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So far Rob Warnock has created 8 blog entries.

Landholder Duty and Death

Where a private company or unit trust owns real estate with a value of $1 million or more then duty may be payable when there is a change in shareholding or unit holding. If duty applies it will be chargeable at the rates applicable to land transfers.

Duty will be chargeable where the acquisition of shares or units amounts to a ‘relevant acquisition’. In general terms, where the acquirer owns 50% or more of the ordinary shares in the company after the acquisition (20% for unit trusts) then the acquisition will likely be subject to duty.

The provisions can also apply where a shareholder or unit holder dies and as a result their shares or units pass to a beneficiary. Although an exemption from duty can apply a Landholder Acquisition Statement must still be completed and lodged with the State Revenue Office within 30 days of the relevant acquisition occurring. An application for exemption from duty should also be made.

The landholder duty provisions are complex. Whenever there is a change in the shareholding of a company or unit holding of a unit trust they must be considered, including where a change occurs due to death. We can help clients lodge the correct forms and apply for an exemption from duty. If you require assistance with this please contact Rob Warnock.

By |December 13th, 2017|Uncategorised|0 Comments

ATO ruling says penalty tax may be payable on holiday homes owned by trusts

According to the recently released TD 2017/20 a family trust that owns a holiday home will be liable to pay family trust distribution tax (FTDT) at 47% where friends of the family stay in the holiday home.

 

How can this arise you may ask?

A trust may make a family trust election (FTE) for a number of different reasons including:

  • to assist it in claiming prior year losses and debt deductions;
  • to allow beneficiaries to claim franking credits on franked dividends distributed to them; and
  • to help pass the no change in underlying economic ownership requirement in the new small business restructure roll-over relief.

If a trust has made a FTE then any ‘distribution’ of income or capital to a person who is not a member of the primary individual’s family group will be subject to FTDT.

 

What constitutes a distribution?

The definition of distribution to a person is expanded in section 272-60 and includes paying or crediting money to the person, transferring property to them, allowing the person to use the trust’s property and releasing or forgiving a debt owed by the person to the trust.

Prior to issuing TD 2017/20 the ATO essentially took the view that FTDT was only payable where a distribution was made to a person who was a ‘beneficiary’ of the trust but was not a member of the primary individual’s family group. It did not, however, apply to persons who were not beneficiaries. For example, where a trust writes-off a trade debt owed by a person who is not a beneficiary of the trust – refer ATO ID 2012/12 (now withdrawn).

The ATO has now changed its view. In TD 2017/12 it says that a person who is not a beneficiary of the trust is capable of receiving a distribution for the purposes of section 272-60 and the trust losses rules.

According to the ATO where a person who is not a beneficiary receives a benefit from a transaction of the kind described in section 272-60(1) that benefit is a distribution to the extent that its amount exceeds the amount or value of any consideration given in return (refer section 272-60(2)). For example, where a family trust allows friends of the family to stay for free in a holiday house owned by the trust.

 

The business exemption

Fortunately, where the trust carries on a business and the relevant transaction occurs on arm’s length terms and is an ordinary incident of the business the ATO will infer that the amount of the benefit does not exceed the amount of consideration given in return. As a result no FTDT is payable. This would apply to benefits given to employees, gifts to suppliers as well as discounts provided to customers.

But if the trust is not carrying on a business and is just an investment trust then this is where the ATO’s change of view will catch unwary taxpayers. The ATO provides the following example in TD 2017/12.

 

Example 2 – use of holiday home, not an incident of a business

The Wonder Family Trust has made an FTE and Diana Prince is the specified individual. The trust owns a holiday home. The holiday home is used by Diana’s friends, for no consideration, for four weeks in the year.

This transaction is not on arm’s length terms nor an ordinary incident of a business being carried on by the trust. As no consideration is given in return for the use of the property, the full value of that use is a distribution within the extended meaning of ‘distributes’.

As a result the trust must pay FTDT on the value of the use which presumably will be the amount the trust would have received if Diana’s friends had paid an arm’s length rent.

 

As a result of the issue of TD 2017/12 advisors need to take extra care where a trust has made a FTE. If you believe this information may impact your clients, it would be prudent to seek advice. Please contact Rob Warnock if you require advice.

By |December 13th, 2017|Uncategorised|0 Comments

Changes to Victorian Taxes

With all the noise around the recent Federal Budget it is easy to forget changes announced in the Victorian State Budget, many of which are due to apply from 1 July 2017. As some of these changes are not favourable, clients have less than a month to utilise the current position. We summarise some of the main changes below.

  1. The exemption from stamp duty for a transfer of property between spouses will be abolished from 1 July 2017. The principal place of residence will continue to be exempt and so will a transfer due to the breakdown of a relationship. So, anyone wishing to make use of the current exemption needs to act quickly.
     
  2. The off the plan duty concession is being abolished from 1 July 2017. It will still be available to a purchaser who occupies the property as their principal place of residence.
     
  3. A vacant residential property tax of 1% will apply from 1 July 2018 to residential properties in certain councils in inner and middle Melbourne. It will apply to properties that are vacant for more than 6 months in a calendar year. Some exemptions will apply, for example where the owner is temporarily overseas.
     
  4. First home buyers will be exempt from duty for homes purchased after 1 July 2017 where the dutiable value of the home is $600,000 or less. Reduced duty will be payable for homes with a dutiable value between $600,000 and $750,000. The first home owner grant will increase from $10,000 to $20,000 for new homes purchased in regional Victoria after 1 July 2017 with a dutiable value of $750,000 or less. So, first home buyers may wish to wait to sign a contract to buy a new home until after 1 July 2017.
  5. A lower payroll tax rate for employers in regional Victoria with a payroll that comprises at least 85% regional employees. The rate will be reduced from 4.85% to 3.65% from 1 July 2017.
     
  6. Other changes include increasing duty on new vehicles, abolishing duty on certain insurance policies (but not general insurance policies) and revaluing properties every year, rather than every two years, for land tax purposes.

As always with budget announcements, often the devil is in the detail.

By |May 31st, 2017|Uncategorised|0 Comments

Duty Be Gone: Duty Exemptions and Restructuring

Often duty can be an impediment to undertaking a restructure. However, the Duties Act contains a number of exemptions that can apply to reduce what otherwise would be a significant cost. Sometimes a combination of exemptions can be applied, or maybe a number of transactions need to be undertaken in a particular order, to achieve the desired result.

Recently, we were asked to advise our clients as part of the winding up of their parents’ estates. Each family member wanted to go their own way, but the way the properties were owned and the terms of the parents’ wills made that very difficult.

Our clients sought our assistance in transferring various properties into trusts from a company. Normally such transfers would be subject to duty.

However, by using our knowledge of the Duties Act, and in particular of various exemptions, we were able to undertake some pre-sale planning and steps, including share transfers, that would enable the property transfers to be undertaken exempt from duty.

In addition, due to the complexity of the transactions and the large amount of duty that could be payable, on behalf of our clients we applied for and successfully obtained a private ruling from the State Revenue Office before proceeding with the various steps. Obtaining a private ruling beforehand meant our clients could transfer the properties without worrying about later getting an unwanted and unexpected bill for duty.

Whether a duty exemption may apply will depend on the particular circumstances – however, it is worthwhile checking with us to see if one of the exemptions can apply.

Exemptions include some transfers in relation to:

  • Trusts;
  • Superannuation funds;
  • Farm land;
  • Property development; and
  • Shares and units in companies and trusts that own land.
By |March 8th, 2017|Uncategorised|0 Comments