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About Patrick Cussen

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So far Patrick Cussen has created 9 blog entries.

Konnie Lontos Joins the Team

We are very pleased to welcome lawyer Konnie Lontos to Bernie O’Sullivan Lawyers. Konnie works predominantly in commercial matters including negotiating and drafting agreements and documenting commercial transactions including sales of businesses and commercial leases. With a Bachelor of Laws, a Bachelor of Business (Banking and Finance) and a Graduate Diploma in Legal Practice, Konnie provides exceptional practical legal advice to our clients. Attention to detail, a solid work ethic and strong working relationships enables Konnie to achieve positive results that meet clients’ expectations.

By |September 26th, 2017|Uncategorised|0 Comments

Let’s Get Physical: Changes Affecting the Small Business Company Tax Rate

We are regularly told to be more active for our physical wellbeing.

Similar advice now applies to companies – they need to be less passive.

To qualify for the small business company tax rate of 27.5%, a company needs to be a “small business entity” – that is, the company needs to carry on a business and have an aggregated turnover of less than $10 million.

On 18 September 2017, the Federal Government released draft legislation to “clarify that passive investment companies cannot access the lower company tax rate for small businesses”.

Before the proposed change, there was some doubt as to whether a company that derived investment income (such as rent, dividends and interest), or that received distributions of income from discretionary trusts, was carrying on a business so that it qualified for this concessional rate.

The ATO website states:

    “It is not possible to definitively state whether a particular company is carrying on a business. This is always question of fact. Based on the overall impression of the activities of a company and the relevant indicia of whether a business is carried on.  However, where a company is established and maintained to make profit for its shareholders, and invests its assets in gainful activities that have a prospect of profit, then it is likely to be carrying on business. This is so even if the company’s activities are relatively passive, and its activities consist of receiving rents or returns on its investments and distributing them to shareholders.”

This statement by the ATO was not particularly clear.

The Government has now moved to resolve doubt by the release of the draft legislation.

Under the draft legislation, a company will only qualify for the small business company tax rate of 27.5% if:

  • the company carries on a business;
  • the company has an aggregated turnover of less than $10 million; and
  • the company’s “base rate entity passive income” is not more than 80% of its assessable income.

Base rate entity passive income includes dividends, interest, royalties, rent, gains on discounted securities and capital gains (whether derived by the company directly or through a trust or partnership).

If the draft amendments are enacted in their current form, they will have effect from 1 July 2016.

Keep in mind that the threshold of 80% of assessable income is quite high. Therefore, a company may be able to qualify for the small business company tax rate even if the company derives significant levels of passive income.

Income distributions from trusts are not necessarily passive income. Under the draft legislation, if a trust conducts an active business and distributes that income to a corporate beneficiary the income will not be base rate entity passive.

However, as a company will need to carry on a business to qualify for the small business company tax rate of 27.5%, many (if not most) “bucket companies” that receive income distributions from a discretionary trust will be subject to tax at a rate of 30%.

By |September 26th, 2017|Uncategorised|0 Comments

Small Business CGT Concessions and Property Sales

One of the consequences of the housing boom in Melbourne is that properties that have been used for farming businesses for many years are being sold to developers. These sales often raise significant tax issues.

Some of the more interesting examples on which we have worked include:

  • A husband and wife acquired a property of about 95 acres in 2003. The owners of the property operated a market garden and raised livestock on the property. In 2009, the owners could no longer actively work in the business, but they continued to operate the market garden and raise livestock with help from family and friends. In 2013, the owners ceased to operate the market garden and leased that part of the property to a neighbour but continued to raise livestock on the balance of the property.

    The owners received an offer for the sale of the property. Under the offer, the purchaser would pay some instalments with the bulk of the purchase price payable in 2021.

    We advised the owner to structure the sale by granting an option to the purchaser, with a series of payments for the initial grant of the option and later extensions of the option.

