Category: Planning Idea

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Income Tax Legislation Planning Idea Planning Stuff Rulings

More on the Small Business Rollover

Yes I am way too excited about this… But the Commissioner has produced his first two bits of guidance on using this rollover.

In the first he looks at the consequences of using the rollover. This is all pretty simple stuff (cost base transfer…) but the final example has the trick in it…

Example 6 – Indirect tax consequence – subsequent debt forgiveness

Facts

  1. Dean operates a fishing tour business through a company, where he is the sole director and shareholder. The active assets of the business include a fishing boat, which cost the company $300,000.
  2. In January 2017, a discretionary trust is set up, Dean is one of the beneficiaries and a family trust election is made with Dean as the primary individual. The termination value and adjustable value of the boat is $260,000 at this time.
  3. The company transfers the boat to the trust for $260,000 as consideration, payable within 60 days. Both the company and the trust choose to apply the SBRR.
  4. The trustee does not pay at that time and enters into a written loan agreement that complies with the requirements of section 109N of the ITAA 1936.
  5. In June 2018, the company executes an effective deed to forgive the loan.

Other tax consequences are recognised

  1. A transfer of an asset has no direct income tax consequences, except as provided for under Subdivision 328-G. Related rollover relief for depreciating assets is available under section 40-340.
  2. The subsequent application of Division 7A to the loan, which was created in connection with the transfer of the assets, is an indirect consequence of the transfer and is not turned off by section 328-450. The forgiveness of the loan or failure to make minimum yearly repayments may give rise to a deemed dividend under Division 7A.

So a simple transfer of assets out of a company to a trust can lead to a big DIV 7A issue… But maybe not. Have a look at paragraph 1.65 of the EM to the Bill that introduced the rollover…

1.65 Consistent with the object of allowing small business owners flexibility to change their legal structure, the roll-over does not require that market value consideration, or any consideration, be given in exchange for the transferred assets. A transferor and transferee may, for example, agree to transfer the assets at cost in order to eliminate any future unrealised gains on membership interests held in the transferor entity. Where an asset transfer is made at other than market value, decreases and increases in the market values of any interests that are held in the transferor and transferee can result.

So if you transfer the assets for no consideration you get no debt to forgive and no Division 7A issues. The accountants scream “how do I account for this???” I say “work it out because if we transfer it at book value to make your accounting easy we have the company making a loan to the trust and that is much worse than your accounting problem!”

So beware of Division 7A traps when transferring out of a company using the rollover – especially as they are very easily fixable (if fixable is a word?).

In the second document the Commissioner considers what is a ‘genuine restructure of an ongoing business’? Remember that if we don’t have one of these genuine restructures we can’t use the rollover. SO what is a genuine restructure?

The following features indicate that a transaction is, or is part of, a ‘genuine restructure of an ongoing business’:

It is a bona fide commercial arrangement undertaken in a real and honest sense to facilitate growth, innovation and diversification, adapt to changed conditions, or reduce administrative burdens, compliance costs and/or cash flow impediments.

It is authentically restructuring the way in which the business is conducted as opposed to a ‘divestment’ or preliminary step to facilitate the economic realisation of assets.

The economic ownership of the business and its restructured assets is maintained.

The small business owners continue to operate the business through a different legal structure. For example, there is continued use of the transferred assets as active assets of the business, continuity of employment of key personnel and continuity of production, supplies, sales, or services.

It results in a structure likely to have been adopted had the small business owners obtained appropriate professional advice when setting up the business.

And if this is too vague (which it definitely is) the law provides a safe harbour rule…

To provide certainty to small businesses using the roll-over, a ‘safe harbour’ rule is included. A small business will be taken to satisfy the requirement that the transaction is, or is a part of, a genuine restructure of an ongoing business where, for three years following the roll-over:

There is no change in the ultimate economic ownership of any of the significant assets of the business (other than trading stock) that were transferred under the transaction;

Those significant assets continue to be active assets; and

There is no significant or material use of those significant assets for private purposes.

But in this document the Commissioner applies this rule to examples. He states that restructures that achieve substantially better asset protection, or allow employees to buy in, or allow new capital, or simplify complex affairs are all genuine restructures

But he goes on to say that transferring assets from a company to an individual and waiting 12 months to get the CGT discount on those assets is not a genuine restructure.

Neither is succession planning where the assets of one company are split into two companies to allow Dad to give a company each to his two sons a genuine restructure (unless Dad meets the safe harbour above by waiting three years).

