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 Company A Company B 50%

Basic demerger – step two Company A 50% Company B 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 )  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

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