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Does someone (not working) need to lodge a tax return?

Circumstances: Over 65 and retired. Approx. $10,000 of investment income (including franking credits) plus an additional $10,000 of assessable capital gains (after 50% discount).

So, with SAPTO and LITO, they won't have to pay any tax. But, their total income is over the $18,200 tax free threshold.

On the ATO website on the 'do you need to do a tax return' tool, one of the things says "Does dividends and distributions exceed $18,200"? and if you pick yes, then it says you do need to do a tax return. Dividends/distributions haven't exceeded $18,200 but they've had a capital gain that has resulted in taxable income being over $18,200.

So, do they need to lodge a return or can they just submit a franking credit refund form for their franking credits?

Thanks,

Glenn

last year

Responses

Hi Glenn,

If lodging themselves, the deadline is 31 October each year. If through an agent, generally 15 May the following year (we have just finished lodging 2017 returns).
With the expectation that they will have a refund, the ATO generally has a soft approach, as they don't mind holding onto your money.
From the sounds of it, should be a fairly simple return to process through - unless the $10k capital gains is from quite a number of share sales. Local agent should be able to run the details through with your client without a drama (we can do from Perth as well - small world these days!). Will need a full return at the end of the day.

Comments

Sorry, I meant 'at what point of income' not, at what time of year.

Any Income level - where there is more than just a small amount of dividends, I would suggest they need to lodge a return, as the ATO data matching may cause a review with CGT details not identified.

Hi Glenn,

The taxpayer would need to lodge a tax return in order to get the franking credit refund.

If they had not have been any franking credits then you could lodge a "return not necessary" notification.

Good luck with it.

Comments

Hi David,
They normally claim their franking credits with a franking credit refund form each year, which they would do again if a tax return isn't required.
Cheers
Glenn

I would advise your client to lodge a return so that the capital gains are reported correctly. The trouble you have here is not so much the tax payable (or the franking credits refundable) but the fact that the ATO will have all the information on the sales of shares reported to them. What could happen is that the ATO will see a Return Not Necessary or a Franking Credit Return lodged and think to themselves "hang on!!! this guy has $50k in sales of shares that he is failing to report"

bear in mind that the ATO will only know the gross sale revenue from the disposal of shares. So the COST BASE of the shares wont come into it for the ATO. they wont give a shit how much the shares cost, they will assess your client on the GROSS REVENUE and then it will be up to your client to object to the assessment.

And trust me when I tell you that the process of objecting to an assessment issued by the ATO is long, slow, painful and expensive.

here is an example: One of my clients had a parent who was NOT a client of mine, and looked after her tax affairs as she didnt need any technical advice and was happy to lodge things herself. She was retired, sold her home and didnt report the CGT event in her tax return. (she had moved out of the property a couple of years earlier and rented it out, but the principal place of residence exemption still applied).

so this is what happened: the ATO knew a couple of facts:
1: she had previously reported rental income
2: she stopped reporting rental income
3: land titles office knew how much the house sold for and when it was sold

sooo the ATO sent her a notice of assessment based on the GROSS SALE PROCEEDS of the house!! the tax bill was $192k!!!!

needless to say, she near died of shock, and when she came to me with her problem, she had worked herself into a frenzy, and was halfway through pulling money out of a hefty term deposit to pay the bill. Once I figured out that the ATO had got the wrong end of the stick, it still took months of letters, emails and phone calls to straighten it all out. Had she reported the CGT event in her tax return with the correct (nil) assessable gain in it, the matter would never have occurred.

Your client will be infinitely better off if he just gets the return done properly in the fist place.

cheers
BC

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