Posted on February 16, 2019
At Hall Consulting Group we welcome the 2017-2018 Federal budget, handed down yesterday, as a positive step towards delivering the Government’s plan for stronger growth, more jobs, helping businesses expand, guaranteeing essential services, addressing cost of living pressures and living within its means. The centrepiece of the Government’s strategy is around housing affordability. We welcome the measures to increase tax system administration but the Government has not taken the opportunity to reduce rates or bring genuine simplification to the tax system. Overall, the Budget is a missed opportunity to achieve much needed tax reform for the benefit of all tax payers. It is a relief that the Government left the superannuation system relatively unscathed!
Please click on the link below for a summary of the Budget changes and new measures:
Posted on February 16, 2019
New rules that apply from 1 July 2016 mean that small businesses can restructure their business operations without triggering adverse tax implications.
Before the introduction of the new restructuring rules, if a business restructured from say, a partnership to a trust, there was a possibility that the change in structure could trigger capital gains tax (CGT). That is, the tax law would treat the restructure the same way as a sale and the owners could be liable for CGT on their share of any gain based on the current market value of the assets being moved into the new structure.
While the existing CGT provisions already contain a number of roll-overs that can be utilised for business restructures, they generally only provide relief when assets are transferred to a company. Other concessions can potentially apply in a broad range of situations, but will not necessarily provide complete tax relief. This new form of roll-over relief can provide complete income tax relief when assets are transferred to a sole trader, partnership or trust if certain conditions can be met.
The conditions for accessing these new rules are fairly strict. Broadly, the key conditions are:
Each of the parties to the transaction is a small business entity (revenue under $2m) or is related to a small business entity in the year the transaction occurs. The turnover test is subject to some grouping rules.
For many small business owners, the business structure they start with is not always the best structure over time. There are a lot of reasons why a business owner might need to restructure:
Risk & asset protection – separating assets from business activities will generally help protect the assets. Companies and trust structures offer greater protection then operating as a sole trader or partnership of individuals.
Tax – Your business structure determines the tax rate you pay and how it is paid. In addition, some structures offer greater tax concessions throughout the life of the business (e.g., for research and development activities) or on the sale of assets.
If you are looking at changing your business structure, there are a few overarching principles you should think about:
- Keep it simple – Your structure should be as simple as possible and each entity should have a clear reason to exist. The more complex your structure the more expensive it becomes and the more likely that the Tax Office will start querying whether the entity exists for commercial or tax reasons. If reducing tax is the primary reason for structuring something in a particular way then the Tax Office can seek to remove the tax benefits the structure might provide.
- Think of the future – Your structure should facilitate future growth and should allow for flexibility.
- Start with the end in mind – You should be aware of your exit strategies from the business. Your structure can make a difference to how you are taxed and what concessions you can access when you eventually exit.
- The commercial considerations – different structures have different implications for how you run and manage your business. You need to be clear about the commercial reasons for adopting one structure over another.
- Separate business activities from valuable assets – Where possible, ensure that valuable passive, business, or private assets are not subject to the risks associated with your business activities.
- Protect retained profits – In some groups the use of a dormant holding company can help protect retained profits that have been generated by trading entities. The holding company can then operate as the banker for the group of entities, lending funds to operating entities as required (security could be taken over assets of the operating entity).
- Separate risk between individuals – Within a family group, consider providing some additional asset protection by ensuring that only one spouse is a director of an operating company.
- Corporate trustees for a trust – The use of a corporate trustee is generally prudent to protect from the risk of being personally liable for the debts of the trust.
Posted on February 16, 2019
If you are not an Australian resident for tax purposes, you are excluded from many of the tax breaks available to residents and an increasing target of the Australian Taxation Office. We explore the widening gap between residents and non-residents.
Scrutiny of Australian investments
With residential property prices soaring, foreign investment and ownership is in the spotlight.
However, foreign residents and temporary visa holders cannot buy established residential property – they can only invest in property where that investment adds to the housing stock (including) vacant land for development. And, only foreign companies with a sizeable interest in Australia can buy residential real estate for Australian based staff. Temporary residents can buy one established property to live in (with approval) which they have to sell when they are no longer living in the property.
