Dr Mark Pizzacalla Board Member 2 INSTITUTE OF PUBLIC ACCOUNTANTS - - PDF document

▶
dr mark pizzacalla board member
SMART_READER_LITE
LIVE PREVIEW

Dr Mark Pizzacalla Board Member 2 INSTITUTE OF PUBLIC ACCOUNTANTS - - PDF document

Sep 15, 2022 157 likes •287 views

10/05/2017 Small business restructures 1 THE BOARD OF TAXATION Dr Mark Pizzacalla Board Member 2 INSTITUTE OF PUBLIC ACCOUNTANTS 2017 TASMANIA CONGRESS SMALL BUSINESS RESTRUCTURE ROLL-OVERS Dr Mark Pizzacalla Board Member, Board of

slide-1
SLIDE 1

10/05/2017 1

Small business restructures 1

THE BOARD OF TAXATION

Dr Mark Pizzacalla Board Member

2

SMALL BUSINESS RESTRUCTURE ROLL-OVERS

Dr Mark Pizzacalla Board Member, Board of Taxation Partner, BDO Email: mark.pizzacalla@bdo.com.au Mobile: +61 413 048 440

Small Business Restructure Roll-overs

3

INSTITUTE OF PUBLIC ACCOUNTANTS 2017 TASMANIA CONGRESS

slide-2
SLIDE 2

10/05/2017 2

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.

4

Small Business Restructure Roll-overs

NOT ALL CONCESSIONS WORK!

  • Simplified tax system
  • Entrepreneur’s tax off-set
  • Trading stock
  • [Goodwill concessions

in former 118-250?]

5

Small Business Restructure Roll-overs

SMALL BUSINESS LIFE-CYCLE MODEL

6

Small Business Restructure Roll-overs

slide-3
SLIDE 3

10/05/2017 3

FACTORS IN DETERMINING STRUCTURE

  • Access To Capital
  • Compliance Costs
  • Flexibility
  • Personal Liability
  • Tax

7

Small Business Restructure Roll-overs

WHY CHANGE STRUCTURE?

  • Continue To Grow/Develop
  • Unnecessary Compliance Costs
  • Enhance Business Efficiency
  • Move Into More Efficient Structure
  • Adapt To Current Conditions

8

Small Business Restructure Roll-overs

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

9

Small Business Restructure Roll-overs

slide-4
SLIDE 4

10/05/2017 4

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. 10

Small Business Restructure Roll-overs

EFFECT OF THE ROLL-OVER

11

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

  • ther 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

12

Small Business Restructure Roll-overs

slide-5
SLIDE 5

10/05/2017 5

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

13

Small Business Restructure Roll-overs

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?

14

Small Business Restructure Roll-overs

GENUINE RESTRUCTURE: EXAMPLE 1

15

BUSINESS BUSINESS COMPANY TRUST Small Business Restructure Roll-overs

GENUINE RESTRUCTURE

slide-6
SLIDE 6

10/05/2017 6

NOT A GENUINE RESTRUCTURE: EXAMPLE 2

16

BUSINESS BUSINESS COMPANY

‘NOT’ GENUINE RESTRUCTURE SALE

(12 MONTHS LATER)

BUSINESS PURCHASER Small Business Restructure Roll-overs

GENUINE RESTRUCTURE: EXAMPLE 3

17

‘ENTITY 2’ TRUST Small Business Restructure Roll-overs ‘ENTITY 2’ ‘ENTITY 1’ ‘ENTITY 3’ ‘ENTITY 1’

GENUINE RESTRUCTURE

BUSINESS ‘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

18

Small Business Restructure Roll-overs

slide-7
SLIDE 7

10/05/2017 7

ULTIMATE ECONOMIC OWNERSHIP: EXAMPLE 1

19 SOLE TRADER BUSINESS Individual Unit Trust BUSINESS 100%

Small Business Restructure Roll-overs

ULTIMATE ECONOMIC OWNERSHIP: EXAMPLE 2

20

BUSINESS BUSINESS

PARTNER 1 PARTNER 2 PARTNER 3 PARTNER 1 PARTNER 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

21

Small Business Restructure Roll-overs

slide-8
SLIDE 8

10/05/2017 8

ALTERNATE TEST: PROBLEM 1

22

BUSINESS BUSINESS COMPANY TRUST Small Business Restructure Roll-overs

ALTERNATE TEST: PROBLEM 2

23

BUSINESS BUSINESS COMPANY COMPANY TRUST Small Business Restructure Roll-overs

ALTERNATE TEST: PROBLEM 3

24

Small Business Restructure Roll-overs BUSINESS TRUST BUSINESS COMPANY BUSINESS

slide-9
SLIDE 9

10/05/2017 9

ALTERNATE TEST: PROBLEM 4

25

Small Business Restructure Roll-overs

ALTERNATE TEST: PROBLEM 5

26

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)

27

Small Business Restructure Roll-overs

slide-10
SLIDE 10

10/05/2017 10

RESIDENCY CONDITION

  • Both transferor and transferee must be

Australian tax residents

  • Transferor and transferee must meet

whichever residency test applies to them

28

Small Business Restructure Roll-overs

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

29

Small Business Restructure Roll-overs

PRACTICAL EXAMPLE: COMPANY TO PARTNERSHIP

30

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)

Small Business Restructure Roll-overs

slide-11
SLIDE 11

10/05/2017 11

PRACTICAL EXAMPLE: ASSET PROTECTION

31

BUSINESS BUSINESS LAND COMPANY COMPANY BUSINESS TRUST Small Business Restructure Roll-overs

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

32

Small Business Restructure Roll-overs

33

Dr Mark Pizzacalla Board Member, Board of Taxation Partner, BDO Email: mark.pizzacalla@bdo.com.au Mobile: +61 413 048 440

OPEN FORUM QUESTIONS?

slide-12
SLIDE 12

10/05/2017 12

Small business restructures 34