NEED TAX CERTAINTY?

Take a 'no surprises' approach to your return with a Private Binding Ruling Application. 

If you’re embarking on a complex restructure or about to make a large GST input tax credit claim, it can be difficult to know exactly how the Australian Taxation Office will apply the legislation.

A Private Binding Ruling or PBR is an application made to the ATO, requesting their interpretation on how they will apply tax laws to a particular transaction.  For example, an opinion may be requested on:

• whether a GST input tax credit can be claimed
• whether the margin scheme can be applied to a sale of land
• whether a capital gains tax rollover can be claimed
• if the Small business CGT concessions can be claimed

The list is endless, as a PBR can be requested on almost all transactions where income tax or GST may arise.

The benefit to you is certainty.  We suggest our clients lodge these applications where the tax cost of a transaction is the difference between making a profit or a loss.

For example, if a CGT rollover cannot be claimed on a restructure, then the tax payable may be so significant that it will outweigh any commercial benefits.  It is no different to performing a due diligence – if the outcome will be negative, you may choose not to proceed, or structure the process differently.

A PBR application can be made either before or after the transaction, however it is best to understand the tax consequences beforehand.

Once issued, the benefit to the taxpayer is that if they prepare their income tax return relying on the PBR, no penalties will arise.  Compare this with a taxpayer who simply completes the transaction and lodges their return.  If the ATO has a different interpretation, several years later on audit the ATO may raise an amended assessment, with penalties and interest.

It is important to note that the PBR will only apply if you carry out the transactions in the manner you specified in your application.  If you change the transactions, the PBR will no longer be relevant and you will need to re-apply.

We can prepare and lodge a PBR application on your behalf.  The process is very structured, so we ensure we provide all relevant factual information as well as our detailed analysis of how the taxation legislation will apply.  If this occurs, the PBR should issue within 28 days.  An objection can be made if we do not consider the ATO’s interpretation to be correct.

The end result is no nasty surprises when you lodge your return, in the form of an unforeseen tax bill.

THE INS AND OUTS OF LOSS CARRY BACK RULES

At UHY Haines Norton, we’ve already lodged several returns for our clients utilising the ‘loss carry back’ concession.

This concession is beneficial, because a loss made in the 2013 year can be used to obtain a refund for tax paid in 2012. Take a look at the example below:

YEAR ENDED 30 JUNE 2012:

Taxable income:        $600,000
Tax paid at 30%:        $180,000

YEAR ENDED 30 JUNE 2013:

Taxable loss:            $(350,000)
Available refund        $105,000  

This is a great cashflow benefit, especially for clients whose profits fluctuate year to year.

Remember, the concession is only available for companies where there is a loss in the year ended 30 June 2013, and a profit in the year ended 30 June 2012.

The refund you can obtain on lodgement of the 2013 income tax return is subject to a limit.  The maximum refund is the lowest of:

• $300,000
• The franking account balance at 30 June 2013
• The tax paid in the 30 June 2012 financial year.  In the above example, if a loss of $700,000 was made in the year ended 30 June 2013, the maximum refund available would be $180,000.

Important note: The Coalition Government announced before the election they would abolish this concession.  The new Government is yet to specify the date of removal, and we expect it will only remain in place for the 2013 financial year.  Given this, we would recommend the amount of loss carried back in the 2013 tax return be the highest amount possible.

If you paid tax last year, and think you will have a loss this year, you should be lodging as soon as possible.  This will give you the cash flow benefit of receiving your refund entitlement now.

How long should you keep you tax records?

SMALL BUSINESS CGT CONCESSIONS (SBCGT)

There is much debate over the benefits of holding on to a business’s tax records. Just last financial year, two of our long term clients reaped the rewards of keeping their tax records by taking advantage of the SBCGT concessions.

SBCGT CONCESSIONS

The SBCGT concessions allow you to sell your business with no capital gains tax, when you:

• are over 55
• are retiring
• have owned the business for at least 15 years
• have net assets under $6 million, or your turnover is under $2 million  

Note: This applies to individuals and also to companies and trusts, however these entities have to meet a few more eligibility conditions.

