If you established your business under a company structure as part of the set-up process there would have been shares issued, so you probably own shares in your company. Not a big deal you may think, with all the focus on the business and building it. The shares are just something necessary as part of the set up process and you may not even be holding the share certificates.
If this is you it might be an idea to have another think about it because the beneficial ownership of the company and the business rests with the shareholders. That’s OK while the status quo remains but the moment there is any change in the business the issue of who holds the shares becomes important.
FIND OUT MORE
How a property can qualify for the 15yr tax exemption
Q. We own a commercial property in country Victoria. There are two shops and 5 storage garages. I do all correspondence, invoicing, negotiate the leases, collect the rent, manage the accounts and complete general maintenance. We have held the property for approx. 14 years. Would this qualify as a small business allowing us to take the 15 year exemption and be a CGT-free sale ?
A. You refer to the 15 year exemption, which is one of the four CGT small business concessions. Under this exemption the entire capital gain realised on disposal of a CGT asset is exempt from tax if you satisfy the conditions under Subdiv152-B.
FIND OUT MORE
Complex issues for partners
Q. I run a small restaurant in partnership with my sister. Recently we took in a 3rd partner. Are there any CGT implications? We do not have any assets in the partnership except plant & equipment and goodwill. I understand that there is no CGT on plant & equipment and goodwill.
A. When a new partner is admitted to the partnership, the existing partners effectively dispose of an interest in the partnership and the new partner acquires an interest. For CGT purposes, the new partner acquires a share of each partnership asset and the existing partners are treated as having disposed of part of their interest in each partnership asset, s106-5(4) of the ITAA 1997. This means you and your sister will dispose of a fractional interest in the business goodwill and plant & equipment.
FIND OUT MORE
Don’t let your share structure trip you up
Many companies have different classes of shares but when it comes time to sell, this share structure might be an impediment.
There are a number of reasons why differential share structures are used – the ability to provide different rights to equity holders and allowing dividends to be paid to one class of shareholder in preference to another are common reasons. Much of this comes down to the way the company is managed and the arrangements between shareholders. Having different share classes can provide an additional level of flexibility in the ownership of a company.
There is however one occasion where different share classes can work against you; when the company sells capital assets, triggers a capital gain and wants to reduce that capital gain by accessing the small business CGT concessions. The most common example of this is the sale of the business or shares in the company. The concessions are attractive because they can defer capital gains tax or reduce it to zero.
FIND OUT MORE
CGT Concessions require some homework
Q. I read your recent comments on the CGT small business concessions on the sale of a business. We are in the final stages of negotiations and expect to go to contract next month. Our problem is that we probably don’t qualify for the concessions based on the maximum net asset test of $6 million. We’re not over by a lot but I think we are over. How tightly is it tested?
A. This is an area that you need to be careful with and where a lot of SMEs are coming unstuck. The ATO are quite active in checking the maximum net asset test where a business claims the CGT small business concessions. This test is one of the basic conditions for relief under s.152-10 of the Tax Act. It is tested at the time of CGT event, and if you fail this test then you are not eligible for the concessions unless you are a small business entity with turnover less than $2 million per annum in which case you do not need to satisfy the maximum net asset test.
FIND OUT MORE
Loading ...
