Welcome to our restructuring series.
Asset protection is a major driver of restructuring and involves different components of your business separating from each other and also separating your assets from your business risks.
All businesses begin at a time where circumstances of that moment determine the structure chosen. As businesses develop, it is important to regularly review what its requirements are currently and going forward and to restructure to meet these requirements.
Before looking into how you move from one structure to another, it is important to identify the commercial and taxation factual issues in respect of the business' requirements.
The basic commercial and taxation factual issues are as follows:
- Asset protection, including separating business risk from other assets.
- Access to cash:
- Corporate tax rate 30% (or less).
- Flexibility of distributions; income splitting.
- Ability for "partners" to come and go.
- Is there planned to be a gain made on the sale of the business or other assets.
- Privacy of financial information.
- Ability to offer equity to employees.
In addition to the basic factual issues, there are many special issues which may have a bearing on the choice of business structure e.g.:
- avoiding or delaying stamp duty on property development or investment in landholders, and different duties in different States;
- structuring property development so passive land owners can retain CGT treatment on their gain;
- preserving pre-CGT status for as long as possible e.g. avoiding change in "majority underlying interest" of entities;
- delaying the taxing point for a long as possible e.g. by the use of options and other methods;
- the use of "earnouts" when buying or selling a business, and ensuring the tax liability isn't incurred before the proceeds are received;
- dividend access shares, and companies that start with multiple classes of shares with discretionary rights, so as to mimic a discretionary trust;
- expanding the business into overseas markets, and
- seeking deferral of Australian tax where foreign tax can be minimized;
- seeking a credit for foreign tax in the hands of ultimate owners, where foreign tax is still significant.
- "exit" planning for overseas operations, including principals becoming non-residents and potentially taking gains free of tax;
- succession and asset protection planning using trusts, onshore and offshore; and
- use of South Australian or offshore trusts to avoid having to vest in 80 years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.