Sean Walsh
24 July 2014
Miller Harris in Business

Sole Trader
Partnership
Company
Trust

What is the nature of the business to be acquired?
How will the transaction proceed?

 Buyer - Liability
 Seller – CGT 50% Discount
Miller Harris in Business

Miller Harris in Business

Asset Sale
No CGT base leads to $465,000.00 in tax
Share Sale
No CGT base leads to $232,500.00 in tax
Miller Harris in Business

No stamp duty
No GST
Transaction seamless
However, exposure to liability remains
Miller Harris in Business

Miller Harris in Business

Simplicity
Availability of CGT concessions
Little room for tax planning
Exposure to liability
Miller Harris in Business

Partnership at Law
Section 5, Partnership Act 1897
-v-
Tax Law Partnership
Section 995-1, Income Assessment Act 1997
Miller Harris in Business

Objective test to determine existence – TR 94/8
Formal agreement not determinative
Miller Harris in Business

Pros and cons tied to nature of partners
Joint and several liability
Need for formal agreement
Miller Harris in Business

Understanding
Limited liability
Asset protection
Tax rate
Entry / exit
Flexibility of distributions
Losses
Capital gains
Miller Harris in Business

Limited liability
Asset protection
Tax rate
Understanding
Entry / exit
Losses
Capital gains
Miller Harris in Business

CGT is relevant to choice of structure
Time to deal with that is prior to acquisition / start up
Miller Harris in Business

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
Miller Harris in Business

The general discount – Subdivision 115 (continued)
Companies excluded
Date of agreement (not settlement) relevant to 12 month rule
Indirect application to underlying interests
Note CGT event E4 and unit trusts
Miller Harris in Business

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
Miller Harris in Business

The 15 year exemption – Subdivision 152-B
Need for a significant individual
15 year requirement
55 or older
Miller Harris in Business

The 50% reduction – Subdivision 152-C
Misnomer
Elective relief
No need for significant individual
Miller Harris in Business

The small business retirement exemption –
Subdivision 152-D
One off $500,000.00 deduction
Significant individual test applies
Miller Harris in Business

Small business rollover – Subdivision 152-E
Deferral of capital gain
Miller Harris in Business

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?
Miller Harris in Business

Small business entity
$2 million aggregated turnover test (division 328)
Connected entities included
Tests for control
Miller Harris in Business

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
Miller Harris in Business

The active asset test
Use 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
Miller Harris in Business

Significant individual
Small business participation percentage relates to the “smaller of” problems with differing share classes
Miller Harris in Business

In the matter of Richstar Enterprises Pty Ltd -v-
Carey (No. 6) (2006) FCA 814
Kennon -v- Spry
Spry -v- Kennon (2008) HCA 56
Miller Harris in Business

Take note of the personal services income regime
Miller Harris in Business

Marketing material
What is important to the buyer
What has the buyer in mind
Miller Harris in Business

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?
Miller Harris in Business

Issues with standard REIQ contract
Miller Harris in Business

Sean Walsh
Managing Partner
Accredited Specialist – Business Law
Direct phone:
Email:
Secretary direct:
Secretary email:
07 4036 9719 seanwalsh@millerharris.com.au
07 4036 9734 raychelappelgren@millerharris.com.au
PO Box 7655
Cairns QLD 4870
Level 8 “Cairns Corporate Tower”
15 Lake Street
Cairns QLD 4870
Phone: 07 4036 9700
Facsimile: 4031 1525
Email: enquiries@millerharris.com.au
Miller Harris in Business