In the evolution of a business, there may come a time when it is necessary to restructure into a company. Often, non-tax factors will trigger this: government regulations, a need to attract equity investment, corporatisation leading to a potential buyout, or a need to fund working capital.
On the surface, a company rollover appears the ideal option – no CGT is triggered on the restructure, and the same tax attributes, including cost base, are maintained. ...
Many will think of the Constitution of their company as a predominantly commercial document setting out the powers and procedures for the making of decisions by directors and shareholders, and the rights attaching to shares in respect of dividends, voting and winding up.
As far as tax is concerned the main focus is to allow for different classes of shares. ...
The use of testamentary trusts in estate planning (particularly for clients with a reasonable level of income producing investments) is relatively standard practice. It is not uncommon in preparing the Will to pass all of the assets of the testator into one or more testamentary trusts. ...
The use of testamentary trusts in estate planning (particularly for clients with a reasonable level of income producing investments) is relatively standard practice. It is not uncommon in preparing the Will to pass all of the assets of the testator into one or more testamentary trusts. ...
The superannuation reform announced in the 2016 Federal Budget have largely been implemented.
Many of the changes simply adopt the government announcement.
However, there are some changes that are not so obvious which require strategic planning action, and provide opportunities to add value. Our take on these less obvious changes as set out below.
Excess Transfer Balances
Excess Transfer Balance Cap
The 2016 Federal Budget proposed the most significant reform to superannuation since 2007.
Much of the legislation for the implementation of that reform has been implemented with the passing of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
Many of the changes included in the legislation will be obvious: pension exemption limit of $1.6 million, changes in contribution caps, removal of anti-detriment deductions, changes in thresholds, etc.
However, some of the changes included are not so obvious which provide traps for the unwary, but more importantly opportunities to add value.
The not so obvious:
Foreign Resident Withholding Tax – Practical Effects
The general thrust of the new foreign resident withholding tax regime is to require a purchaser to withhold 10% of the purchase price on acquisitions from foreign vendors of real property (real estate), or shares in a company that holds real estate.
However, the rules apply to all transactions involving real property and shares in companies, even if between two residents, unless steps are taken to fit within an exclusion.
Key elements of the new regime
Direct interests
- The regime applies to all transactions involving taxable Australian real property (including a mining, quarrying or prospecting right) exceeding a market value of $2million just after the transaction, even if the vendor is a resident.
- Company title is also treated as a direct interest.
- The obligation is to withhold 10% of the 1st element of the cost base, usually the purchase price or the varied amount if the ATO provides a variation (even if the transaction would not be liable for CGT e.g. deceased estates, CGT rollover). Note: On 6 September 2016 an ATO Legislative Instrument was registered that varied the payment to nil for assets passing under a deceased estate. The instrument also applies to assets passing under a joint tenancy.
- The $2 million threshold is based on market value, not the purchase price. If only a partial interest is being sold, the $2 million threshold applies to the value of the whole property.
- For transactions with related party or at an undervalue, the obligation to withhold is based on market value rather than purchase price
- All vendors must obtain a Clearance Certificate for a period covering the time the transaction is entered into.
- Declaration by the vendor (see below) will not be sufficient.
Indirect interests
- Withholding is only required if you know or reasonably believe that any vendor is a foreign resident; the entity has an address outside Australia (according to any record about the ...
2016 Budget Pointers
The passing of each federal budget is of interest to those of us that practice in the tax structuring sphere. We will be keenly conscious of changes that may impact upon strategies that have been used previously and looking for opportunities for the implementation of new strategies.
Topic
Commences
Comments
Business Taxes
Small business entity turnover threshold increase
1 July 2016
** Threshold will be increased from $2m to $10m for small business income tax concessions, with the exception of the small business CGT concessions and the unincorporated small business tax discount.NOTE: $10 million threshold applies to the small business restructure rollover.
Small business tax discount increase
Phases from 1 July 2016
** Increased in phases over 10 years from 5% to 16%. The existing cap of $1,000 per individual for each income year will be retained.NOTE: This will effectively reduce the amount of income required for the full offset of $1000 from about $61,500 to $19,200. It now has a favourable comparison to the reduction in the tax rate for small business companies.
Company tax rate will be progressively reduced
Phases from 1 July 2016
** Reduced to 25% over 10 years.
Transfer pricing amendments
1 July 2016
Addresses transfer pricing issues relating to controlled transactions involving intangibles.
40% diverted profits tax
1 July 2017
Applies to company groups with global annual revenue of $1b or more.
Investment in early stage innovative companies
Includes:
The amendments include:
Key Points
Background
The Australian income tax system is based on self-assessment. Under this system, the ATO generally accepts returns as lodged. It then selects certain returns for review on various bases. For example, taxpayers in a particular occupation, returns disclosing a particular deduction or type of income, or returns disclosing deductions well above average or income well below average. On occasions, these reviews can occur prior to assessment but usually occur after assessment.
Many would understand that the tax review system adopts the following general process:
Audit/Position Paper > Amended Assessment > Objection > Appeal (AAT or Court)
The Appeal phase of the tax review process is expensive - the cost of running an appeal generally exceeds $200,000, and costs of up to $1 million are not uncommon.
In our experience, where the review concerns application of the law to the client circumstances, the view of the ATO can be misguided. In that instance, a focused submission based on legal principles can achieve the desired results. To minimise costs, these submissions should usually be put forward at the position paper/objection phase.
A recent example illustrates the advantages of focused legal assistance:
The taxpayer had inherited a large area of bushland, comprising several hundred acres. By the time of ...
Accredited Tax Specialist and Chartered Tax Adviser
Bankruptcy law excludes some assets from being available to meet liabilities owing to creditors: for example, certain kinds of household property, a motor vehicle worth less than $7,500, and an interest in a regulated superannuation fund. For asset protection planning, the most relevant category is that applying to superannuation.
The exclusion of superannuation often leads to the assumption that superannuation accounts are protected in bankruptcy.
This assumption was recently challenged in the Victorian Supreme Court decision in Australasian Annuities Pty Ltd v Rowley Super Fund Pty Ltd.
Australasian Annuities Pty Ltd v Rowley Super Fund Pty Ltd
In the facts of Australasian Annuities Pty Ltd v Rowley Super Fund Pty Ltd, the sole director, Steven Rowley, arranged for Australasian Annuities Pty Ltd to borrow $2.5 million from Macquarie Bank claiming the funds were taken as a business loan. Rowley treated this money as though it was his to spend freely and, using a large portion of the loan, had the company make super contributions for himself and his family members. This was done on the assumption that the money would be protected in the event of bankruptcy or insolvency. The majority of these contributions were fraudulent, such as paying ‘termination payments’ without actually terminating any employment.
Two Elements
The extent of protection provided to superannuation requires two elements to be considered:
1. Whether the superannuation account balance is an asset that is available to meet claims of creditors;
2. The application of clawback provisions, which operate to unwind or reverse the effect of transactions entered into in the period leading up to bankruptcy.
The main clawback provision applies to transactions where consideration is less than market value. The High Court decision in Cook v. Benson held those provisions do not apply to super ...
