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So far Rob Warnock has created 10 blog entries.

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

Foreign Resident Withholding — Changes Made to the New Rules

Despite only being introduced earlier this year, changes are already being made to the foreign resident CGT withholding rules. The change described below is sensible and should help affected taxpayers where the transfer of land is due to the death of the owner.

The new foreign resident CGT withholding rules generally apply to acquisitions of Australian real property, with a value of at least $2 million, from foreign residents on or after 1 July 2016. They can also apply in certain circumstances to acquisitions of shares in a company or units in a unit trust that owns Australian real property.

A brief summary of the new rules was included in our March 2016 newsletter.

In practical terms, 10% withholding tax must be retained by the purchaser from the purchase price and remitted to the ATO by the settlement date unless the vendor has provided a ‘clearance certificate’ to the purchaser. The clearance certificate issued by the ATO certifies that the ATO considers the vendor is not a foreign resident. Clearance certificates are required even where the vendor is clearly an Australian resident.

The rules also apply to non-cash transactions such as gifts, in-specie distributions from trusts, matrimonial property settlements and in-specie distributions form deceased estates.

Where the transfer may qualify for CGT roll-over relief, such as a matrimonial property settlement or a distribution from a deceased estate, the vendor may apply for a variation notice from the ATO that the amount of CGT withholding be reduced to nil.

The ATO has issued a legislative instrument which varies to nil the amount that an acquirer of Australian real property must pay to the ATO where they acquired land from a deceased in any of the following situations:

  •  as the deceased’s legal personal representative;
  •  as a beneficiary of the deceased; or
  •  as a surviving joint owner under the rules of survivorship.

This means the above acquirers will not be required to withhold tax or apply to the ATO for a variation notice.

By |October 3rd, 2016|Uncategorised|0 Comments

CGT and earnouts

Finally, after more than 22 years (the original ruling was issued in 1993), the saga regarding the CGT consequences of earnout arrangements has come to an end, well mostly to an end. The new CGT and earnout rules in Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 have been passed by both houses of parliament and received Royal Assent. The new rules mostly apply to earnout arrangements entered into after 23 April 2015 although taxpayers who applied the look through approach to an arrangement entered into before 24 April 2015, in anticipation of the new rules coming into force, will be protected. A brief summary of the new rules follows.

Under a standard earnout arrangement the buyer agrees to pay the seller additional amounts if certain performance thresholds are met within a particular time. Under a reverse earnout arrangement the seller agrees to repay amounts to the buyer if certain performance thresholds are not met within a particular time.

As anticipated, a look through approach will apply. Under a standard earnout arrangement any additional amounts received by the seller will be treated as part of the consideration received for the disposal of the underlying assets and thus in determining the amount of capital gain or loss made. As well the additional amounts will be included in determining the cost base or reduced cost base of the asset acquired by the buyer. For example, a seller sells its business goodwill to a buyer for $3 million to be paid at settlement plus a further $500,000 to be paid 2 years later if net profit of the business exceeds certain amounts in the those two years. The targets are met and so the buyer pays the seller the additional $500,000 two years after settlement of the original sale. For CGT purposes the goodwill is treated as being sold for $3.5 million.

Under a reverse earnout arrangement any amounts repaid by the seller to the buyer will reduce its cost base and the seller will reduce its capital proceeds (and thus capital gain). The effect of the look through approach is that taxpayers will need to amend their tax returns for the year the CGT event happened to take into account the change in consideration. The new rules allow for these amendments to be undertaken after the normal two or four year amendment periods (and also allow the ATO to make amendments).

One significant advantage of the look through approach is that if the seller can satisfy the conditions to obtain the small business CGT concessions then the concessions will also apply to the earnout amounts received. The view in the ATO ruling was that the concessions did not apply to such amounts.

The new rules apply to a ‘look through earnout right’. In order to be a look through earnout right a right must satisfy all the following conditions:

  • The right is a right to future financial benefits that are not reasonably ascertainable at the time the right is created;
  • The right is created under an arrangement that involves the disposal of a CGT asset;
  • The disposal cause CGT event A1 to happen;
  • Just before the CGT event the CGT asset was an ‘active asset’ (as defined in the small business CGT concessions, but an alternative test can apply for shares) of the seller/disposer;
  • All the earnout payments must be paid within five years after the end of the income year in which the CGT event happens;
  • Those payments are contingent on the economic performance of the CGT asset sold or a business in which the CGT asset will be used;
  • The payments reasonably relate to that economic performance; and
  • The buyer and seller deal with each other at arm’s length in relation to the earnout arrangement.

As always, the devil is in the detail and the tip is to ensure the detail is understood so that taxpayers are not caught out.

By |March 11th, 2016|News|0 Comments