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. 

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.