Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.
-
Upload
maria-hammond -
Category
Documents
-
view
216 -
download
2
Transcript of Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.
![Page 1: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/1.jpg)
![Page 2: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/2.jpg)
Division 250 and Division 6C :
a practical perspective
Tuesday 18 September 2007
![Page 3: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/3.jpg)
Outline of session
• Division 250 : Overview of provisions
• Division 250 : Transitional issues
• Implications for Infrastructure
• Implications for Property
• Restructures of stapled groups : Division 6C amendments
• Stamp duty issues
![Page 4: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/4.jpg)
Overview of provisions
Josh Cardwell, Director
![Page 5: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/5.jpg)
Overview of provisions
• 5 Gateways
• 5 Exclusions
• Asset vs arrangement
• Expanded lease definition
![Page 6: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/6.jpg)
Gateways
• Asset put to tax preferred use
• Arrangement period > 12 months
• Provision of financial benefits
• Capital allowance entitlement
• Lack of predominant economic interest (“PEI”)
![Page 7: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/7.jpg)
Asset put to tax preferred use
• End user– Control
• Tax preferred use– Lease:
• tax preferred entity• offshore use by non-resident
– Other use:• tax preferred entity• offshore use by non-resident
• Tax preferred entity– Government– Tax exempt
![Page 8: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/8.jpg)
Arrangement period > 12 months
• Start Time
• End time
• Options
![Page 9: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/9.jpg)
Provision of financial benefits
• Financial benefits
• Provider of financial benefits:– Tax preferred end user– Tax preferred entity– Non-resident
![Page 10: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/10.jpg)
Capital allowance entitlement
• Division 40
• Division 43
• Other
![Page 11: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/11.jpg)
Lack of predominant economic interest (“PEI”)
• LRD test
• Right to acquire test
• Effectively non-cancellable long term arrangement test
• Level of expected financial benefits test
![Page 12: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/12.jpg)
LRD test
• LRD - definition
• Domestic end user – 80%
• Non-resident end user – 55%
• Exclusions
![Page 13: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/13.jpg)
Right to acquire test
• Will transfer other than for market value
• Right/obligation to acquire other than for market value
![Page 14: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/14.jpg)
Effectively non-cancellable long term arrangements test
• Effectively non-cancellable:– Non-cancellable– Discouragement
• Arrangement period:– Greater than 30 years– 75% of remaining effective life
![Page 15: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/15.jpg)
Level of expected financial benefits test
• Guaranteed residual value
• Debt interest
• PV of financial benefits > 70% of ‘depreciable’ base
![Page 16: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/16.jpg)
Exclusions
• Small business
• Minimum value
• Alternate assessable amount
• Commissioner’s discretion
![Page 17: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/17.jpg)
Exclusions
• Short Term/Low Value
– Arrangement period:• Real property lease: 5 years or less• Other: 3 years or less
– Financial benefits:• Real property lease: $50m or less• Other: $30m or less
– Asset value:• Real property lease: $40m or less• Other: $20m or less
![Page 18: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/18.jpg)
Application
• Notional loan : similar to Division 16D
• Apportionment
• Principal and interest: compounding accruals
![Page 19: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/19.jpg)
Transitional provisions
Chris Colley, Director
![Page 20: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/20.jpg)
Transitional provisions
• Generally, applies tax preferred use commencing on or after 1 July 2007.
• Legally enforceable arrangement prior to 1 July 2007, can elect into Div 250.
• Election can be made on an arrangement by arrangement basis.
![Page 21: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/21.jpg)
Transitional provisions (cont.)
• Pre - 1 July 2007 arrangements subject to Div 250 where:– material variation after that date; and– variation would have caused 51AD / Div
16D to apply.
• Removing contingent equity is not a material variation.
![Page 22: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/22.jpg)
Transitional provisions (cont.)
• 51AD switched off for:– pre 1 July 2007 arrangements– ‘tax preferred use’ started after 1 July
2003.
• Division 16D still applies.
• Does not apply to sale and leasebacks (unless also tax preferred use?)