Finally he states that having a trust that transfers assets to a company to pay of a UPE and then having the company transfer it back at no consideration is not a genuine restructure as it just wipes out the UPE.

Getting the CGT discount and succession planning will come to your mind when planning a small business restructure but it cannot be the main reason you did it!

1 July 2016 is almost here and the Small Business Restructure Rollover is almost available…

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Income Tax Legislation Planning Idea Planning Stuff

Small Business Restructure Rollover and Stamp Duties

I have discussed this rollover before so if you have no idea what I am talking about have a look at these links first.

The rollover is very broad, applying to CGT assets, revenue assets, trading stock and depreciable assets. But it does not cover all the taxes that may be rolled over under these restructures.

Clearly this does not cover State and Territory taxes, like stamp duty.

So does this mean that any restructure that we do is still going to cost us a whole lot of tax.

Remember, that stamp duty can be large. In NSW the current rate is $8,990 plus $4.50 for every $100, that the value exceeds $300,000. So restructure an inexpensive business premise of say $600,000 to a better entity (say out of a company and into a discretionary trust) then you end up with stamp duty of $22,490.

Ouch. But can we avoid this tax?

In NSW, as duty on the transfer of business assets or a declaration of trust over ‘business assets’ (other than land) will be abolished from 1 July 2016 you could consider keeping the land and buildings in the current structure and moving the “business” out of the current structure to another entity. Of course this would mean the land and buildings still sit in the old structure, which if it is a company may mean no access to the CGT concession and no income splitting on the earnings from the land and buildings….

At this point we need to ask ourselves is the future access to possibly the CGT concessions on the land and buildings and income splitting from the income of the land and buildings worth paying $22,490 of stamp duty today (using the $600,000 example above)? Get a spreadsheet out and do the maths!

But perhaps there is another way to avoid the stamp duty all together.

In most jurisdictions there are “corporate restructure” relief rules in the respective Duties Act. And if we were happen to forgo the income splitting benefits that we get from rolling assets into a discretionary trust, then we might be able to avoid the stamp duty on the sale of the property from the Company to a trust.

If the trust that we roll the land and building to was a unit trust, not a discretionary trust, then all the units in the unit trust have to be owned by the same underlying economic owners. This would be the case if the company from which we intend to roll the assets out of owns all of the units in the unit trust.

In NSW, section 273B of the Duties Act 1997 states:

Duty under this Act is not chargeable on a transaction if the Chief Commissioner is satisfied, on application by a party to the transaction, that:

(a) the transaction is a corporate reconstruction transaction, and

(b) the transaction, or the series of transactions of which the transaction is a part, is undertaken for the purpose of either or both of the following:

(i) changing the structure of a corporate group,

(ii) changing the holding of assets within a corporate group, and

(c) the transaction, or the series of transactions of which the transaction is a part:

(i) is not undertaken for a purpose of avoiding or reducing duty under this Act on another transaction, and

(ii) is not undertaken for the sole or dominant purpose of avoiding or reducing a liability for tax, other than duty under this Act, under a law of an Australian jurisdiction.

Note, that to get this you need to apply first to the Commissioner in each state or territory and there are different processes and timeframes for this approval in different jurisdictions.

Also note that while the term “corporate” is used in the definition about, a unit trust that is wholly owned by a company can be a part of a “corporate group” in the NSW Duties Act.

So would the Commissioner of Taxation in NSW agreed that rolling the land and buildings from a company to a unit trust where the units are all owned by the company is an exempt “corporate reconstruction” under Part 1 of Chapter 11 of the Duties Act 1997 (NSW)?

There is only one way to find out. Ask him. And if he says yes you can now use the small business restructure rollover without paying any taxes at all and get the land and building that are in a company into a trust that can access the 50% discount (as long as the trust holds the land and buildings for 12 months).

Choice (as my New Zealand friends say)!

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Income Tax Legislation Planning Idea Planning Stuff

The Small Business Restructure Rollover is now before the Parliament!

Its almost law!!!!

Under this Bill, from 1 July 2016, small businesses can roll-over “active assets” that are CGT assets, trading stock, revenue assets and depreciating assets as part of a genuine restructure of a small business from one entity to another.

In Summary, here is how it works:

Subdivision 328-G creates an optional roll-over where a small business entity transfers an active asset of the business to another small business entity as part of a genuine business restructure, without changing the ultimate economic ownership of the asset.

