions of: less foreign income O, 00 net capital gains at item 17 and Distribution from trusts, less capital gains and foreign income U, 00 foreign income at item 18 or 19 Landcare operations expenses J, TYPE Other deductions relating to distributions shown at O and U, LOSS Net non-primary production distribution Share of credits from income,, Share of credit for amounts withheld from foreign resident withholding A,,,,,..... TYPE If you have a net loss from a partnership business activity, complete items P3 and P9 in the Business and professional items schedule for individuals 2006 in addition to item 12.,, LOSS Non-primary production income is shown at box 1 on your 2006 Taxation Statement. This represents interest, dividends (both franked and unfranked) and other income sourced from Australia. If you have an amount on your 2006 Taxation Statement showing at box 1, simply follow these easy steps: Step 1 Write the amount shown at box 1 next to label U in Item 12 of your 2006 Tax Return Supplementary Section. 4 Non-Primary Production Income

5 Step 2 Write the amount of any deductions relating to your ING DIRECT Managed Investments next to label Y in Item 12 of your 2006 Tax Return Supplementary Section. Investor helper Do the following situations apply to you? Did you borrow money to invest in the ING DIRECT Managed Investments? Did you pay interest on that loan in the last financial year? Did your bank charge you any fees when you deposited the income from your ING DIRECT Managed Investments into your bank account? If you answered yes to any of these questions, you may be able to claim a deduction against the income you have earned from your ING DIRECT Managed Investments. If you are unsure and need more information about claiming deductions you should consult your tax adviser. Step 3 Subtract the amount at label Y (Step 2) from label U (Step 1). The result is your net non-primary production distribution. Write this amount at Item 12 of your 2006 Tax Return Supplementary Section at the box entitled Net non-primary production distribution. Non-Primary Production Income 5

6 Franking credits are shown at box 2 on your 2006 Taxation Statement. Franking credits represent tax already paid on dividends received through your ING DIRECT Managed Investment. If you have withdrawn units from your ING DIRECT Managed Investments which were held for a period of less than 45 days you may not be entitled to the full amount of franking credits shown on your statement. If this applies to you, we recommend you consult your tax adviser. Step 4 If you have an amount showing at box 2, write this amount next to label Q in Item 12 of your 2006 Tax Return Supplementary Section. 6 Non-Primary Production Income

7 Capital Gains Question 17 in your 2006 Tax Return Supplementary Section 17 Capital gains Did you have a capital gains tax event during the year? Total current year capital gains H Net capital losses carried forward to later income years G NO, V, YES You must print X in the YES box at G if you received a distribution of a capital gain from a trust. Net capital gain,, 00 The taxable capital gains made and distributed by your ING DIRECT Managed Investments are shown at boxes 5 and 6 on your 2006 Taxation Statement. The amounts on this statement do not include capital gains you may have made if you have withdrawn or transferred any part of your investment during the last financial year. These are advised to you on a separate Capital Gains Tax Statement which was included with your 2006 Taxation Statement. If there are amounts on your 2006 Taxation Statement showing at boxes 5 and 6 and/or you have received a Capital Gains Tax Statement, simply follow the easy steps over the page. Capital Gains 7

8 Step 1 Write X in the yes box next to label G in Item 17 of your 2006 Tax Return Supplementary Section. If you do not have capital losses from the current year or prior years, go to Step 2. If you have capital losses from the current year or carried forward capital losses from a prior year, go to Step 6. Step 2 You will need to refer to your 2006 Capital Gains Tax Statement. a) Add together all the amounts shown in the Capital Gains Other Method 1 column to get a subtotal. b) Add together all the amounts shown in the Capital Gains Discounted Method 2 column to get a subtotal. c) Calculate your Gross Discount Capital Gain Amount which is the subtotal of Step 2b multiplied by two. Step 3 You will need to refer to your 2006 Taxation Statement. a) If you have an amount next to box 5, add this to Capital Gains Other Method subtotal calculated in Step 2a. This amount is now called your Total Capital Gains Indexation and Other Method. 8 Capital Gains

