CPN Breakfast Briefing Series Restructuring Business Ownership using the Small Business CGT Concessions

Transcription

1 CPN Breakfast Briefing Series 2017 Restructuring Business Ownership using the Small Business CGT Concessions February 2017

2 Background Overview 1 Refresher Small Business CGT (SBCGT) concessions 2 Recent issues impacting SME restructuring 3 Case Study 1 A & M Trust 4 Case Study 2 ABC Unit Trust 2

3 SBCGT Concessions Basic Conditions Must satisfy either; Small Business Entity (SBE) test (less than $2m turnover); or $6m Maximum Net Asset Value (MNAV) test Must be an Active Asset If asset is a share or unit must also; be a CGT concession stakeholder ; and small business participation percentage of CGT concession stakeholders must be at least 90% 3

4 SBCGT Concessions Overview Small business 50% reduction Small business retirement exemption Must be a CGT concession stakeholder $500,000 limit per stakeholder Small business rollover 15 year exemption Asset owned & entity had significant individual for 15 years; and Significant individual is over 55 years + retiring, or permanently incapacitated 4

5 Superannuation Contribution Limits Lifetime CGT cap $1,415,000 for year ended 30 June 2017 Contributions may be made from: Amount of capital gain eligible for retirement exemption; or Capital proceeds eligible for 15 year exemption Excluded from annual non concessional contributions cap reduced to $100,000 from 1 July

6 Division 7A Current state of play 2016 Federal Budget Division 7A changes Start date 1 July 2018 Currently under consultation Adopting some Board of Tax recommendations All UPEs may be treated as loans May need to immediately repay UPE subtrusts maturing from 30 June 2018 Incentive for SMEs to consider move to corporate structure 6

7 Small Business Restructure Rollover (SBRR) Concerns with provisions: Uncertainty if is genuine restructure Not able to restructure ownership interests Not able to restructure to company owned by discretionary trust Application to businesses with up to $10m turnover from 1 July 2016 which will not extend to SBCGT concessions* *subject to legislation passing the Senate 7

8 Case Study 1 Business operators Angela & Matthew: Over 55 years of age A& M Family Trust is a discretionary trust which operates the business and owns business premises < $2m turnover Business assets value: Goodwill $4m (internally generated) Other net business assets $1m Business premises $3M 8

9 Balance Sheet A&M Family Trust Business Premises $1M Unpaid Present Entitlements (UPEs): Net Business Assets $1M Corporate pre Dec 2009 $1M Cash $0.2M Corporate sub trusts $0.7M Matthew & Angela $0.5M $2.2M $2.2M 9

10 Structuring Issues to Consider Aim is for the two adult children to eventually take over business operations Business premises separated from operations Reduce compliance in managing unpaid distributions Build up Angela s superannuation balance Limited availability of SBRR 10

11 Case Study 1 A Trust M Trust A&M Family Trust Business premises Sale of business $5M 50% A&M Co Pty Ltd Business operations 50% 11

12 Tax outcome under SBCGT A&M Family Trust sells business to A&M Co Pty Ltd for market value of $5M and makes a goodwill capital gain of $4M Net capital gain $4M Less: 50% CGT discount Less: 50% small business reduction Less: small business retirement exemption* x 2 Net taxable gain ($2M) ($1M) ($1M) $nil *A&M Trust will need to make sufficient income and/or capital distributions to Matthew and Angela in the income year of sale to ensure they are both CGT concessions stakeholders 12

13 Retirement exemption As Angela and Matthew are both over 55 years the A&M Trust can make the payment either to a complying Fund or to the individual personally $500,000 is paid to Matthew and $500,000 is paid to Angela s superannuation account 13

14 Balance Sheet A&M Family Trust Receivable A&M Co $5M Loan Bank $0.8m Pty Ltd Business premises $1M Unpaid Present $2.2M Entitlements Capital profit reserve $3M $6M $6M 14

15 Balance Sheet A&M Co Pty Ltd Net Business Assets $5M Payable A & M Trust $5M $5M $5M 15

16 Case Study 2 Joint venture between three investors: ABC Unit Trust operates business Owned 1/3 each by Trust A, B and C > $2M turnover and net assets valued at $15M Original investment made of $0.2M per investor. 16

17 Structuring issues to consider Investors hope to sell interests in operating entity in the future or introduce new investors Corporate entity more attractive to purchasers / investors Various rollovers may be available: Subdivision 122 A Subdivision 124 N Division 615 (previously subdivision 124 H) 17

18 Case Study 2 A Trust B Trust C Trust A Trust B Trust C Trust 1/3 1/3 1/3 1/3 1/3 1/3 ABC Unit Trust Sale of units ABC Co Pty Ltd ABC Unit Trust 18

