TAX EFFECTIVE BUSINESS RESTRUCTURES

MATTHEW BURGESS, DIRECTOR

Overview

Asset protection v limited liability

Individual v company

Company v company rollovers

Trusts & trust restructures – separate topic

Individual protection

Issues in choice of structure

Limited Liability

Asset Protection

Access to Cash/Gearing

3rd party investing

Succession Planning

Simplicity

Compliance

Heritage issues

Tax issues

Flexibility

Tax rates (including CGT discount)

Division 7A

Sub-division EA

UPEs

Stamp duty

Company

Strong asset protection

Two distinct parties to a company, namely shareholders and directors

Shareholders own the company

Only shares in the company are exposed to claims

Directors run the company and their personal assets can be exposed

122-A

Requirements for rollover

Consequence of rollover

Precluded assets

Division 70

Individual to company

Personal assets

Assets in a testamentary trust

122A

Distribution from deceased estate

Tax and duty review

124-G

Interposition, top hat, holdco

Transfer of assets

Consolidations – general comments

Asset protection issues

Specifics

Requirements for rollover

Consequence of rollover

CGT impact

Simultaneous

‘upstream’ v ‘downstream’

Subdivision 124-M - overview

Basic conditions

Exchange share for share

unit for unit

option, right or similar interest for similar interest

Like for like

Last resort – see case study

Note consolidations carried out (i.e. not reset of tax costs)

Basic conditions

Exchange in consequence of a single arrangement

Simple share acquisition

Scheme of arrangement

Off market offer

Basic conditions (cont)

Single arrangement must:

result in Raider owning 80% or more

can be satisfied even if already have shares

already have more than 80%

Not satisfied if under offer Raider moves to less than 80% - however will be satisfied if under new offer move to more than 80%

Documentation structure

Impact of significant & common stakeholder

Raider gets cost base for Target shares acquired from significant or common stakeholder equal to their cost base – not market value

Joint choice for roll-over – Raider can 'stop' roll-over

Contract drafting issues

Significant stakeholder

The Target shareholder has a significant stake in either or both of Target and Raider at a time if the shareholder, or the shareholder and the entities associates between them had: share carrying the rights to 30% or more of voting; or

the right to receive for their own benefit 30% or more of any dividends; or

the right to receive for their own benefit 30% or more of any distribution of capital

Common stakeholder

A Target shareholder is a common stakeholder for an arrangement if it had: a common stake in Target just before the arrangement started

a common stake in Raider just after the arrangement was completed

Broadly a shareholder will have a common stake if it together other shareholders (unrelated) held 80% in Target and 80% in Raider

Other issues

Pre-CGT status lost

Partial roll-over available for partial scrip

Not compulsory

Choice of each Target shareholder only unless significant/commonstakeholder issues

Consolidations – the basic features

Single tax return by Headco for whole group

Consolidated PAYG income tax instalments regime

Single Franking and Foreign Tax Credit Accounts

A pooling of group losses in Headco

Intra-group dealings ignored (e.g. dividends and asset transfers)

Know basics

How to consolidate?

Optional

One in all in

Headco elects to consolidate

What is a consolidated group?

Head company – now can include certain trusts treated as companies

Plus wholly owned subsidiaries

Choice of Headco not Subsequently

Trusts if only objects are group members

trusts cannot be Headco (note exception)

special rules – employee shares, shares that are ‘debt’

Other taxes

Remember some taxes not grouped under the consolidation rules

GST – but has own grouping rules

FBT

PAYG withholding

Stamp duty – will impact on pre consolidation restructuring and post consolidation intra group transfers

Other State taxes

TSA/TFA

Basic demerger – step one

Company A

Company B

50%50%

Basic demerger – step two

Company A

50%50%

Company B

50%50%

Who may demerge?

Companies

Trusts with fixed interests

May have a mixed group of companies and trusts

Must be like for like

Cloning is non fixed trust analogy

What is the relief?

CGT roll-over for pre- and post- interests for owners

Cost base adjustments for old and replacement interests

CGT disregarded for demerging entity (owner)

No CGT event J1 (ZZOA) for demerged entity

General comments

Very flexible - 'under restructuring'

No formal process

Rules just set out requirements for 'before' and 'after'

ATO view

The demerger process (s.125-70)

Demerger group disposes of at least 80% of interest in demerged entity

Owners of head entity receive replacement interests of same type as head entity

Owners of head entity receive replacement interests in same proportion as inhead entity

Practical issues

Can't demerge a single entity – must incorporate a sub, transfer assets andthen demerge

Can only receive replacement interest in same type as head entity – i.e. a trust cannot demerge a corporate subsidiary

Use of CGT roll-overs

Stamp duty

How does it work - members

Roll-over if a CGT event happens to original interest

Pre-CGT shares retain pre-CGT status

Post-CGT shares have cost base adjustments in a reasonable manner

Post-CGT shares have original acquisition date for purposes of Div 115 discount

Stamp duty - overview

Duties Act provisions

Land rich

Corporate reconstruction

Interposition rules

Intra-group transfers of assets

Stamp duty - specifics

Vehicle registration duty – now available

Applying for relief

Reassessment provisions

Other jurisdictions

3 year clawback

DAS

Options

Example (case study)

Moving of building

Duty

P&E reset and goodwill

Back of envelope ACAs

Dividends & security

Other alternatives

Example

MATTHEW BURGESSDIRECTOR

T 0403 209 977

E matthew.burgess@viewlegal.com.au

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