PowerPoint Presentation · –New structure is the one likely to have been adopted originally...
Transcript of PowerPoint Presentation · –New structure is the one likely to have been adopted originally...
10/05/2017
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Small business restructures 1
THE BOARD OF TAXATION
Dr Mark Pizzacalla
Board Member
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SMALL BUSINESS RESTRUCTURE ROLL-OVERS
Dr Mark Pizzacalla
Board Member, Board of Taxation
Partner, BDO
Email: [email protected]
Mobile: +61 413 048 440
Small Business Restructure Roll-overs 3
INSTITUTE OF PUBLIC ACCOUNTANTS
2017 TASMANIA CONGRESS
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The content of this presentation is of a general nature only, and should not
be used or treated as professional advice. The presentation does not take
into account your particular objectives, situations or needs. As a result, it
may not be appropriate to your particular circumstances, and should not be
relied upon. You should rely on your own enquiries, together with
professional advice that takes into account your particular circumstances,
in making any decisions concerning your own interests. The presentation
materials do not constitute the provision of financial advice.
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NOT ALL CONCESSIONS WORK!
• Simplified tax system
• Entrepreneur’s tax off-set
• Trading stock
• [Goodwill concessions
in former 118-250?]
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SMALL BUSINESS
LIFE-CYCLE MODEL
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FACTORS IN DETERMINING
STRUCTURE
• Access To Capital
• Compliance Costs
• Flexibility
• Personal Liability
• Tax
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WHY CHANGE STRUCTURE?
• Continue To Grow/Develop
• Unnecessary Compliance Costs
• Enhance Business Efficiency
• Move Into More Efficient Structure
• Adapt To Current Conditions
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SMALL BUSINESS
RESTRUCTURE ROLL-OVER• Small business package 2015-2016 Budget
• Royal Assent: 8 March 2016
• Effective date: 1 July 2016
• In addition to existing roll-overs
• Provide small business owners greater flexibility to change structures
• Defer gains/losses
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WHAT ARE THE ELIGIBILITY
CONDITIONS? ALL OF THE FOLLOWING 6 CONDITIONS MUST BE MET:
(1)Transfer of asset must be part of a “genuine restructure of an ongoing business”
(2) Each party to transfer must be:
a) SBE for income year when the transfer occurred;
b) Entity who has an affiliate that is a SBE for that income year;
c) Entity who is connected with an entity that is a SBE for that income year; or
d) Entity which is a partner in a partnership that is a SBE for that income year;
(3) Transaction must not materially change the ultimate economic ownership that an
individual has in the asset
(4) Asset must be an active business asset at the time of transfer
(5) Transferor and transferee must be Australian residents for tax purposes
(6) Transferor and transferee must each choose to apply for the roll-over to the
assets transferred
Note: The roll-over applies on an “asset-by-asset” basis.
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EFFECT OF THE ROLL-OVER
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ASSET TYPE TRANSFEROR TRANSFEREE
Pre-CGT asset Tax free Retains pre-CGT status
Discount Capital Gains
(CGT Asset)
Cost base Acquire CGT asset as at transfer
time at cost base (refresh
happens!)
Trading stock Cost, or if item held at start of the
income year, value at start of
income year
Acquire Transferor’s cost and
other attributes
Revenue assets Amount that results in no profit or
loss
Acquires Transferor’s cost
attributes
Depreciating assets Roll-over relief under s.40-340
Cost which would result in a nil
balancing adjustment
Acquires transferor’s
depreciation method and
effective life
Small Business Restructure Roll-overs
GENUINE RESTRUCTURE -
MEANING
• Integrity Measure
• Question Of Fact
• Positive Factors
– Bona fide commercial arrangement
– Business continues under same ultimate economic ownership
– Transferred assets continue to be used
– New structure is the one likely to have been adopted originally
– Restructure not artificial/unduly tax driven
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GENUINE RESTRUCTURE – SAFE
HARBOUR
PROVISO IS THAT FOR 3 YEARS FOLLOWING THE ROLL-OVER:
• No change in the ultimate economic ownership of any of the significant
assets of the business that were transferred (except trading stock)
• Those significant assets continue to be active assets
• No significant or material use of those significant assets for private
purposes
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GENUINE RESTRUCTURE -
PRACTICAL ISSUES
• ATO guidance on a ‘genuine’ restructure – LCG 2016/3
• The first private ruling on ‘genuine’ – making a business more
attractive to potential investors and protect assets from business
risk
• Safe harbour documentation?