19 Tax outcome under SBCGT A, B & C Trusts sell units in ABC Unit Trust to ABC Co. Pty Ltd ABC Co. Pty Ltd issues shares to A, B & C Trust as consideration Capital gain on units of $4.8M each Net capital gain Less: 50% CGT discount Less: 50% small business concession Less: small business rollover Net taxable gain $4.8M ($2.4M) ($1.2M) ($1.2M) $nil 19

20 SBCGT Tests MNAV test Unit trust would fail if sold business No unitholder controls unit trust $5M value of each unit holding included in test Unitholder must include any other relevant assets (and those of connected entities) 90% CGT concession stakeholder test Unitholder trusts must ensure distribute income/capital appropriately 20

21 Small Business Rollover Each unitholder applies $1.2M of gain against cost of shares in ABC Co. Pty Ltd $5M will be cost base of shares ($15m total) On sale of shares by A,B or C Trust, additional gain of $1.2M will be triggered Equivalent to cost base of $3.8m ($12.5m total) Monitoring to ensure continues to meet replacement asset test 21

22 Balance Sheet A&M Co Pty Ltd Investment in ABC Unit Trust $15M Shareholders Equity $15M 22

23 Questions & Answers

24 Thank you For your attention Thank you!

25 PROFILE Jacci Mandersloot Client Director jacci.mandersloot@pitcher.com.au Professional Background Jacci is a Client Director in the Tax Consulting division of Pitcher Partners. She has considerable experience in advising on both individual and corporate tax issues. Prior to joining Pitcher Partners in 2004, Jacci worked at various accounting firms including one of the Big 4 firms in tax consulting. Jacci advises a number of clients operating in the property development and investment industry. Jacci is a member of the Taxation Institute s Education Committee. Industry Experience Property and development Professional services Retail Investments Areas of Expertise General income tax Corporation tax Division 7A Structuring of business acquistions and disposals Professional Qualifications and Memberships Bachelor of Commerce (Melbourne University) Masters of Taxation (Monash University) Member of the Institute of Chartered Accountants in Australia (ICAA) Fellow of the Taxation Institute of Australia MELBOURNE SYDNEY PERTH PITCHER.COM.AU ADELAIDE BRISBANE NEWCASTLE Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

26 Pitcher the difference Pitcher Partners has the resources and depth of expertise of a major firm, but with a smaller firm feel. We give our clients the highest level of personal service and attention. That s the difference. Pitcher Partners is an association of accounting and business advisory firms located in Melbourne, Sydney, Perth, Adelaide, Brisbane and Newcastle. We have a strong reputation for providing personal service and quality commercial advice to our clients across a broad range of industries. Our clients We specialise in providing services to family controlled, privately owned and small public businesses as well as high net worth individuals, the public sector and Not for Profit organisations. Our clients require high technical standards, matched with a personal understanding and involvement in their affairs. 28,000+ $3.8bn Partners and staff globally Worldwide revenue 2015 (USD) 113 1,200+ Partners nationwide People nationally Countries Firms worldwide Independent member of the Baker Tilly International global network Pitcher Partners services Investment Advisory Audit and Assurance Private Clients Business Advisory Risk Services Business Recovery and Insolvency Superannuation Consulting Taxation Corporate Finance

27 Pitcher Partners services Audit and Assurance The cost and effort of compliance with financial regulations is an increasing burden on business. We believe audit and assurance should add value to the organisation by identifying opportunities as well as risks. Furthermore, we understand the importance of working closely with Boards of Directors and Audit Committees to resolve audit issues within the agreed timeframe and work to deliver a truly value added service. Business Advisory Through close and active involvement in our clients business, Pitcher Partners provides informed, practical assistance to make the most of opportunities and emerging issues. We ensure the advice we give is practical and takes into account the full set of circumstances facing the company. Business Recovery and Insolvency Even the healthiest business will come into contact with an insolvency situation at some time. It could be one of your suppliers, or perhaps a problem debtor. Pitcher Partners has developed a reputation for providing organisations with a range of Business Recovery and Insolvency services that are successful in achieving maximum recovery levels. Consulting Group Our consultants work collaboratively with senior management and stakeholders to deliver measurable outcomes. We use approaches and methodologies in the conduct of assignments that are founded and renewed on leading edge thinking, whilst maintaining commercial relevance and practicality. Areas of expertise include strategic business planning, feasibility studies, viability studies, contract negotiations, financial analysis and modelling, tailored IT solutions and organisational reviews. Corporate Finance Corporate transactions are not an end in themselves, but part of the progress towards a goal be it growth, higher profitability, improved market share or competitive advantage. Pitcher Partners has extensive experience providing independent advice on investments and business transactions. We work quickly, providing excellent response and value for money. Investment Advisory We provide our clients with rigorously researched and customised investment advice suitable to the needs, objectives and risk profiles of each individual family, fund or Not for Profit organisation. At Pitcher Partners we offer clients fee only service that is truly independent. Private Clients We have an in-depth understanding of the profit drivers and key performance indicators for private businesses as well as the commercial and business imperatives underpinning their success. We have a full view of our client s financial situation including both business and personal affairs as well as an understanding of the ramifications of legislative changes. Our complete service approach means we can provide business related advice to take account of personal long-term goals as well. Risk Services We are able to undertake a broad range of risk management services to support our audit efforts including enterprise risk management, internal audit, disaster recovery and business continuity planning, advanced data mining and specialised information technology security assurance. Superannuation We also have extensive experience in the superannuation industry, working with trustees, members and employers. Our experience covers all segments of the industry: large fund compliance, selfmanaged funds, administration, employer obligations, member retirement planning and estate planning. Taxation Pitcher Partners is one of the most experienced taxation advisory team in Australia outside the Big 4 accounting firms. We have specialists in all relevant areas of taxation law supported by a large team of experienced professionals who can manage any issue regardless of size or complexity.

