1. Unlocking the value of your business tax effectively Sam Rubin Technical Services Manager IOOF Investment Management Ltd

2. General advice warning This presentation has been prepared by IOOF Investment Management Ltd (IIML) ABN 53 006 695 021, AFS Licence No. 230524. IIMLs contact details can be found on the IOOF web site atwww.ioof.com.au . This presentation is intended for adviser use only and is not to be distributed to retail clients without the consent of IIML. The information contained within this presentation is general in nature only and does not take into account your personal situation. You should consider whether the information is appropriate to your situation and where appropriate, seek professional advice from a financial adviser. All assumptions and examples are based on current laws (current as at September 2006) and the continuance of these laws and IIMLs interpretation. IIML does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances. Adviser use only 3. Agenda

Outlining various business structures, for example partnerships, trusts and companies

Understanding the CGT small business concessions

Alternative strategies to reduce CGT

Unlocking remaining capital in your company

Adviser use only 4. Taxation of company

A private company can have family members as shareholders to own the family business or to hold investment assets

Personal services income rule exempt for FP

Company features:

• flat tax rate of 30%; and

• capital gains are fully assessed, no 50% discount available.

Adviser use only 5. Assets available for concessions

Not available to depreciate assets, only ordinary CGT discount/indexation

For example:

• individual sells factory and machinery, factory subject to small business CGT concessions but as machinery would have been depreciated, this is unavailable

Adviser use only 6. Small business concessions

Determine whether you satisfy the basic conditions:

To qualify for any of the small business CGT concessions, you must first

satisfy several basic conditions. These conditions are in the form of three

tests, namely:

• themaximum net asset less than $6 million(proposed July 2007);

• theactive asset test ; and

• where the CGT asset is a share in a company or interest in a trust, the 20%significant individual test(proposed July 06). Changing from control test.

Adviser use only 7. Maximum net asset value

Less than $6 million includes:

market value of assets or taxpayer (for example, company);

taxpayers small business CGT affiliate (for example, farm kids take over with dad still involved); and

entities connected with them (for example, controlled subsidiary with at least 40% of voting power and distribution of income and capital. Business assets included.)

Note proposed changes (July 07) allow STS taxpayers will NOT have to satisfy this.STS taxpayers thresholds to increase threshold of average annual turnover from $1 million to $2 million and remove the $3 million depreciating assets test from STS eligibility requirements

Adviser use only 8. Active asset test

What is an active asset?

A CGT asset is an active asset if it is owned by you and is:

• used or held ready for use by you, a small business CGT affiliate or an entity connected with you, in the course of carrying on a business; or

• an intangible asset inherently connected with a business you carry on, for example, goodwill.

Adviser use only 9. Active asset test What is an active asset? Broadly, if you have not ceased your business in the last 12 months and you have owned the asset for less than 15 years, the CGT asset must be an active asset just before the CGT event and for at least half of the period of ownership. Proposed amendmentJuly 06 Asset can be active even if sold after business ceased but sold within 12 months of cessation and active for lesser of half period of ownership or 7.5 yrs.The asset cannot be one where the main use is to derive rent. For example, a factory/commercial property that is rented/leased to a third party. Adviser use only 10. Active asset test

Examples

The following are active assets:

• land owned as part of caravan park business

• building/land used as boarding house in business

• land owned as part of farm used for business

• building from which retail operations used for business (for example, financial planner runs business from 100% residential property)

Assets that are not included as an active asset:

• superannuation

• residence

• personal use assets

Adviser use only 11. Individual test

If the CGT asset is a share in a company or an interest in a trust, there are two basic conditions (s152-10(2)):

• 1. company or trust satisfies the significant individual test

• 2. you are a CGT concession stakeholder in a company or trust

Note that this test is proposed to be the 20% significant individual test.

Also applies to a CGT asset held/owned by company or trust.

Adviser use only 12. Example Adviser use only Mr Jones 20% ownership Jones Family Trust 10% ownership Clark Family Trust 40% ownership Mrs Clark 5% ownership Mr Clark 5% ownership Mrs Jones 20% ownership Company 13. Significant Individual Test Adviser use only

Mr & Mrs. Jones each ok due to 20% holding.

Mr & Mrs Clark can also qualify provided the Clark Trust distributes all or at least 33.33% of the income and capital for the year to either Mr or Mrs Clark.

The CGT concession stakeholder of a company means:

• significant individual; or

• spouse is a significant individual of company, for example 20% legal and equitable interest by spouse; or

• if trust, same as rule for test 1 for trust.

• If Mr Clark receives distribution and is a significant individual then Mrs Clark will still be a significant individual as her husband is also a CGT concession stakeholder.

14. Federal Budget 2006 update

Superannuation contributions above the UDC cap will be allowed in the following circumstances:

• the proceeds from the disposal of assets that qualify for the small business CGT exemptions (that is, the15-year exemption and the retirement exemptionup to a lifetime limit of $1 million (indexed)). This will also apply to assets that would have qualified if they were not pre-CGT assets or if disposed after the permanent disablement of the owner including where the asset was owned for less than 15 years; and

• the proceeds from a settlement for an injury resulting in permanent disablement.

Adviser use only 15. Federal Budget 2006 update

Does that mean an opportunity exists for small business owners to consider selling their business in the 2006/07 year to contribute a maximum of $2 million to superannuation. How?

utilise the $1 million limit under the CGT exempt or 15-year rule; and

the $1 million undeducted contribution limit.

The CGT $1 million threshold is not meant to utilise the UDC limits, for example from July 07 $150,000 and $450,000, but is it the Governments intention for individuals to receive double benefit this financial year?