    We acted to obtain a private ruling that confirmed when the option was exercised the profit from the sale of the property would qualify for the small business 15-year exemption. This meant the profits from the sale were tax-free.

  • We were asked to provide advice to the executors of an estate where the major assets were a farming property and an adjoining airfield. The estate provided for a life interest for the deceased’s widow with the balance of the estate to be shared equally between their children.

    We acted to obtain a private ruling from the ATO that confirmed the profits on the sale of the airfield and the farm were capital gains that qualified for the small business 50% reduction. There was an issue about whether the airfield qualified as an active asset because the bulk of income from the airfield was payments for rights to occupy the property. However, we were able to demonstrate that the property still qualified as an active asset.

    The ruling also confirmed the tax treatment on a proposed split of the estate between the life interest holder and the children.

    However, we had to advise the family that although they had been actively operating the farm and the airfield for over 30 years, the sale did not qualify for the small business 15-year concession or the small business retirement concession. Because the life interest holder was entitled to 100% of the income but had no entitlement to capital, there was no “significant individual” in relation to the estate.

  • A private company controlled by two brothers had been operating a market garden business on about 134 acres for 25 years.

    The company entered into an agreement with a property developer for the development and subdivision of the property into more than 500 residential lots with associated services (shops, schools and community facilities).

    We acted to obtain a private ruling from the ATO that confirmed the profits on the sale of the subdivided lots were capital gains and qualified for the small business 15-year exemption. This meant the company could pay the entire profit to the two brothers tax-free.

These examples demonstrate there are different approaches that can be used to address the tax issues on sales of property which have been used for business purposes.
Patrick Cussen and Rob Warnock can assist you with tax effective structuring on sales of business assets.

By |September 26th, 2017|Uncategorised|0 Comments

Acquiring Interests in Property Worth More than $750,000? Get a Tax Clearance Certificate

Last year the Government introduced the Foreign Resident Capital Gains Tax Withholding measures.

These measures were framed so that from 1 July 2016, a person acquiring interests in:

  • Land, or
  • Interests in a company or trust that owns land,

valued at $2 million or more from a non-resident needed to pay tax equal to 10% of the value of the land or the interests in the company or trust to the ATO.

In the Budget on 9 May 2017, the Government changed the rules to reduce the threshold at which tax would need to be withheld from $2,000,000 to $750,000. The Government also increased the rate of withholding to 12.5%.

The Government announced that these changes will come into effect on 1 July 2017.

The Government has introduced the Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017 (Bill) to give effect to these changes. The Bill has been referred to a Senate committee that is due to report by 13 June 2017.

The practical effect of the changes is that if someone is acquiring:

  • Land, or
  • Interests in a company or trust that owns land,

valued at $750,000 or more after 30 June 2017, the transferor will need to obtain a tax clearance certificate from the ATO to provide to the transferee at settlement.

Unless there is such a certificate, the purchaser will need to withhold 12.5% of the value of the property or interest in the company or trust and remit it to the ATO.

Given the much smaller threshold amount, the number of transactions affected has expanded enormously. On 20 April 2017, the ABC reported that the median house price in Melbourne in the first quarter of 2017 was $826,000. Therefore, these measures will apply to more than 50% of house sales in Melbourne.

It is important to remember that these rules apply when a person acquires interests in a company or trust that owns real property. As no transfer of land is prepared in these cases, the purchaser’s obligations to pay tax to the ATO unless there is a tax clearance certificate may be overlooked.

These rules also can apply even if no consideration changes hands (for example, if there is a transfer between related parties).

If a purchaser fails to withhold the amount from a payment to the vendor, the purchaser may end up paying the full purchase price to the vendor and then find they also must pay an amount equal to 12.5% of the value of the property to the ATO. The purchaser then would need to try and recover that amount from the vendor (and may have difficulty doing that).

If you require advice on these changes please contact Patrick Cussen.

By |June 9th, 2017|Uncategorised|0 Comments