Genuine restructure

In the EM the Treasury makes it clear that they could not come up with a solution to all the tax savings ideas that this rollover could create so they have added the “genuine restructure” rule. As they state in the EM:

“The genuine restructure principle distinguishes genuine restructures from artificial or inappropriately tax-driven schemes. This acknowledges that while tax considerations are significant factors in small business structuring, a minority of taxpayers and advisers may try to manipulate the operation of a ‘black letter’ provision of the tax law to achieve an inappropriate or uneconomic tax outcome.”

So if you have a company with lots of assets and a Division 7A loan and you transfer all the assets other than the loan (which you can’t transfer according to paragraph 1.40 of the EM as it is not an active asset) for no consideration so that there is no distributable surplus left in the company so you can forgive the loan, this may not be a “genuine restructure”.

There is a safe harbour for the “genuine restructure” rule. If, for three years following the roll-over:

  1. there is no change in the ultimate economic ownership of any of the significant assets of the business (other than trading stock) that were transferred under the transaction;
  2. those significant assets continue to be active assets; and
  3. there is no significant or material use of those significant assets for private purposes.

Then you have a genuine restructure.

Small Business Entity

This is the definition we all know (carrying on a business and passes the $2 million turnover test) but also includes the affiliates, connected entities and partners of a small business.

The Ultimate Economic Ownership

This has not changed from the draft Bill. You can still roll into a discretionary trust if all the original owners are covered by a family trust election over the discretionary trust.

I do love it that the EM shows exactly how we will use this rollover time and time again in example 1.3:

“Chris and Victoria are husband and wife and are the only shareholders in Puppy Co, with each owning one share with a cost base of $2 per share.

Puppy Co has successfully carried on a puppy training school and has acquired significant assets including puppy boarding facilities, a vehicle, and goodwill.

Victoria and Chris wish to transfer the puppy boarding premises from Puppy Co to a recently settled discretionary trust, the Fluffy Trust, which will lease the premises to Puppy Co. The family trust election is made nominating Victoria as the primary individual controlling the trust. Victoria and Chris are members of Victoria’s family group.

For the purpose of the roll-over, there will not be a change in the ultimate economic ownership of the premises as a result of the transfer of the asset from Puppy Co to the Fluffy Trust. Therefore, assuming that the other requirements are also met, the roll-over would be available in respect of the transfer.”

An Active Asset

This is just like the standard rules in the small business CGT Concessions.

However, due to the Division 7A opportunities, like the one discussed above, the EM states that assets such as loans to shareholders of a company are not active assets.

“A purported transfer of such assets to the debtor shareholder, or trust liable to pay the unpaid distribution could potentially defeat the operation of Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). The roll-over cannot be used for such transfers.

Example 1.5

Mr and Mrs Smith are directors and shareholders of private company ABC Pty Ltd. They each own 50 shares in ABC Pty Ltd, which operates the family business of a milk bar.

Due to the administrative burden of operating a private company,

Mr and Mrs Smith decide to restructure their business affairs. They use the small business restructure roll-over and transfer all plant and equipment of the milk bar to a newly formed partnership.

A complying Division 7A loan for $50,000 to Mr Smith also exists in the balance sheet of ABC Pty Ltd. The Division 7A loan cannot be transferred to the partnership as it not an active asset, and the normal operation of Division 7A continues to apply in respect of the loan.”

And here are all the other bits an pieces we need to be aware of…

Tax planning

The Treasury is scared we will “misuse” this rollover. Therefore they have put in lots of integrity rules – in addition to the “Genuine restructure” rule.

The Bill makes it clear that Part IVA, containing the general anti-avoidance provisions of the taxation law, can apply to a scheme involving the application of the roll-over.

The Bill also has an integrity rule (called the loss denial rule) to ensure that a capital loss on any direct or indirect membership interest in the transferor or transferee that is made subsequent to the rollover will be disregarded, except to the extent that the taxpayer can demonstrate that the loss is reasonably attributable to something other than the roll-over transaction.

Pre-CGT assets

Pre-CGT assets transferred under the roll-over will retain their pre-CGT status in the hands of the transferee.

It’s optional

Need I say more… But I am struggling to work out why you would not want to use this… Say this is the last year you will be a small business entity due to turnover growth and you want to use the $500,000 lifetime concession so you want there to be a CGT event… There, I thought of an example!

