Category: Capital Gains

SBE Opportunities


CGT

Small Business Restructure Rollover

The increased SBE threshold of $10 million also applies to the rollover for restructures of SBEs. To recap, this measure allows SBEs to change their operating structure without incurring capital gains tax or other income tax liabilities. It does this by providing an optional rollover (deferring any CGT liability or income tax liability until the asset is eventually sold) where an SBE transfers an active asset of the business to another SBE as part of a genuine business restructure, without change the ultimate economic ownership of the asset. The rollover may also be available for assets that are used by the SBE but held by an entity connected or affiliated with the SBE or, if the SBE is a partnership, a partner of that partnership. This ensures that partners and other ‘passive entities’ within an SBE that are not themselves SBEs (because they do not carry on a business themselves) can access the new rollover. Under the rollover, specifically, from a CGT standpoint:

  • No capital gain or loss will accrue to the Transferor. The Transferee will be treated as acquiring the asset on the date of transfer for an amount equal to the cost base of the asset.
  • Pre-CGT assets will retain their pre-CGT status post-transfer.
  • For the purposes of the 50% CGT discount, the ’12-month clock’ will be reset, such that the Transferee will need to hold the asset for a further 12 months following the restructure to avail themselves of this discount.
  • For the 15-Year Exemption however, the Transferee will be taken to have acquired the asset back when it was originally acquired by the Transferor.


As the $10 million increased threshold is backdated to1 July 2016, tax returns may need to be amended in respect of capital gains made and declared from restructures after this date. Amendments may result in refunds where any capital gains liabilities have been paid. 

CGT Small Business Concessions – No change


Unfortunately, the increased $10 million SBE threshold does not apply to the CGT Small Business Concessions (i.e. the Active Asset Reduction, Retirement Concession, Rollover, 15-Year Exemption). To access these concessions, the standard criteria must be met, namely you and connected entities must be met, namely you and connected entities must have net assets to the value of less than $6 million or your annual turnover (including connected entities and affiliates) must be less than $2 million.



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Non-Resident CGT Withholding Rules…. REBOOTED!

Are you buying or selling property? If so, you need to be aware of the newly adjusted withholding rules, which are now set to impact a much wider range of property sales.

Background
Last year Federal Parliament passed legislation designed to collect gapital gains tax (CGT) from non-residents selling certain Australian property from 1 July 2016.
Although the law is targeted at foreign Sellers, given the way the legislation was drafted, all Sellers of property (resident or non-resident) may be impacted. The new law required that for all property sales of $2 million or more, the Buyer was required to withhold 10% of the sale proceeds and remit that amount to the ATO without delay – unless the Seller obtains a Clearance Certificate from the ATO before settlement.
The legislation doesn’t just apply to individuals but also Companies, Trusts, and Superfunds. Further to this, it is the Buyer that can then be penalised by the ATO for failing to withhold and remit the withholding tax.

What’s Changed?
In the May 2017 Federal Budget, the Government made the following two changes:
  • Increasing the CGT withholding rate for non-residents from 10% to 12.5% from 1 July 2017, and
  • Reducing the real property exemption threshold from $2 million to $750,000 from 1 July 2017.
These changes mean that many more txpayers will be impacted by the new regime. Given this, we now examine the law in detail.

Conditions
The new withholding regime applies to contracts entered into on or after 1 July 2016 where the following three conditions are met:

1. THE BUYER ACQUIRES CERTAIN ‘TAXABLE AUSTRALIAN PROPERTY’
This includes
  • Real property in Australia – land, buildings, residentail and commercial property
  • Lease premiums paid for the grant of a lease over real property in Australia
  • Mining, quarrying or prospecting rights
  • Interests in Australian entities whose majority of assets consist of the above such property or interests (e.g. shares in a company or units in a trust) or
  • Options or rights to acquire the above property or interest.

2. THE SELLER IS A NON-RESIDENT OR HASN’T PROVIDED A CLEARANCE CERTIFICATE FROM THE ATO
Note that where there are multiple Sellers in the one tansaction, this condition will be met where any of the Sellers is a non-resident.
This condition is the ‘kicker’. The rules can catch Australian resident Sellers if they do NOT obtain a Clearance Certificate from the ATO.

3. NONE OF THE FOLLOWING EXCLUDED TRANSACTIONS ARE THE SUBJECT OF THE SALE
(a) Real property transactions with a market value of less than $750,000 (downd from $2 million). As well as sales of real property, this exemption………..

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