28 Frequently asked questions The Critical Point Network provides personal and professional support for accounting and legal practitioners in Australia. WHAT SUPPORT WILL I RECEIVE? Membership entitles you to: Specialist skills to help you meet your clients expectations in areas that are outside your immediate field of expertise or experience Technical updates, public practitioner seminars, briefings, conferences, discussion forums, quarterly newsletters and regular bulletins to help keep your technical skills up-to-date and provide you with ideas to improve your own work practice, some of which are complimentary Networking functions which provide you with the opportunity to keep abreast of current issues and share ideas with fellow members Access to one of Australia s most respected and successful Business Advisory and Assurance Practices the Pitcher Partners Association with firms in Melbourne, Sydney, Perth, Adelaide, Brisbane and Newcastle Access to our global network of independent firms through Baker Tilly International WHAT WILL IT COST? There are no initial or ongoing membership fees or costs. WHAT ABOUT MY CLIENT RELATIONSHIPS? When working with you, we promise to provide you with the expertise and resources you require to service your client s needs. When working with you, we will work to enhance your relationship with your client. We promise not to poach a client that you introduce to us. WHO IS PITCHER PARTNERS? Pitcher Partners is an association of independent accounting firms, located in Melbourne, Sydney, Perth, Adelaide, Brisbane and Newcastle with 110+ partners and more than 1,200 professionals located around Australia. Since 1991, Pitcher Partners Melbourne has grown to become the leader in our market and the fifth largest Melbourne based accounting firm with 45 partners and more than 650 professional and support staff. This means we are large enough to have technical depth and breadth. WHAT IS THE RELATIONSHIP BETWEEN PITCHER PARTNERS AND THE CRITICAL POINT NETWORK? The Critical Point Network was created and is supported by Pitcher Partners and is a registered trademark and a business of Pitcher Partners Advisors Proprietary Limited ABN HOW MANY MEMBERS ARE CURRENTLY IN THE CRITICAL POINT NETWORK? The Critical Point Network operates Australia-wide and has over 3,000 members. Gess Rambaldi, a Partner/Executive Director with Pitcher Partners Melbourne, is the National Chairman and the Chairman of the Victoria, Tasmania and Albury division which has over 2,000 members alone. DOES THE CRITICAL POINT NETWORK SERVICE REGIONAL MEMBERS? The Critical Point Network has a large proportion of its members in regional Australia. It provides regional presentations and extends invitations to all members, city and regional, for all Critical Point Network events.

29 IF I NEED SPECIALIST ADVICE WHAT DO I DO? a CPN Specialist Query Service Form to cpn@pitcher.com.au. All members must forward the CPN Specialist Query Form prior to contacting the firm in relation to any query. The form is available to download from WILL I RECEIVE A BILL FOR A QUICK ENQUIRY? No, we have a 10 minute complimentary limit which means that if the enquiry can be answered within 10 minutes, there is no charge. Alternatively, if your query does take longer than 10 minutes, there is a charge. For further information on the relevant charges, please contact cpn@pitcher.com.au. Insolvency related enquiries will not attract a charge for initial consultations, even if they extend well beyond 10 minutes! ARE THERE ANY RESTRICTIONS ON MEMBERSHIP? The services offered by the Critical Point Network are ideally suited to an accountant or legal practitioner. WHAT HAPPENS UPON JOINING? Once becoming a CPN Member you will receive a Members Welcome Pack via . The Members Welcome Pack will include everything you need to know about being a Critical Point Network member along with a full list of benefits. If you prefer, we would also be pleased to meet you and explain some of these great benefits. WHAT DO I DO IF I NO LONGER WISH TO REMAIN AS A MEMBER? Just let us know by clicking the unsubscribe button on any CPN communication that you receive from us or by dropping us a note. No questions asked. WHEN DID THE CRITICAL POINT NETWORK FIRST START? The first official Critical Point Network event was our Professional Advisors Conference held in May WHAT IS THE SECRET TO THE CRITICAL POINT NETWORK? Simple - it has full partner support and has evolved to effectively cater for members growing needs. WHAT DO I NEED TO JOIN? Joining is easy - simply do one of the following: your membership application form and/or details to cpn@pitcher.com.au Post to: Critical Point Network, Pitcher Partners, GPO Box 5193, MELBOURNE VIC 3000 Give any Pitcher Partners person your business card or details and tell them that you would like to join the Critical Point Network Gess Rambaldi Critical Point Network Chairman gess.rambaldi@pitcher.com.au Andrew Yeo Partner/Executive Director andrew.yeo@pitcher.com.au David Vasudevan Partner/Executive Director david.vasudevan@pitcher.com.au