Residency

To be eligible for the roll-over, both the transferor and the transferee of the assets must be residents of Australia.

SMSFs?

The roll-over will not apply to a transfer to or from an exempt entity or complying superannuation entity

The CGT Discount

As soon as we looked at this law we knew it would allow us to roll a CGT asset from a company that cannot use the 50% discount, to a trust that can.

In the new Bill, the Treasury have tried to solve this problem by making the time period for eligibility for the CGT discount will recommence from the time of the transfer. To quote from the EM:

“This is consistent with the policy intent of the roll-over, which is to make it easier for small business owners to change the legal entity or entities that run the business in the course of a genuine restructure of an ongoing business. The policy is not to facilitate the transfer of assets to an entity that is entitled to the CGT discount shortly before the sale of the asset.”

So you can still do the roll to a trust to get the discount, you just need to do it a year in advance (and as a part of a genuine restructure as discussed above).

No longer transfer for no consideration

The draft Bill stated the transfer had to be at no consideration. However, the new Bill states that the roll-over does not require that market value consideration, or any consideration, be given in exchange for the transferred assets.

So where an asset transfer is made at other than market value, decreases and increases in the market values of any interests that are held in the transferor and transferee can result.

New membership interests issued as consideration for the transfer

Where membership interests are issued in consideration for the transfer of a roll-over asset or assets, the cost base and reduced cost base of those new membership interests is worked out based on the sum of the roll-over costs and adjustable values of the roll-over assets, less any liabilities that the transferee undertakes to discharge in respect of those assets, divided by the number of new membership interests.

Effect on 15 year CGT exemption

I am only including this as I asked for it and the Treasury said yes… For the purpose of determining eligibility for the 15 year CGT exemption for small businesses, the transferee will be taken as having acquired the asset whether the transferor acquired it.

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Income Tax Legislation Planning Idea Planning Stuff

Newish Tax Concession For Farmers

The Government has released draft legislation that makes certain tax concessions available to farmers even better than they currently are.

In the draft legislation, the Government proposes to make the following changes to the Farm Managed Deposit scheme (and a reminder for those city slickers, the FMD scheme allows farmers to claim a tax deduction for deposits into their FMD bank account, and this means they only pay tax in the income in the year they take it out of the FMD account):

  • Increase the maximum amount that can be held in FMDs to $800,000. As many farmers are already at the $400,000 cap, this means they can take $400,000 from next years income, put it into their FMD and pay not tax on it in that year;
  • Allow primary producers experiencing severe drought conditions to withdraw an amount held in an FMD within 12 months of deposit in the income year following deposit without affecting the income tax treatment of the FMD in the earlier income year; and
  • Allow amounts held in an FMD to offset (ie. reduce the interest charged on) a loan or other debt relating to the FMD owner’s primary production business. That effectively means a farmer can decrease the interest on THEIR PRIMARY PRODUCTION BUSINESS loan (not other loans) at the cost of the meagre interest they were getting on their FMD.

This all starts on 1 July 2016 so it is worth farmers who already have a $400,000 FMD to start warehousing income so they can get the additional $400,000 deductions they can get by increasing their FMD balance to $800,000.

Also, it is worth getting ready to use the FMD as an offset from 1 July 2016.

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Income Tax Planning Idea Planning Stuff Tax Policy

And so there is another scheme to avoid Division 7A

A few weeks after 4 December 1997 I was told about my first Division 7A avoidance idea. And by mid 2008 the first amendment to Division 7A came about to undo this idea (the old section 109UB to stop trusts loaning corporate UPEs to owners).

Since then I have been asked lots of times to advise on new ways to avoid Division 7A so that shareholders can get access to income at a 30% tax rate.

And the Commissioner has just raised concerns about another idea to get the 30% tax rate.

In Taxpayer Alert TA 2015/4 the Commissioner states that setting up a partnership where a substantial amount of the partnership interests are held by companies, and the partnership loans these amounts to the owners, will not be effective at getting the 30% tax rate for the high income owners.

The Commissioner states that if you drop in one of these partnerships between the business in a company and the shareholders, this still might be a financial accomodation and Division 7A will still apply. If the income comes from the trust to these new partnerships the commissioner states it could be a reimbursement agreement under section 100A. And of course, the Commissioner threatens the general anti avoidance rule in Part IVA. And when the current Commissioner makes this threat he means it.

Have a look at the diagram in the Taxpayer Alert if you want a good summary of the arrangement the Commissioner is concerned about.

