News & Events

Small Business Restructure

— 30 September, 2016

From time to time small business owners may find they should review their business structure and that it may be pertinent to restructure their business.  A restructuring may involve Capital Gains Tax (CGT) event and also incur further taxes such as stamp duty and income tax.  However, recent amendments to the Income Tax Assessment Act (1997) (“ITAA Act“) have created greater flexibility to small business owners with respect to restructuring their business.

The Tax Laws Amendment (Small-Business Restructure Roll-Over) Act 2016 (“the Amending Act“) was passed this year by the Commonwealth Government which made changes to the ITAA Act and took effect as of 1 July 2016.  It means that small businesses are now allowed to transfer active assets from one entity to one or more other entities without incurring income tax liability.  Furthermore, as of 1 July 2016 the New South Wales State Government has abolished stamp duty on the transfer of private company shares and unit trusts thereby reducing costs associated with a restructure of small businesses and their assets.  This also provides the opportunity to convert non-deductible debt to deductible debt as part of a restructuring process.

The condition which must be satisfied in accordance with the legislation is the, “genuine restructure of an ongoing business.”  In order to satisfy this condition, it is essential that there is no significant change in the ultimate economic ownership of any of the significant assets of the business for three years following the roll-over.  To demonstrate how this applies, we have included the following example:

Margaret and Bob run a small family business via a company structure.  The maximum turnover of the business vehicle is under $2 million and they are now looking to restructure the business ownership in order to transfer the business and its assets to a Family Discretionary Trust to which they are both the beneficiaries.  Under the new amendment to the Legislation, Margaret and Bob would receive roll-over relief from the capital gains event which is made as a result of the transfer.  Furthermore, neither Bob nor Margaret would be liable to pay GST on the transfer of the private shares in the company as stamp duty on private shares has been abolished since 1 July 2016.

It is important to note that this roll-over relief is not available to small business owners who are restructuring in the course of winding down or in realising (selling) their ownership interests.

The Amending Act may also allow Discretionary Trusts to meet the requirements for ultimate economic ownership where there is no practical change in the individual economic benefit from the active assets before and after the transfer.  In accordance with the Amending Act, the Family Discretionary Trust may meet an alternative ultimate economic ownership test in the following circumstances:

  • A family trust selection is made by the Trustee of the Trust; and
  • Every individual who has had and is to have ultimate economic ownership of the transferred assets before and after the transfer, must be members of the same family group relating to the Family Trust.

A helpful example of how the new amendment may be used to restructure a Family Discretionary Trust can be read in the article written by Mr Peter Johnson from CST Documents link provided:

https://gallery.mailchimp.com/9c2e4ae90e6c8f478ca673fb6/files/Small_Business_Roll_Over_Relief_Formatted.pdf

The main tax implications of utilising the roll-over restructuring process is that assets transferred under the roll-over will not result in an income tax liability arising either for the transferor or the transferee at the time of the transfer.  Furthermore, the entity transferring the asset is taken to have received an amount for the transferred asset which is equal to their cost of the asset for income tax purposes.  This effectively means that the transferor will not be liable for any tax liability as they are not taken to have realised any gain from the transferred asset.

Running your business through a unit or family trust can have significant asset protection and tax advantages over other business structures such as a sole trader, partnership or even a company structure.

Call today and ask the friendly and professional team at Access Law Group how you can restructure your business to ensure that you take the full benefit of this amendment for both taxation purposes and for the protection of your business assets.

For many Australians, buying a home is the largest investment they will ever make. It is estimated that for the average income earner it would take approximately 10.8 years to save for a 20% deposit and up to 15 years if you are considering buying in a major city. The purchaser is also burdened by additional expenses including legal fees, finance costs, insurance and stamp duty. Considering the significance of the investment, it is pertinent to ensure that there are legal protections in place for people engaging in such large transactions.

There is some good news for those purchasing off-the-plan. On 17 November 2015 the NSW Government recognised the need for additional protections for off-the-plan purchasers by passing the Conveyancing Amendment (Sunset Clauses) Act 2015. The new Division 10 of the Conveyancing Act 1919 applies to residential property and prevents developers from unjust cancellation of contracts on expiry of the sunset date. The provisions are of retrospective application and apply to all purported rescissions from 2 November 2015.

Unlike a standard residential contract, an off the plan contract is entered into prior to the registration of individual lots with the LPI. The developer sells the various lots or units prior to the construction of the building and the deposit is usually held by an agent until time of registration and at this time the contract can be completed.

The legislation is in response to a growing trend of unscrupulous developer’s deliberately failing to meet the conditions of completion by the sunset date (‘the deadline’) and exercising their right to rescind the contract. The developer would then return the deposit of the initial purchaser, complete the project and take advantage of the rising property market and resell the property at a higher price.

In light of the new protection legislation, developers are only able to rescind the contract under a sunset clause in limited circumstances and must give the purchaser notice in writing at least 28 days prior to rescission providing reasons for their proposal and the delay. The vendor may only rescind with written consent to the recession proposal or by a obtaining a Supreme Court order permitting the rescission. Without the consent of the purchaser to the rescission, the Supreme Court on application of the vendor will consider matters including the terms of the contract, whether the vendor has acted reasonably or in bad faith, the reasons for delay and any increases in value of the lot in question.

In the spirit of consumer protection, these provisions do not inhibit the rights of the purchaser to rescind under a sunset clause. The additional protections also act as an incentive for vendors to reasonably commit themselves to the developments to avoid being liable to pay the purchaser’s costs of the application to the Supreme Court.

In the Fair Work Commission, applicants are generally liable to pay their own costs (which may be substantial) of an unfair dismissal or general protections application. However, the law is changing, and it is now more likely that you could recover your costs in certain circumstances.

Why?

Traditionally, the Fair Work Commission has been considered a ‘no cost’ jurisdiction. The system is intended to be fair and accessible for workers, allowing them to bring a claim without the risk of being liable for costs. However, as a result of this system, frivolous and/or vexatious claims are common. Employers would often decide to settle proceedings, and “pay out” undeserving employees, instead of spending, and not recovering, thousands of dollars in costs.

The system does not always provide a fair outcome, and cost orders seek to remedy this. By making cost orders available, a successful party will be able to recover the costs they have spent in making or responding to an application.

How?

Applications for cost orders can be brought where proceedings are commenced without reasonable cause, where a claim has no prospects of success, or where there has been an unreasonable act/omission by a party.

An unreasonable act has even been held to include an unreasonable refusal of a settlement offer. For example, in the matter of Post v NTI Limited [2016] 1059, an employee unreasonably refused a number of settlement offers, including the maximum of 26 weeks compensation. It was further found that his claim had no prospects of success.

What does this mean for Employers?

The rising prominence of cost orders means that employers are now able to contest unmeritous or vexatious claims with the knowledge that their costs may be recoverable. It may be said that the system now more fairly balances the interests of employers. The risk of a cost order also provides a stronger deterrent for employees seeking to bring claims with no reasonable prospects of success. If you are an employer, and need advice concerning an application under the Fair Work Act, contact Access Law Group to arrange a consultation.

What does this mean for Employees?

The ability to recover costs means that employees can now commence proceedings knowing that some of their costs may be recoverable. This evens the playing field between employees and employers, who often have “unlimited” resources to defend such claims. However, the possibility of a cost order being awarded also means that employees should carefully consider the merit of their claim prior to filing an application.

Prior to commencing a claim, an employee should seek legal advice. Access Law Group have extensive experience in workplace and industrial law, and can assist you with your unfair dismissal or general protections application.