9 b) If you have an amount next to box 6, multiply it by two and add this to your Gross Discount Capital Gain Amount calculated in Step 2c. This amount is called your Total Gross Discount Capital Gains. Step 4 Add together the two amounts calculated in Step 3. This is your Total Current Year Capital Gains. Write this amount next to label H in Item 17 of your 2006 Tax Return Supplementary Section. Please note, if you have capital gains or losses from other investments outside ING DIRECT you will need to include them. Step 5 Halve the amount calculated in Step 3b and add this to the amount calculated in Step 3a. This is your Net Capital Gain. Write this amount next to label A in Question 17 of your 2006 Tax Return Supplementary Section. If you have capital losses from the current year or carried forward capital losses from a prior year, start at Step 6 to complete Question 17 of your 2006 Tax Return Supplementary Section. Capital Gains 9

10 Step 6 You will need to refer to your 2006 Taxation Statement to add your capital gains into the categories noted below (remembering to include capital gains from other sources). Do not include amounts shown on your 2006 Capital Gains Tax Statement (see Step 7). a) Capital Gains Indexation and Other Method (shown next to box 5 on your 2006 Taxation Statement); b) Discounted Capital Gains (shown next to box on your 2006 Taxation Statement); 6 c) Capital Losses (including carried forward losses from current year and previous years). 10 Capital Gains

11 Example of Step 6 Jill held a number of investments during the year and these included unit trusts. She received some capital gains from her ING DIRECT Managed Investments held during the year which are shown in the ING DIRECT Capital Gains section of her 2006 Taxation Statement as follows: Indexation and Other Method $400 Discounted Capital Gains $ For illustrative purposes, Jill also held an investment property and some other shares in addition to her ING DIRECT units. She sold both during the year and realised the following capital gains: Shares Capital Gains Indexation and Other $2600 Investment Property Discounted Capital Gains $2100 Note, Jill also had a capital loss carried forward from a previous year totalling $7000. Capital Gains 11

12 To complete Step 6, Jill would do the following: Step A Capital Gains Indexation and Other Method = $400 5 (Taxation Statement) + $2600 (sale of the shares) = $3000 Step B Discounted Capital Gains = $150 6 (Taxation Statement) + $2100 (sale of property) = $2250 Step C CGT Concession Amount = $2250 (Same as Step B amount) Step D Capital Losses = $7000 from other sources, carried forward from a prior year. Therefore, Jill now has the following: CGT Indexation and Other Method $3000 Discounted Capital Gains $2250 CGT Concession Amount $2250 Capital Losses $ Capital Gains

13 Step 7 You will need to refer to your 2006 Capital Gains Tax Statement. a) Add together all the amounts shown in the Capital Gains Other Method 1 column and add the subtotal to Step 6a. This is your Total Capital Gains Indexation and Other Method. b) Add together all the amounts shown in the Capital Gains Discounted Method 2 column and add the subtotal to Step 6b. This is your Total Discounted Capital Gain. c) An amount equal to the amount calculated in Step 7b is also your Total CGT Concession Amount. d) Add together all the amounts shown in the Capital Loss column and add the subtotal to Step 6c. This is your Total Capital Losses. Step 8 a) Add your Total Discounted Capital Gains from Step 7b and your CGT Concession Amount from Step 7c together. This is your Gross Discount Capital Gains. b) Add your Total Capital Gains Indexation and Other Method from Step 7a and your Gross Discount Capital Gains from Step 8a. This is your Total Current Year Capital Gains. Write this amount next to label H in Item 17 of your 2006 Tax Return Supplementary Section. Capital Gains 13

14 Example of Steps 7 and 8 Following on from the previous Step 6 example, Jill s capital gains and losses, apart from those on her 2006 Capital Gains Tax Statement, split into the following categories: CGT Indexation and Other Method $3000 Discounted Capital Gains $2250 CGT Concession Amount $2250 Capital Losses ($7000) Jill also redeemed units in her ING DIRECT Managed Investments during the year end and realised the following capital gains: $2005 (subtotal Method 1 column) $1500 (subtotal Method 2 column) $500 (subtotal Loss column) Step 7a Jill needs to subtotal the Capital Gains Other Method 1 column from the 2006 Capital Gains Tax Statement. This amounts to $2005. Add this amount to Jill s Capital Gains Indexation and Other Method of $3000. The total is $ $2005 = $5005. This is Jill s Total Capital Gains Indexation and Other Method. Step 7b Jill needs to subtotal the Capital Gains Discounted Method 2 column from the 2006 Capital Gains Tax Statement. This amounts to $1500. Add this amount to Jill s Discounted Capital Gains of $2250. The total is $ $2250 = $3750. This is Jill s Total Discounted Capital Gains. 14 Capital Gains