![Page 23: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/23.jpg)
Implications for Infrastructure
Paul King, Director
![Page 24: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/24.jpg)
Tax Preferred End User
Exclusions
PEI
Calculation
![Page 25: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/25.jpg)
Tax Preferred End User
• Tax exempt (or a connected entity)
• has or will have use or control of use
![Page 26: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/26.jpg)
TPU
Taxpayer TPE
Financial control
Day to day control
Tax or payfixed feefixed return
![Page 27: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/27.jpg)
TPU
Taxpayer TPE
Lease
(excl. step in rights)
OR
use of specific asset
a right to control
![Page 28: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/28.jpg)
Relevant Exclusions
• Lesser 250 amount
• Commissioner’s discretion
![Page 29: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/29.jpg)
PEI• LRD
• Right to acquire asset (not a reversion)
• non-cancellable long term arrangement
• level of expected benefits (pv)
• guaranteed residual
versus
• LRD (51AD)
• Finance Lease (Division 16D) – s.159GG(4)
![Page 30: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/30.jpg)
PEI: General LRD Test “Carve-Out”
DepreciableAsset
Taxpayer TPE
90%
Tax Preferred Use wholly in Australia
TPU neither lease nor hire arrangement
No TPE Financing of Asset
LimitedRecourse
Debt
Excl: TPE assists in financing
![Page 31: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/31.jpg)
PEI
TPETaxpayer
TPE
Lease
Sale
Sale
Freehold
TaxpayerTPE TPE
30 yearGroundLease
Reversionary Interest Hospital
Sublease
![Page 32: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/32.jpg)
Financial Benefits
CompanyTrust TPE
Staple
Lease
Rent
Expenses
Services Agt
Availability charge
![Page 33: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/33.jpg)
Financial Benefits
CompanyTrust TPE
Staple
Loan
Interest
Expenses
Availability charge
![Page 34: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/34.jpg)
Example
ProjectBanks
Debt
Construction
Equity $10m
Project Deed
ConstructCo
ServiceCo
CourtCo
EquityProviders
StateGovt.Availability Charges$90m
$80mFacilities Management Services
Div. 43 : $70mDiv. 40 : $10m
Other costs : $20m
![Page 35: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/35.jpg)
Implications for Property
Josh Cardwell, Director
![Page 36: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/36.jpg)
Tax preferred end user
LPT
Non Resident
Lease
Aus
Offshore
![Page 37: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/37.jpg)
Alternate Structure
LPT
LeasePE/Branch
Aus Co
Hold Co.
100%
Offshore
Aust
![Page 38: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/38.jpg)
CFC LPT
For Co
Lease
Aus
Offshore100%
CFC
![Page 39: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/39.jpg)
LRD Test Exclusion
LPT
TPE Leases
LRD
Non TPE Leases
![Page 40: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/40.jpg)
LRD Test
Land Co.
Building Co.Ground Lease
TPE
Lease
Loan for land and shares
Equity
![Page 41: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/41.jpg)
Other Examples
• Options to extend
• Floor leases vs Master lease
• Put options and estimated value
![Page 42: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/42.jpg)
Restructures of stapled groups
Division 6C amendments
Andrew White, Director
![Page 43: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/43.jpg)
Introduction
• Tax Laws Amendment (2007 Measures No. 5) Bill 2007 introduced that seeks to make:– CGT amendments to allow for stapled groups to
restructure to facilitate scrip offers– Consequential amendments to Division 6C– Further amendments to Division 6C in relation to
foreign entities / groups acquired by Australian LPTs
![Page 44: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/44.jpg)
Base structure
Public Investors
Company AUnit Trust IIUnit Trust I
![Page 45: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/45.jpg)
Permitted restructure – Option 1
Head Unit
Trust
Company AUnit Trust IIUnit Trust I
Public Investors
Newly interposed trust
Units
![Page 46: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/46.jpg)
Permitted restructure – Option 2
Unit Trust 1
Company AUnit Trust II
Public Investors
Original trust - now the head trust
Units
![Page 47: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/47.jpg)
Comments
• CGT roll-over relief for investors provided:– percentage ownership interest remains the same – the market value of the investors’ new securities
is the same as the existing securities
• Interposed trust to determine cost base of interests in the stapled entity acquired by reference to cost bases of the assets of stapled entity
• A sale facility can be put in place to deal with foreign holders that cannot participate in restructure
• Divisions 6B and 6C amended (narrow changes)
![Page 48: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/48.jpg)
Division 6C amendment
US REIT
Taxable REIT subs
Other subs
Australian
LPT Primarily investing in land
This may now be permissible
![Page 49: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/49.jpg)
Other comments
• Other issues to consider:– stamp duty– legal: meeting required– accounting?
• Cross-holdings could be problematic
![Page 50: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/50.jpg)
Stamp Duty issues
Matthew Stutsel, Partner
Freehills
![Page 51: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/51.jpg)
Stamp duty issues
• Potential duty, especially land rich– Underlying assets– Listed or unlisted– Company or trust– Interpose new trust or existing trust– Transfer or issue/redemption
![Page 52: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/52.jpg)
Stamp duty issues
• Potential duty, especially land rich
• Reconstruction relief
• PCA lobbying
![Page 53: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/53.jpg)
Q&A
![Page 54: Division 250 and Division 6C : a practical perspective Tuesday 18 September 2007.](https://reader036.fdocuments.us/reader036/viewer/2022062511/5513d0ca55034674748b4cc6/html5/thumbnails/54.jpg)
www.gf.com.au