Succession Changes

Hi everyone! There have been a number of changes that affect strategic succession plans as a result of reforms to tax during the last year. As a business owner or investor you should note:

  1. Foreign Residency– If you are or became a foreign non-resident taxpayer and you own real estate, you need to consider the impact of capital gains tax reforms on the sale proceeds (hint:check your residency status which depends on the circumstances);
  2. Family Trusts– when can you split assets into separate trusts? Tax Determination TD 2018/D3 sets out when a “re-settlement” occurs over assets causing a tax liability. This might deem a declaration as a new personal right or obligation giving rise to an E1 CGT event to happen and a liability to arise; (high caution splitting trusts)
  3. Inter-company loans and loans by individuals from family companies.  There are specific requirements for compliance defined under TD 2018/13 where a loan is an “ordinary commercial transaction”. Ask the question is it “solely or mainly part of an arrangement involving a payment or loan to a shareholder or shareholder’s associate (target entity) causing it to be a “deemed dividend”? (and taxable income in that financial year);
  4. Division 7A Loans– The benchmark interest rate for these loans is now 5.20% per annum (TD 2018/14); (check your loan documentation)
  5. Small Business Company Tax Change–  Check Tax Ruling TR 2017.D7 and Practical Compliance Guideline PCG 2018/D5 which defines what to assume for  imputation purposes when deciding a corporate tax rate. This requires a “carrying on a business test” and a practical administrative approach to choose a simple method;
  6. Central Management and Control– Where is the jurisdiction for a company sit in terms of “central management and control” and are the profits taxable in Australia?. A PCG on TR 2018/5 regarding residency is set out in PCG 2018/9 with reference to where it is controlled and directed as a “matter of substance” and how its control and direction is exercised over time. A change in residency of a Director shareholder will have a significant impact. The place where meetings are held or the Directors are located will have an impact;
  7. Self Managed Super Funds– A Decision Impact Statement in response to the case Aussiegolfa Pty Ltd (Trustee) v FCT  states a super fund trustee can never breach the”sole purpose test” simply because market value was paid when leasing an asset to a related party.  Consider if this influenced the “investment policy” for the fund. For example, buying residential property and leasing to an associate, even at market rates, is contravention of the test;
  8. Land Tax – Caution must be exercised regarding family trusts that have a foreign resident beneficiary under the relevant state based Duties Acts. (consider amending the Deed to remove a foreign non-resident taxpayer).

There are just a snapshot of some of the tax issues that arise when reviewing succession plans and structures for client that have changes in circumstances. Perhaps it is a smart investment to have a broad discussion with both your accountant and legal advisor to coordinate the strategy, cheers

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