15 Step 7c Jill needs to again take the subtotal of the Capital Gains Discounted Method 2 column from the 2006 Capital Gains Tax Statement. This amounted to $1500. Add this amount to Jill's CGT Concession Amount of $2250. The total is $ $2250 = $3750. This is Jill's Total CGT Concession Amount. Step 7d Jill needs to subtotal the Capital Loss column from the 2006 Capital Gains Tax Statement. This amounts to $500. Add this amount to Jill s Capital Losses of $7000. The total is ($7000) + ($500) = ($7500). This is Jill s Total Capital Losses. Step 8a Jill needs to add Total Discounted Capital Gains of $3750 to Total CGT Concession Amount of $3750. The total is $7500. This is Jill's Gross Discounted Capital Gains. In summary, the totals for each category are now: Total Capital Gains Indexation and Other Method (Step 7a) $5005 Gross Discounted Capital Gains (Step 8a) $7500 Total Capital Losses (Step 7d) $7500 Step 8b Jill s Total Current Year Capital Gains = Total Capital Gains Indexation and Other Method + Gross Discounted Capital Gains = $ $7500 = $12505 Jill will write $12505 next to label H in Item 17 of her 2006 Tax Return Supplementary Section. Capital Gains 15

16 Step 9 You need to follow one of the steps below (either a, b or c) depending on your situation. a) Where Total Capital Losses from Step 7d equals Total Current Year Capital Gains from Step 8b, put a zero next to label A in Item 17 of your 2006 Tax Return Supplementary Section. Item 17 of your 2006 Tax Return Supplementary Section is complete. b) Where Total Capital Losses from Step 7d exceeds Total Current Year Capital Gains from Step 8b, put a zero next to label A in Item 17 of your 2006 Tax Return Supplementary Section. Then subtract the Total Current Year Capital Gains from the Total Capital Losses and put that amount next to label V in Item 17 of your 2006 Tax Return Supplementary Section. This is your carried forward capital losses, that may be used to offset future year capital gains. Item 17 of your 2006 Tax Return Supplementary Section is complete. c) Where Total Capital Losses from Step 7d are less than Total Current Year Capital Gains from Step 8b read on. If Total Capital Losses are less than (or equal to) your Total Capital Gains Indexation and Other Method from Step 7a, go to Step 10. If Total Capital Losses exceeds the Total Capital Gains Indexation and Other Method from Step 7a, go to Step Capital Gains

17 Step 10 Subtract Total Capital Losses from your Total Capital Gains Indexation and Other Method. The balance will be your new Total Capital Gains Indexation and Other Method component. Add together the new Total Capital Gains Indexation and Other Method component and the Total Discounted Capital Gains from Step 7b. Put this total next to label A in Item 17 of your 2006 Tax Return Supplementary Section. Item 17 of your 2006 Tax Return Supplementary Section is complete. Step 11 a) Subtract Total Capital Gains Indexation and Other Method from Total Capital Losses. The balance will be your remaining capital losses. b) Obtain from Step 8a your Gross Discounted Capital Gains. c) Subtract the remaining capital losses from the Gross Discounted Capital Gains. The balance will be the Net Discounted Capital Gain. d) Halve the Net Discounted Capital Gain calculated in Step 11c. One half is the Net Capital Gain and will be put next to label A in Item 17 of your 2006 Tax Return Supplementary Section. Capital Gains 17