My general comments on Division 7A avoidance ideas that give a 30% tax rate to income for high income individuals… A 19% tax saving is big – big enough to easily justify getting a private ruling from the Commissioner. So why IN EVERY CASE I HAVE BEEN ASKED TO LOOK AT has the person who developed the idea not want my client to get a private ruling from the Commissioner? Some have wanted confidentiality agreement so that my client cannot disclose the idea to the Commissioner. I wonder why???

But the battle continues until the highest marginal tax rate gets closer to the company tax rate…

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Budget Income Tax Planning Idea Planning Stuff Tax Policy

More Wow!

I was thinking about yesterday’s post and I have a strange thought.

If I have a CGT asset owned by a company I am not going to get the CGT discount. But if I use the rollover from yesterday’s post to move the CGT asset to a trust and sell it the next day I get the discount on the whole gain (the 12 month rule includes the time the company owned the asset under the new rollover).

Now I need to decide if a potential second stamp duty is more than half the tax on the capital gain…

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Budget Income Tax Legislation Planning Idea Planning Stuff

Wow! I mean wow!!! Like wow!!!

In the May budget the government promised a new rollover for small businesses that allowed them to change their structure without (federal) tax effects.

The Treasury has released a draft of this rollover and it is amazing.

Listen to this… You can roll small business assets into a new structure if ultimate economic ownership of the assets do not change and for discretionary trusts…

“every individual who, just before or just after the transfer took effect, had ultimate economic ownership of the asset was a member of the family group of that family trust.”

So from 1 July 2016 you will be able to change a small business structure to a discretionary trust if the individual owners of the old structure, looking through the structure, are covered by a family trust election over the new discretionary trust.

Wow!

This rollover will cover depreciable assets, trading stock, CGT assets and othe revenue assets. It does this by deeming the new entity to have purchased the assets from the current structure at its tax value (cost base, written down value…) rather than market value.

This is only draft legislation At the moment but if this gets up we will be able to change small business structures to a discretionary trust after the business has proven itself to be successful WITHOUT crystalising any capital gains tax! Of course the discretionary trust will have the same cost base for the assets as the previous structure did.

This would mean you could transfer to other structures if you wanted to (other than super funds).

Want an example:

Victoria and Chris are husband and wife and are the only shareholders in Puppy Co the premises, a vehicle, cash, accounts receivable, and goodwill. Victoria and Chris wish to transfer the premises from Puppy Co to a recently settled discretionary trust, the Fluffy Trust, which will lease the premises to Puppy Co. Victoria and Chris, and their family members, are the only objects of the Fluffy Trust, which has made a family trust election. Puppy Co is a small business entity that satisfies the maximum net asset value test, and the premises are an asset of the business carried on by Puppy Co. The Fluffy Trust is not a small business entity in the income year, but it is connected with Puppy Co, and the premises satisfy the test in subsection 152-10(1A). For the purpose of the roll-over, there has not been a change in the ultimate economic ownership of the premises by the transfer of the asset from Puppy Co to the Fluffy Trust. Therefore, assuming that the other requirements are also met, the roll-over would be available in respect of the transfer. The premises are a CGT asset of Puppy Co, which it acquired on 1 July 2002 for $300,000. The current market value of the premises is $600,000. Under the roll-over, Puppy Co is taken to have disposed of the premises for the roll-over cost, and the Fluffy Trust is taken to have acquired the premises for the roll-over cost. This is the amount necessary so that Puppy Co makes neither a capital gain nor a capital loss from the transfer of the premises. Therefore the roll-over cost is $300,000. Following the transfer of the premises from Puppy Co to the Fluffy Trust, the value of Puppy Co has been reduced by the market value of the premises, namely $600,000. The cost base of each of Victoria and Chris’s shares in Puppy Co is reduced by $6,000 to reflect the transfer of value from the trust.

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Income Tax Planning Idea Tax Policy

The negative gearing myth exposed

If we stopped negative gearing on 1 July 2015 it would reduce the budget deficits across the next four years by $2.94 billion. Sounds amazing…

The budget deficits over the next four years are well over $80 billion combined!

Can we please accept that proposed changes to super by the Opposition ($1.2 billion a year or $4.8 over four years) or changes to multinational tax by the opposition ($3.2 billion over four years) or removing negative gearing get us NO WHERE NEAR a balanced budget.

All these proposals combined are less than a 15% solution… And these are the big three tax issues!