Investment in agricultural land
Foreign ownership of agricultural land has come under scrutiny lately resulting in a number of changes. From 1 July 2015, all new foreign interests in agricultural land must be registered with the Australian Tax Office (ATO) and all existing interests registered by 31 December 2015. In addition, the threshold at which foreign investors must get approval for an investment in agricultural land dramatically reduced from $252 million to $15 million in March this year.
Tax rates and tax benefits
Unlike Australian resident taxpayers, non-resident taxpayers pay tax on every dollar of taxable income earned in Australia starting at 32.5%. There is no tax-free threshold.
Tax on investments
The 50% general discount on capital gains tax that applies to Australian residents is no longer available to non-residents; meaning that non-residents pay the full amount of CGT on any gains made. Impending new laws also seek to apply a 10% withholding tax on the sale of real property by foreign residents where the property is valued at $2.5 million or more.
SMSFs have strict residency rules and must meet three separate tests to continue to be a complying fund and access the tax concessions that come with complying status:
The fund must be established in Australia or have an asset located in Australia;
The management and control of the fund must ordinarily be in Australia – generally this means that trusteeship should be in Australia; and
Contributions to the SMSF should only be made by members residing in Australia. If overseas members want to contribute to the fund then at least half the fund’s assets need to be held by members who reside in Australia and also make contributions.
This is not an exhaustive list and residency can be a very complex issue. If you are concerned about your residency status, please give us a call.
Posted on February 16, 2019
With the end of the financial year fast approaching we want to remind you of the possible tax planning opportunities still available if you act by 30th June 2015.
Here are links to our two fact sheets with our 2015 tax tips and planning opportunities:
We look forward to hearing from you if you have any questions.
Posted on February 16, 2019
Venetta Sacha received great feedback following her input to the article ‘IRS Chases US citizens in Australia’ in the Australian Financial Review on the 7th April 2015 (click here for article).
There are many US citizens who live and work in Australia and whose superannuation funds and other assets have been seriously impacted by U.S. tax law and weaknesses in the tax treaty between Australia and the United States. US Tax Law is very different to Australian Tax Law. In very simple terms US Citizens are taxed in the US on their worldwide income and assets whether or not they reside in the US.
Individuals and businesses have been lobbying both U.S. and Australian government representatives for amendment to the tax treaty between the U.S. and Australia and/or U.S. tax law so that Australian superannuation funds are treated more fairly.
In regard to tax reform they have also advocated for less complexity with regard to reporting requirements and the use of the local currency as the functional currency for U.S. citizens living abroad to mitigate the impact on capital gains and losses.
The positive news is that the U.S. Senate Finance Committee is currently considering major tax reform. The Committee held a number of hearings in March 2015 for which they invited input from individuals and businesses.
The Committee has recently launched a new effort to seek input on bipartisan tax reform and are interested in input from individuals as well as businesses. This provided an opportunity to some of our clients, colleagues and affiliates to provide input regarding how current tax law has affected them and to contribute their ideas on how the system can be changed to address their issues.
What transpired from the emails and phone calls Venetta has received following the article is that:
Many US citizens living in Australia for many years are not very clear on their US tax obligations and feel overwhelmed by the complexity of the various forms, tough penalties and new reporting requirements (FATCA) imposed by IRS.
A great concern of the US expats in Australia is the treatment of their trusts assets and income (including superannuation)
There is a new demand for specialist advice in relation to estate planning as this is a complex area and require different approach and asset restructuring
We have collaborated with US based tax specialists and Australian lawyers specializing in estate planning in order to assist our US expats to understand their exposure to the US tax at different stages of their lives and businesses and protect their estate from the US tax predators.
We are proud that our efforts to build successful relationships with trusted adviser firms in US have been very fruitful. We were very pleased to deliver today to one of our clients the great news that a looming tax and penalties of USD 97,000 have been waived in full by IRS!
If you need any assistance with your tax obligations in US or estate planning solutions tailored to provide protection from the US laws, we may have the right advisers for you!
Address the issues now and become familiar with the FATCA program as it coming into effect very soon!