RECORD KEEPING REQUIREMENTS

The standard requirement for record keeping is five years.  However for capital gains tax, the situation is different.  Very simply, you calculate the capital gain as the difference between the amount you sold the asset for, less the purchase price.  Therefore, you must keep records to provide evidence of the purchase date and cost, no matter how long ago that may be.  Plus for SBCGT concessions, you must keep financial statements and income tax returns for each year of ownership.  The information found in these documents is required for eligibility tests.

So before you throw out those old business records, think twice and scan a copy.  With the total proceeds tax free, this simple act can help see you through to retirement.

The 15 year exemption is just one of the CGT concessions available upon selling your business. 

Taxation of income and loss of FBT & CGT concessions deferred until 1 July 2014

Measures that are designed to tax certain income of Not for profit (NFP) organisations, along with removing FBT and GST concessions, have been delayed until 1 July 2014.

What are the measures?

Charities often conduct commercial activities to make a profit, which is then used to further their philanthropic purpose.  The new measures are designed to tax profits from ‘unrelated commercial activities’.  Basically, profits are taxed from activities that the Government believe do not directly further NFP's altruistic purpose. 

This broad concept of what is or isn't an unrelated commercial activity can understandably cause significant confusion for your NFP and your advisors. So we’ll break it down for you.

What does this mean for your organisation? 

• No tax will be charged if all these profits are expended with philanthropic purpose.
• You will be required to keep records to prove the above, ie. show that all profits have been spent.
• Often NFPs conduct these activities in a separate entity.  If all of your organisation’s profits are not ‘directed back’ to the NFP, tax will still be payable.  
• The meaning of ‘directed back’ might be confusing.  It is to a lot of people.  It simply means ‘does a dividend need to be paid, or can a donation be made?

These areas of income tax and capital gains tax are most likely new territory for your organisation, as NFPs have never had to consider them in the past.

FBT and GST concessions

In addition to paying income tax, no FBT or GST concessions/exemptions will be available for unrelated commercial activities.  For example, the 48% FBT rebate available to NFPs will not be available for an entity that conducts unrelated commercial activities.

The measures will not apply to commercial activities that further a NFP entity's altruistic purposes. An exemption for small-scale and low risk activities is also proposed.

When will it apply?

The ‘unrelated commercial activity’ measures were announced in the 2012 Budget, and like most announcements on Budget night, limited details were released.  A Consultation paper provides some further guidance, and Treasury's website indicates Exposure draft legislation is due for release "early 2013".

Activities commenced prior to 10 May 2011 will be affected by the new legislation from 1 July 2015. Again, no amendment is required in relation to these activities prior to this date.

The next step

NFP's should plan ahead, to save headaches down the line.  Here’s what you need to do:

• Analyse each activity and identify the ones likely to be affected by the new measures
• Attempt to quantify the potential loss of funds from taxation (factoring in the loss of GST & FBT concessions)
• Determine the extent that planning will be required to limit the financial loss to the NFP

Like the rest of the economy, NFPs are doing it tough, even before you factor in the increased demand for their assistance. The charitable sector is facing considerable change with taxation measures, and new ACNC obligations. To assist with all your tax matters, contact our tax specialists Michael Garrone and Ryan Langley. For all your audit and ACNC needs, contact our Audit Partner Darren Laarhoven.

Darren Laarhoven | d.laarhoven@uhyhn.com.au

The best structure for growing your business

Many start their business on a small scale, operating as a sole trader or trust. Certainly a sensible move, but what happens when you start to out-grow your structure? The answer could be simple: make your business a company.

Why make your business a company?

The benefits are clear. Tax on profits is capped at 30% and it's easier to admit new shareholders.  This not only makes it easier to obtain capital funding, but also increases your asset protection.

As a sole trader or trust, tax legislation allows you to transfer your business into a new company.  No tax is payable at this time and it will only arise in the future when you ultimately sell the company.  As bean counters we refer to this as a 'rollover' for tax purposes.  It's one of several rollover concessions that can be used to ensure a growing business is operating through the best structure.

