Post on 23-Jan-2016
description
Look both waysbefore crossing!
Business acquisitions – some tips and traps for the unwary
Sean Walsh24 July 2014
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Common trading vehicles
Sole Trader
Partnership
Company
Trust
Issues of priority
What is the nature of the business to be
acquired?
How will the transaction proceed?
Asset Sale -v- Share Sale
Buyer - Liability
Seller – CGT 50% Discount
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Jen & Joe Consult Co
X Co Pty Ltd
Jennifer 50%
Joe50%
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Shares
Shares
Michelle?
For Jen and JoeAsset Sale
No CGT base leads to $465,000.00 in tax
Share SaleNo CGT base leads to $232,500.00 in tax
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For MichelleNo stamp duty
No GST
Transaction seamless
However, exposure to liability remains
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Is consolidation the answer?
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Sole TraderSimplicity
Availability of CGT concessions
Little room for tax planning
Exposure to liability
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PartnershipPartnership at Law
Section 5, Partnership Act 1897
-v-
Tax Law Partnership
Section 995-1, Income Assessment Act 1997
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Partnership (continued)
Objective test to determine existence – TR 94/8
Formal agreement not determinative
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Partnership (continued)
Pros and cons tied to nature of partners
Joint and several liability
Need for formal agreement
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CompaniesUnderstandingLimited liabilityAsset protection
Tax rateEntry / exit
Flexibility of distributionsLosses
Capital gains
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TrustLimited liabilityAsset protection
Tax rateUnderstanding
Entry / exitLosses
Capital gains
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CGT concessions
CGT is relevant to choice of structureTime to deal with that is prior to
acquisition / start up
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The general discount – Subdivision 115
Only individuals, trusts and superannuation funds
CGT event on or after 21 September 1999
No indexation
Ownership for at least 12 months
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The general discount – Subdivision 115 (continued)
Companies excludedDate of agreement (not settlement) relevant to
12 month rule
Indirect application to underlying interests
Note CGT event E4 and unit trusts
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Small business concessions – Subdivision 152
Basic conditions for relief:
CGT event
Resultant capital gain
At least one of the following applies:
Taxpayer is small business entity
Taxpayer satisfies maximum net asset value test
CGT asset satisfies active asset test
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Particular concessions
The 15 year exemption – Subdivision 152-B
Need for a significant individual
15 year requirement
55 or older
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Particular concessionsThe 50% reduction – Subdivision 152-C
Misnomer
Elective relief
No need for significant individual
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Particular concessionsThe small business retirement exemption –
Subdivision 152-D
One off $500,000.00 deduction
Significant individual test applies
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Particular concessions
Small business rollover – Subdivision 152-E
Deferral of capital gain
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Critical concepts to understanding the small business
concessions
What is a small business entity?
What is the maximum net asset value test?
What is the active asset test?
What is a significant individual?
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Small business entity
$2 million aggregated turnover test (division
328)
Connected entities included
Tests for control
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Maximum net asset value test
Connected entities included (same rules apply)
$6 million net asset test
How to calculate “net” assets
Bell -v- FCT (2012) AAT A45
FCT -v- Byrne Hotels Qld Pty Ltd (2011) FCA FC127
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The active asset testUse in business or inherently connected with it
Minimum ownership periods for shares or trust interest:
Company or trust an Australian resident
At least 80% of all assets are active
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Significant individual
Small business participation percentage
relates to the “smaller of” problems with
differing share classes
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Asset protection and discretionary trust
In the matter of Richstar Enterprises Pty Ltd -v- Carey (No. 6) (2006) FCA 814
Kennon -v- Spry
Spry -v- Kennon (2008) HCA 56
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Sham structures
Take note of the personal services income regime
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Due diligence
Marketing material
What is important to the buyer
What has the buyer in mind
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Due diligence (continued)Critical questions
What is the nature of business and how does it generate income?
What assets are critical?
What liabilities are intrinsically linked to critical assets?
Who are the critical employees?
Who are the major customers?
Who are the major suppliers?
Is goodwill inherently tied to any individual?
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Employees
Issues with standard REIQ contract
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Sean WalshManaging PartnerAccredited Specialist – Business Law
Direct phone: 07 4036 9719Email: seanwalsh@millerharris.com.au
Secretary direct: 07 4036 9734Secretary email: raychelappelgren@millerharris.com.au
PO Box 7655Cairns QLD 4870
Level 8 “Cairns Corporate Tower”15 Lake Street
Cairns QLD 4870
Phone: 07 4036 9700Facsimile: 4031 1525
Email: enquiries@millerharris.com.au
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