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GENUINE RESTRUCTURE:
EXAMPLE 1
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BUSINESSBUSINESS
COMPANY
TRUST
Small Business Restructure Roll-overs
GENUINE
RESTRUCTURE
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NOT A GENUINE RESTRUCTURE:
EXAMPLE 2
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BUSINESSBUSINESS
COMPANY
‘NOT’ GENUINE
RESTRUCTURE
SALE(12 MONTHS LATER)
BUSINESS
PURCHASER
Small Business Restructure Roll-overs
GENUINE RESTRUCTURE:
EXAMPLE 3
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‘ENTITY 2’
TRUST
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‘ENTITY 2’
‘ENTITY 1’
‘ENTITY 3’
‘ENTITY 1’
GENUINE
RESTRUCTUREBUSINESS ‘CLASS OF
ASSETS’
‘CLASS OF
ASSETS’BUSINESS
100%
WHO CAN ACCESS ROLL-OVER?
EACH PARTY TO TRANSFER MUST BE EITHER:
• SBE for the income year during which the transfer occurred;
• Entity that has an affiliate that is a SBE for that income year;
• Connected with an entity that is a SBE for that income year; or
• A partner in a partnership that is a SBE for that income year
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ULTIMATE ECONOMIC
OWNERSHIP: EXAMPLE 1
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SOLE TRADER
BUSINESS
Individual
Unit Trust
BUSINESS
100%
Small Business Restructure Roll-overs
ULTIMATE ECONOMIC
OWNERSHIP: EXAMPLE 2
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BUSINESS BUSINESS
PARTNER
1
PARTNER
2PARTNER
3PARTNER
1PARTNER
2
PARTNER
3
UNIT TRUST
50%100% 150%
Small Business Restructure Roll-overs
ELIGIBILITY - PRACTICAL ISSUES
• The Rules are very specific in application
• The first private ruling on the alternate test – the alternate test is
not satisfied when business assets are transferred from SBE to
a company owned by a family trust
• Published ATO guidance also highlights some practical
considerations
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ALTERNATE TEST: PROBLEM 1
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BUSINESS BUSINESS
COMPANY
TRUST
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ALTERNATE TEST: PROBLEM 2
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BUSINESS BUSINESS
COMPANY COMPANY
TRUST
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ALTERNATE TEST: PROBLEM 3
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BUSINESS
TRUST
BUSINESS
COMPANY
BUSINESS
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ALTERNATE TEST: PROBLEM 4
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ALTERNATE TEST: PROBLEM 5
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BUSINESS BUSINESS
COMPANY
TRUST
Small Business Restructure Roll-overs
ASSET TRANSFERRED MUST BE
“ACTIVE ASSET”
ACTIVE ASSETS ARE BROADLY ASSETS USED IN BUSINESS
• If SBE; asset must be a CGT asset that is an active
asset for CGT small business concessions
• If not a SBE; asset must be an active asset under
S.152-10(1A)
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RESIDENCY CONDITION
• Both transferor and transferee must be
Australian tax residents
• Transferor and transferee must meet
whichever residency test applies to them
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CHOOSING TO APPLY THE
ROLL-OVER
• Both transferor and transferee must both
choose to apply the roll-over
• This choice affects tax consequences of
the transaction for them
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PRACTICAL EXAMPLE:
COMPANY TO PARTNERSHIP
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JACK JACK
TRUCK CO PARTNERSHIP
JILL JILL
50%50%
ASSETS
TRUCK $15K
GOODWILL $0
ASSETS
TRUCK
(TWDV $15K; MV$20K)
GOODWILL
(MV$30K; CB$0)
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PRACTICAL EXAMPLE:
ASSET PROTECTION
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BUSINESS BUSINESS LAND
COMPANY COMPANY
BUSINESS
TRUST
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SOME FINAL THOUGHTS
• Purchase consideration
• Long-term estate planning
• Bankruptcy considerations – get in touch creditors and bank
• Value shifting integrity rules
• Corporations Law
• Trust Deed
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Dr Mark Pizzacalla
Board Member, Board of Taxation
Partner, BDO
Email: [email protected]
Mobile: +61 413 048 440
OPEN
FORUM
QUESTIONS?
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