tax effective business restructures matthew burgess, director
TRANSCRIPT
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TAX EFFECTIVE BUSINESS RESTRUCTURES
MATTHEW BURGESS, DIRECTOR
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Overview
Asset protection v limited liability
Individual v company
Company v company rollovers
Trusts & trust restructures – separate topic
Individual protection
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Issues in choice of structure
Limited Liability
Asset Protection
Access to Cash/Gearing
3rd party investing
Succession Planning
Simplicity
Compliance
Heritage issues
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Tax issues
Flexibility
Tax rates (including CGT discount)
Division 7A
Sub-division EA
UPEs
Stamp duty
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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
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122-A
Requirements for rollover
Consequence of rollover
Precluded assets
Division 70
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Individual to company
Personal assets
Assets in a testamentary trust
122A
Distribution from deceased estate
Tax and duty review
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124-G
Interposition, top hat, holdco
Transfer of assets
Consolidations – general comments
Asset protection issues
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Specifics
Requirements for rollover
Consequence of rollover
CGT impact
Simultaneous
‘upstream’ v ‘downstream’
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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)
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Basic conditions
Exchange in consequence of a single arrangement
Simple share acquisition
Scheme of arrangement
Off market offer
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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
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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
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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
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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
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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
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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
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How to consolidate?
Optional
One in all in
Headco elects to consolidate
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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’
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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
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Basic demerger – step one
Company A
Company B
50%50%
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Basic demerger – step two
Company A
50%50%
Company B
50%50%
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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
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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
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General comments
Very flexible - 'under restructuring'
No formal process
Rules just set out requirements for 'before' and 'after'
ATO view
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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
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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
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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
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Stamp duty - overview
Duties Act provisions
Land rich
Corporate reconstruction
Interposition rules
Intra-group transfers of assets
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Stamp duty - specifics
Vehicle registration duty – now available
Applying for relief
Reassessment provisions
Other jurisdictions
3 year clawback
DAS
Options
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Example (case study)
Moving of building
Duty
P&E reset and goodwill
Back of envelope ACAs
Dividends & security
Other alternatives
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Example
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MATTHEW BURGESSDIRECTOR
T 0403 209 977
W www.viewlegal.com.au
BLOG http://www.blog.viewlegal.com.au/
TWITTER https://twitter.com/matthewwburgess
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INSTAGRAM @matthewwburgess