Transcript TAX EFFECTIVE BUSINESS RESTRUCTURES

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/common
stakeholder 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
50%
50%
Company A
Company B
Basic demerger – step two
50%
50%
50%
50%
Company A
Company B
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 in
head entity
Practical issues
 Can't demerge a single entity – must incorporate a sub, transfer assets and
then 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 BURGESS
DIRECTOR
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0403 209 977
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[email protected]
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