18 The remaining half is the new CGT Concession Amount which does not need to be included in your 2006 Tax Return Supplementary Section. Item 17 of your 2006 Tax Return Supplementary Section is complete. Example of Step 11 Since Jill s Total Capital Losses are more than her Total Capital Gains Indexation and Other Method, Jill will do the following based on Step 11 to complete label A in Item 17: Step 11a Remaining capital losses = Total Capital Losses - Total Non Discounted Capital Gains = $ $5005 = $2495 Step 11b and 11c Gross Discounted Capital Gains = $7500 Net Discounted Capital Gains = Gross Discounted Capital Gains - remaining capital losses = $ $2495 = $5005 Step 11d Net Capital Gains = Net Discounted Capital x 50% = $5005 x 50% = $ Jill will insert $ next to label A in Item 17 of her 2006 Tax Return Supplementary Section. Item 17 of Jill s 2006 Tax Return Supplementary Section is now complete. 18 Capital Gains

19 Investor helper You will need to include details of capital gains you may have received from other sources in your tax return. If you d like more information about Capital Gains Tax you should refer to the Australian Taxation Office s website at or call , to order the ATO Guide to Capital Gains Tax. Capital Gains 19

20 Foreign Income Question 19 in your 2006 Tax Return Supplementary Section 19 Foreign source income and foreign assets or property Assessable foreign source income E,, Net foreign employment and net foreign pension or annuity income WITHOUT an undeducted purchase price L,, Net foreign pensions or annuity income WITH an undeducted purchase price D,, Also include at F Australian franking credits from a Other net foreign source income M,, New Zealand company that you have received indirectly through a partnership or trust distribution. Australian franking credits from a New Zealand company,, TYPE Exempt foreign employment income N Foreign tax credits O During the year did you own, or have an interest in, assets located outside Australia which had a total value of AUD$50,000 or more? P NO,, YES. Foreign Income is shown next to box 3 on your 2006 Taxation Statement. This represents income received from dividends, interest and other income from foreign sources. If you have an amount on your 2006 Taxation Statement next to box 3, simply follow these easy steps: Step 1 The foreign income you have received may need to be broken down into different classes. Here are the class breakdowns for ING DIRECT s Managed Investments. Foreign Income % Class All Rounder True Blue Modified Passive Interest Other Total Foreign Income

21 You need to work out the dollar amount for each class. To do this, simply multiply the amount of foreign income shown next to box 3 on your 2006 Taxation Statement by the percentage for each class as shown in the foreign income column in the previous table. Step 2 Follow the instructions contained in steps 1-3 in Part D on page 23 of the 2006 Tax Return Supplementary Section to calculate the amount of foreign income to be recorded in your 2006 Tax Return Supplementary Section. These steps are relevant only if you have incurred expenses in earning distributions from the ING DIRECT Managed Investments. Step 3 Write the net foreign income amount next to label M in Item 19 of your 2006 Tax Return Supplementary Section. Step 4 Follow the instructions in Part E on page 24 of the TaxPack 2006 Supplement to calculate your total Assessable Foreign Source Income. Write this amount next to label E in Item 19 of your 2006 Tax Return Supplementary Section. Foreign Income 21

22 Foreign Tax Credits Foreign tax credits are shown at box 4 on your 2006 Taxation Statement. Foreign tax credits represent foreign tax paid on interest, dividends and other income received from foreign sources. If you have an amount on your 2006 Taxation Statement showing at box 4, simply follow these easy steps: Step 1 You will need to work out the dollar amount for each class of foreign tax credits (as you did for foreign income). To do this, simply multiply the amount of foreign tax credits shown at box 4 by the percentage amount shown for each class in the foreign tax credit column in the table below. Foreign Tax Credits % Class All Rounder True Blue Passive Other Total Step 2 Follow the instructions in Part G on page 24 of the TaxPack 2006 Supplement. You may need to refer to the Australian Taxation Office publication How to Claim a Foreign Tax Credit. Step 3 Write this amount next to label O in Item 19 of your 2006 Tax Return Supplementary Section. 22 Foreign Tax Credits