You cannot solve the budget deficits by taxing alone. And that just leaves cutting spending.

Can we please have a mature debate or do we just keep saying “it is only a revenue problem…”

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Planning Idea Super

Superphobia…

Do you have clients who want their money now? “I wont live long enough to get my super!” They want the whole 100% in their hand, not just 91.53% ($91.53 + (9.25% of $91.53) = $100)…

Well maybe you can legally help them…

In ATO interpretative decision ATOID 2015/9 the Commissioner considers whether there are SG obligations when the personal services income rules apply. He asks whether attributed personal services income is ordinary time earnings (as is required before SG obligations apply).

The answer he comes to is, if the attributed income is not actually paid to the individual service provider in the year of income it is attributed to the taxpayer, then there are no SG obligations. As it is not “paid” he says it can’t be ordinary time earnings.

So if you really wanted to keep the 9.25% out of super, set up a personal services entity, get your personal service income paid into the entity, and don’t take it out in the year you earn it… 

You will be taxed on it at your individual rates as the income in the entity will be attributed to the individual and included in the individual’s tax return (rather than the 15% rate that the super fund pays… Maybe everyone earning less than $37,000 should do this once the low income super contributions ends on 30 June 2017????).

In the subsequent years, when it is paid to the individual out of the entity it will be exempt income (86-35 of the ITAA97).

But it does seem like a lot of effort to avoid some of your salary going into a low taxed super fund.

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Cases Planning Idea Planning Stuff

Part IVA and the Small Business CGT Concessions

I have been fearing this day for some time. A day when the Commissioner applies the general anti avoidance provision in Part IVA to a taxpayer who arranges a sale of a business to make the most of the Small Business CGT Concessions.

We all know how this is done. “Just before” the sale we make distributions to the owners that they put into super ($540k non concessional), or they renovate their house, or buy a ferrari – all assets excluded from the $6 million maximum net asset test. We also remember that we have not included liabilities for long service leave, or for the legal advice on the sale or the real estate agents commission for property sold with the business and we add these in… And hopefully we find we have maximum net assets of under $6million.

Picture 8

In the AAT decision of Track and Ors and Commissioner of Taxation ([2015] AATA 45) the taxpayer took these ideas one step further. They created a series of liabilities by declaring capital distributions. As the funds to pay these distributions were not available in the business (most of the value was in the goodwill) the business had to borrow money to pay these distributions – thereby adding liabilities and reducing the maximum net assets below the threshold.

But the question with any liability that we want to take into account in assessing the maximum net assets is does it relate to the assets of the business. If these liabilities relate to the assets in the business the taxpayer can use the small business CGT concessions. if not, they can’t use the concessions.

And this is where it all gets weird…

“The Track Bros 1 Trust lodged its 2006 income tax return on the footing that it satisfied the maximum net asset value test, thus enabling it to take the benefit of the concessions. It now contends to the contrary. It says that … the Trust’s liabilities … were not “related to” assets … . If these liabilities are excluded the net value of the CGT assets .., so it contends, is [greater than the maximum net asset threshold]. The Commissioner contends that each of those liabilities is related to assets … and that the net value of CGT assets was [less than the maximum net asset threshold]”

The taxpayer says they failed the Maximum Net Asset test and cannot claim the small business CGT concessions. The Commissioner says they pass the Maximum Net Asset test and can claim the small business CGT concessions. I have never seen it argued this way! Isn’t this the wrong way around? This is just weird.

Until you realise that the reason the taxpayer was trying to argue that the small business CGT concessions don’t apply was that the Commissioner was trying to apply Part IVA – the general anti avoidance provision. The Commissioner argued that the creation of the liabilities just before the CGT event of selling the business was a scheme undertaken for the dominant purpose of gaining a tax benefit. The taxpayer tried to argue there was no tax benefit as they had actually failed in structuring themselves to get into the small business CGT concessions – and they failed

Picture 1

The AAT found that the general anti avoidance provisions did apply as the taxpayer had been successful is structuring themselves just before the sale of the business to take advantage of the small business CGT concessions. And how many times have we done this?

It should be noted that the actions of the taxpayer to make sure they could claim the small business CGT concession were done very close to the sale time so it might be OK to set these things up well before a sale is contemplated – but if you do things just before the CGT event, the Commissioner might consider applying Part IVA… Ouch.

100% sure we will see this decision appealed. At least I hope we do.