Aside from the above 'rollover' concession, our clients have also ultilised the 'scrip for scrip' concession.  One client, who was operating as a company, wished to acquire another company that would compliment his existing operations.  He acquired the shares in this company and as payment he issued shares of an equivalent value in his own company.  Effectively, the two businesses have now merged without any cash changing hands.  As a result there has been no impact on cashflow, increased synergy from the combined operations, increased value of the business, and no tax cost.  This shows the importance of choosing an efficient structure.

So if growing, or undertaking a merger or acquisition, it is important to be aware of your options.  The above concessions are a good alterative when a taxpayer isn't able to access the small business CGT concessions. Income tax is not the only issue; there is also stamp duty, GST, and the need to obtain legal advice in relation to the contracts.  There are a wide range of benefits to an efficient structure, including savings on acquiring or merging a business and easier access to equity funding. Ultimately, you can also gain an easier exit from the business through either sale or family succession.

Reap all the benefits you are entitled to, and get your structure right first time.

10 Steps to a refreshed business

By Rowan Wallace

2013 has well and truly begun, so it's time to make (and keep) those new year's resolutions, both personally and for your business. By breaking your resolutions down into 10 steps, you can create a clear pathway to success.

1.  List your business goals for 2013. Remember they should be SMART goals - specific, measurable, achievable, relevant and time bound. Examples include:
•  increase sales by 5%
• increase net profit by 3%
• introduce a new product line
2. Now list two ways to achieve each goal. You might think about retraining staff, streamlining processes or researching new product or service innovations.
3. List 5 reasons why customers should use your business. This is your service standard! Think; open communication, industry expertise, competitive fees.
4. What areas of your business are most profitable? Rank them!
5. Ensure your marketing strategy supports everything you have noticed in points 1 to 4.
6. Get your staff on board. Make sure they are committed to the goals too.
7. Your profit and loss and cashflow statements are crucial. Make sure you understand them fully and monitor them weekly.
8. Set up reward structures for you and your staff.
9. Identify areas of waste in the business and work out ways to eliminate them. Think overproduction, inventory and defects.
10. Sometimes you need an outside perspective, so ask a third party to review these goals.

Let's not procrastinate. Now is the time to put the plans in motion to achieve your goals for 2013. If you need a hand, we're here to help.

w: www.uhyhnbrisbane.com.au

t:  07 3210 5500

GST: buying or selling a business

 

Last month saw a taxpayer make a lucky escape by using the GST going concern exemption.

The exemption applies when an individual or entity is selling their business.  The exemption results in the sale being GST-free, meaning that you don't need to add 10% GST to the sale price.  

Why take advantage of this exemption?

Whether buying or selling a business, the benefits are straightforward. For a buyer, the main advantage is cashflow.  If an additional 10% GST is added to the price, this means more cash is required in the short term to fund the purchase.  With cash being hard to come by in this climate, buyers naturally veer towards a solution that avoids a strain on cash.  For vendors, they can use the exemption as a selling point to assist in a successful sale.  It can also reduce stamp duty payable on sale.

As with all GST concessions, there are several requirements to be met to claim the concession.  For example, the seller must supply all things necessary for the continued operation of the business, and the buyer and seller must agree in writing to apply the exemption.

To fulfill the written agreement requirement, it is standard practice to have the appropriate clause inserted into the contract.  However, this did not occur in a recent Court case, and was discovered by the ATO during an audit.  The ATO denied the exemption, and raised an assessment for just over $200,000.  The taxpayer produced correspondence between their solicitor and the buyer's solicitor, a tax invoice relating to the settlement, and direct correspondence between the buyer and seller.  The Court held all the correspondence was sufficient to indicate the parties had agreed in writing to apply the exemption.

Once again this highlights the importance for our tax team at UHY Haines Norton to review the contract before it is signed.  This allows us to identify if the contract meets all conditions to claim the exemption.  If any changes are required, we can communicate this to your solicitor.  Once the contract is signed, it is difficult both legally and practically to have changes inserted at a later date.  A formal review would have also avoided the above situation, along with the added legal costs and stress involved.  Not to mention potential ATO penalties and interest.

The next step...

We have handled many GST going concern transactions and are happy to assist you in your transaction.

Contact us to discuss your position on 07 3210 5500 or brisbane@uhyhn.com.au.