23 TFN Withholding Tax Tax File Number (TFN) Withholding Tax is shown at box 8 on your 2006 Taxation Statement. This represents tax withheld at a rate of 48.5% of the cash distribution. It is deducted if you have not provided us with your TFN or TFN exemption. If you have an amount showing at box 8, write it next to label R in Item 12 of your 2006 Tax Return Supplementary Section. Total Supplement Income or Loss TOTAL SUPPLEMENT INCOME OR LOSS LOSS Add up all the income amounts at items 12 to 22 on your tax return and deduct any loss amounts in the right-hand column. Transfer this amount to the bottom of page 2 of your tax return at $,, Once you have completed all of the items above, complete the additions and subtraction and write the total amount next to label I in the Total Supplement Income or Loss panel on page 11 of your 2006 Tax Return Supplementary Section. Then write this amount next to the corresponding label at the bottom of page 2 of your 2006 Tax Return. If the total deductions exceed total income in the Supplementary Section insert the letter L in label I on both pages 11 and 2 in the box provided. TFN Withholding Tax 23

24 Glossary

25 Capital Gains Indexation and Other Method CWA Capital Gains Indexation and Other Method NCWA CGT Concession Amount Capital Losses Discounted Capital Gains CWA These amounts represent the net capital gains on investments that were Connected With Australia (CWA) and sold within 12 months of purchase or calculated using the indexation method. These amounts represent the net capital gains on investments that were Not Connected With Australia (NCWA) and sold within 12 months of purchase or calculated using the indexation method. Non residents of Australia are not required to pay Australian tax on capital gain NCWA. These amounts are the portion of the discounted capital gain distributed which reflects the 50% CGT Discount. These amounts are not taxable and should be disregarded for tax return purposes. A trust can not distribute capital losses, however you may have incurred a capital loss through selling units in a trust or other investment for less than you paid for it. Capital losses can only be offset against capital gains and can be carried forward to succeeding years. These amounts represent the net capital gain on investments that were Connected With Australia (CWA) and held for at least 12 months. These gains are eligible for the 50% CGT discount, and this 50% discount has been applied. You will need to multiply this amount by two to determine your gross discount capital gain if you need to apply capital losses or apply an alternative CGT discount rate. Glossary 25

26 Discounted Capital Gains NCWA Foreign Income Foreign Tax Credits Franking Credits Franked Dividends These amounts represent the net capital gain on investments that were Not Connected With Australia (NCWA) and held for at least 12 months. These gains are eligible for the 50% CGT discount, and this 50% discount has been applied. You will need to multiply this amount by two to determine your gross discount capital gain if you need to apply capital losses or apply an alternative CGT discount rate. Non-residents of Australia are not required to pay Australian tax on capital gains NCWA. May include interest, dividends, distributions and other income earned on investments held overseas. Represents the tax paid in a foreign country on foreign income. The credit may be offset against a taxpayer s Australian tax liability on the foreign income. The tax paid by an Australian company on its earnings. Australian residents will in most circumstances be entitled to use the credit to offset their tax liability. Franking credits are also known as imputation credits. Dividends paid by Australian companies which have paid tax on the earnings from which a dividend has been paid. The dividend comes with a franking credit which represents the tax paid. 26 Glossary

27 Interest Non-Primary Production Income Other Income Tax Deferred Amount Tax Free Amount Unfranked Dividends Income on cash deposits and fixed interest securities. May include interest, dividends, rent and other income sourced in Australia. Australian sourced income that may include gains on sale of a revenue nature such as derivatives, fixed interest securities. Tax deferred amounts are non-assessable receipts arising due to differences between the accounting and tax treatment of a particular item. Building allowances are examples. On redemption of units, these amounts will reduce the cost base of units for calculating the capital gains and losses arising from the disposals. Tax free amounts are non-taxable receipts distributed by a trust. A tax free amount will reduce the cost base of your units if a capital loss is made on redemption of the units. Dividends paid by an Australian company that has not paid tax on the earnings from which a dividend has been paid. There is no franking credit on these dividends. Glossary 27

28 Log on to our website at: Mail us (no stamp required) at: ING DIRECT Reply Paid 4307 Sydney NSW 2001 Call hours a day, 7 days a week Visit us at our Customer Information Centres: Sydney 347 Kent Street Melbourne 140 Queen Street Brisbane 100 Edward Street ING Bank (Australia) Limited, ABN AFSL ING DIRECT is a Registered Trademark of ING Groep N.V. MI00010/ING /06