Adviser use only 16. Small business concessions

Three CGT concessions are available for small businesses:

• Thesmall business 15-year exemptionprovides a total exemption for a capital gain on a CGT asset if you have continuously owned the asset for at least 15 years(Proposed changes is to limit to 15 year period)and if the taxpayer is an individual aged 55 years or over and is retired, or is permanently incapacitated. If company or trustrequires there be a significant individual and only for any period or periods totalling 15 years.

• Payment to a stakeholder is limited to % interest for company and discretionary trust is 100% for only one concession stakeholder and 50% for two.

Adviser use only 17. Small business concessions

• 2. Thesmall business 50% active asset reductionprovides a 50% reduction of a capital gain.

• 3. Thesmall business retirement exemptionprovides an exemption for capital gains up to a lifetime limit of $1 million (indexed). If the recipient is under 55 years of age, the amount must be paid into a superannuation (or similar) fund.

Adviser use only 18. Active asset reduction Adviser use only

Reduction is 50% of assessable gain.

Utilise:

• reduce assessable gain to access retirement exemptions of $1 million

• assist to minimise taxation if unable to (for example, over lifetime limit) or do not want to apply retirement

• reduce deferred assessed CGT under rollover relief

• CGT exempt component is NOW treated as contribution but has separate limit UDC.

19. Small business retirement exemption Adviser use only

If company or trust

Exempt amount paid to stakeholder as ETP

• 7 days post election to disregard CG or 7 days post receiving proceeds from a CGT event;

• need written election to utilise exemption and if two stakeholders, each individual % can range from 0% to 100% but two must add up to 100%;

• if aged under 55, then ETP must be rolled over; or

• if aged 55 or over, individual has option to cash or roll ETP.

If individual

• is aged under 55, ETP must be rolled over before receiving capital proceeds from CGT event;

• is aged 55 or over, individual has option to cash or roll ETP;

• needs written election to utilise exemption before lodgement of tax return; or

• lifetime limit of $1 million (indexed).

20. Termination of employment Adviser use only

Needs to satisfy:

Each time a company/trust receives an amount of capital from CGT event, it must make an ETP in relation to each of its CGT concession stakeholders

This means that employment actually has to be terminated due to ETP payments in consequence of termination of employment.

The Government is looking at changing this requirement as recommended by the Taxation Board of Review.

21. Company selling business Adviser use only

Most business owners upon selling their business, purchaser will acquire business from company, thus company applies fro CGT relief. Greater opportunities for CGT free sale of business with $1 million limit.

Example:

• Financial planner is selling practice through a company structure for $2.3 million gain. Company is selling business so applying CGT small business concessions, husband and wife controlled.

• CGT exempt component for each equal:

• $2.3 million / 2 = $1.15 million x 50% (active asset reduction) = $575,000 each can receive $575,000 CGT exempt component.

• What are your options with the remaining $1.15 million in the company?

22. Accessing funds in company Adviser use only

Options:

• 1. Pay out benefit over years as dividend (note no franking credits unless surplus credits retained in company).

• 2. Pay out as directors fees, then may have option to salary sacrifice/personal deductible contribution into super utilising transition-to-retirement strategy.

Main option:

• 1. Wind up company within 12 months, then remaining funds will be of a capital nature and re-apply the CGT small business concessions. Has to be within 12 months to meet the active asset test.

23. Financial planning strategy Adviser use only

Therefore, from example, remaining $1.15 million is paid out utilising (each $575,000):

• 50% individual discount ($287,500)

• 50% active asset reduction (no need to apply)

• Total retirement exemption of $862,500

Benefit allows for super account to be:

• husband: $862,500 CGT exempt and $287,500 UDC

• wife: $862,500 CGT exempt and $287,500 UDC

Total value of business $2.3 million can be invested in super providing pensions to husband and wife, if aged 60 or over from 1 July 2007, tax free for life.

Note: important that clients are under the age of 65 to utilise $450,000 UDC limit

24. Example Adviser use only

Another financial planner is selling their practice which is owned through a company for total $2 million with a $1.6 million gain. Company is selling business to applying CGT small business concessions, husband and wife control. Wound up company to regain access to remaining $400,000.

Tax effective transfer of sale value:

• $800,000 each CGT exempt component

• $200,000 each contribute as UDC

Note: $400,000 capital retained in company is not subject to CGT as cost base is $400,000.

25. Summary

CGT can be a complex area

Opportunity for small business owners to utilise accumulated capital from business for a tax-efficient retirement

Importance of structure of business, for example sell company or business.

Consider short term business sales inline with 1 July 2007 changes to maximum asset value, STS eligibility and control tests

Need for elections so important to work closely with an accountant

Adviser use only 26. Questions Adviser use only 27. Disclaimer IOOFInvestment Management Limited (IIML) its officers, employees, directorsand agents believe the information in thispresentationis correct at the time of compilation but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by IOOF, its officers, employees, directorsor agents.IIML is a member of the IOOF Group. IIML is the issuer of many financial products, a responsible entity of certain managed investments, a trustee of various superannuation funds and an operator/custodian of a range of investor directed portfolio services.IOOF Limited (ABN 21 087 649 625), another company in the IOOF Group, is the issuer of other IOOF Group products. Where you proceed with an investment in an IOOF product, IOOFmayreceive remuneration via fees for that product. If you seek personal financial advice from a financial adviser, they may receive remuneration via commission payments from IIML.Details of remuneration will be detailed within a Statement of Advice where personal advice is provided or can be provided upon request. Adviser use only