30 Specialist query form PLEASE COMPLETE YOUR DETAILS Firm: Phone: Name: QUERY Tax GST Land tax Stamp duty International Consolidation Employment taxes Division 7A Employee share schemes Research and development Growth areas infrustructure contribution Fuel tax credits Not for profit Income tax/ CGT General advice Other: Superannuation Business advice Investment advice Succession planning Estate planning Forensic evaluations Information technology Corporate transactions Audit Valuations Financial Modelling M&A advisory Insolvency: Bankruptcy & Personal Insolvency Arrangements Voluntary liquidation Voluntary administration Receiverships Turnaround Management Negotiations with banks and other creditors Asset Protection General advice Supporting information: Please provide as much detail as possible to ensure appropriate allocation. (Please attach additional information if necessary): Time frame for response: Please highlight a realistic timeframe that will enable us to provide advice within a suitable and timely manner. Please note given conflicting demands with our senior personnel, we will endeavour to respond to you within the nominated time frame. If you require an urgent response, please contact us via cpn@pitcher.com.au or Within 2 Business Days Within 5 Business Days Within 10 Business Days What will it cost? We are happy to answer your queries and there is no charge if the time required to respond to the query takes 10 minutes or less. Should the query require more than 10 minutes to respond we will provide an estimate of the costs for approval and authorisation before proceeding with the assignment. Please note that for insolvency related queries, CPN members will not be charged for the enquiry and you are still encouraged to call or any of the insolvency partners for advice. All queries should be forwarded by to cpn@pitcher.com.au or by fax to Upon receipt of this form, the appropriate specialist will be contacted to deal with your query. Advice regarding our ability to respond in the time frame specified will be provided as soon as possible.

31 Membership application form PLEASE COMPLETE AND RETURN THIS FORM TO JOIN THE CRITICAL POINT NETWORK Title: Firm name: Position held: Mailing address: Telephone: Full name: Facsimile: Please indicate the member services you wish to receive: Trading board Technical bulletins CPN Newsletter (quarterly) Networking events Do you have any special interests? If so, what are they? Fishing Wine tasting Rugby League/ Union AFL Do you follow an AFL football team? Yes I follow Professional events Access to advice Other: No Are you: An accountant in public practice A solicitor in public practice A barrister An accountant in industry A solicitor in industry Other (please explain): Do you have any preferred area of specialisation or particular interest? How did you find out about the Critical Point Network? Referred by: Other: What happens upon joining? Once becoming a CPN Member you will receive a Members Welcome Pack via . The Members Welcome Pack will include everything you need to know about being a Critical Point Member, along with a full list of benefits. Some of these include invitations to CPN events, our quarterly CPN Newsletter and regular technical bulletin updates. If you prefer, we would also be pleased to meet with you and explain some of these great benefits. Please complete and return this form: Post to: Critical Point Network, Pitcher Partners, GPO Box 5193, MELBOURNE VIC cpn@pitcher.com.au or via Fax: To unsubscribe, please select the unsubscribe button on any CPN communication or cpn@pitcher.com.au.

32 Get in touch... To obtain further information on this presentation topic please contact: Jacci Mandersloot Client Director - Tax Consulting jacci.mandersloot@pitcher.com.au For all other Critical Point Network or consulting enquiries please contact: Gess Rambaldi Critical Point Network Chairman gess.rambaldi@pitcher.com.au Andrew Yeo Partner/Executive Director andrew.yeo@pitcher.com.au David Vasudevan Partner/Executive Director david.vasudevan@pitcher.com.au Garrett Kinchington Critical Point Network Coordinator garrett.kinchington@pitcher.com.au PITCHER.COM.AU/CRITICALPOINTNETWORK Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Critical Point Network is a business of Pitcher Partners Advisors Proprietary Limited ABN Critical Point Network is a registered trademark.