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Is your business ripe for restructure?

BUSINESS RESTRUCTURING

Is your business ripe for restructure?

People start their business in a particular tax structure that suits their start up needs. But sometimes business growth plans or changing legislation can result in this original business structure not being the best vehicle to carry the business forward.

If so, there are some circumstances where you can use existing tax laws to restructure into a more appropriate business structure.

We recently looked at this type of situation for one of our clients.

The business was being run in a company with one shareholder. This shareholder was the individual who started the business from scratch.

There were existing tax issues (Div 7A loans) from when money was withdrawn from the company to purchase their current commercial property.

The company was accumulating cash and franking credits, but getting cash out of the company could mean paying significant amounts of tax.

The owner and his partner (both life and business partner) were looking at further investments in another entity, so needed to get cash out of their existing company.

What we did

We looked at selling the shares from the individual to another entity.  This, of course, triggered a capital gains tax event so we needed to see if we could apply the CGT Small Business concessions.

Overall the couple were all getting close to the $6million net asset value test.  This is important because breaching the $6million of net assets would have meant that they would not be able to access the small business CGT concessions, which allow for significant discounts and deferrals to the tax payable.

And with the original shares valued at $100, but the company now valued at about $4.5million, there would have been significant capital gains tax liability if the clients did not pass the tests.

Fortunately, the facts were such that we were able to ensure the clients qualified for the small business CGT concessions.

This was a detailed and complex process.  It included assisting the client in getting valuations for the goodwill of the business, then valuing the shares and then considering whether there were any other related assets that needed to be considered.

The outcome was that the new entity could be used as an investment entity, with dividends paid out of the existing company used to fund the purchase of new investments.  In addition, the clients can start reducing the Division 7A loans through franked dividends.

The new structure also provided some asset protection to the new assets, by separating them away from the ownership of the operating business.

The overall result was a new business structure that allows the operating company to reduce it’s Div 7A tax liabilities and enables it to use other excess cash to purchase investments in an entity that provides some asset protection.

 

 

 

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  • I’ve been dealing with Affinitas Accounting for about 3 years now and I have found them to be nothing but friendly and helpful. I’m a Bookkeeper and on occasions have been stuck with various accounting problems. Affinitas have not hesitated to spend time with me until the problem was solved. Any queries or questions have always been answered in a timely manner.

  • I highly recommend coming here for all your tax needs! They explain everything you need to know about tax thoroughly and go about there jobs professionally, always leave here with a cheery smile and satisfaction.

  • Affinitas Accounting has been so helpful with the restructure of my business. They made it an easy process and explained it in a language that was easy to understand. My ongoing tax and gst is all prepared by them, they’ve really taken the stress out of it all to let me focus on growing my business.

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    Rebecca & Russel Johns

    Since moving to Affinitas Accounting we have a clear understanding of companies and trusts. We have no hesitation in saying the team here will meet and then exceed your expectations! I never feel like i am annoying them. Thank you Team Affinitas

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    Affinitas has looked after all our financial needs for our business and personal tax returns. We have been with our accountant for 10+ years. I have no hesitation in recommending Affinitas to anyone looking for an accountant or any financial advise. We have always found and received friendly professional and practical advise.

  • For the past 6 years, Tammy has been lodging our tax. The team always spend the time to explain how things will affect us and always manage to maximise our returns. We highly recommend the team to anyone we speak to and have had friends move to do their future tax with the team at affinities accounting. Couldn’t recommend them highly enough.

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    Kirsty Whittaker

    I’ve been using Deb from Affinitas Accounting now for many years and have found her to be excellent in looking after my taxation needs. I’m in Tasmania, Affinitas Accounting is in Queensland and distance is no barrier. She understands my business needs, everything is done in a friendly and efficient manner and I happily recommend to anyone looking for ‘down to earth’ taxation advice.

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    David Williams

    We’ve been with Affinitas Accounting for over 5yrs when they were known as Online Accounting & Taxation Solutions. From our initial phone call with Brad looking for an accounting team that would meet our expectations as well as provide efficient service, we’ve been really impressed with the team’s professionalism, knowledge & expertise.

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    Debbie is our accountant and has been for seven years. She is thorough and always does what she can to honestly get us the best return but always adheres to the ATO guidelines. We recommend her to our friends and wouldn’t take our business to anyone else. Thanks Debbie.

  • We have only been with Affinitas Accounting for the past 12 months but in this time they have by far exceeded our expectations of an accountant and far surpassed previously used accountants.
    Affinitas are not just about annual returns, BAS statements etc, they take the time to get to know you enabling them to provide advise to help you work toward personal & business goals.

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    Can’t fault Affinitas.

    Have been coming here for years (when it was then called online tax). Deb has been happy to always go the extra mile and doesn’t mind dispensing helpful advice throughout the year.

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    Deagon Fixing

    I have been a client of Affinitas Accounting (previously Online) for the past 8 years. It is like a one stop shopping experience, all my needs were addressed in the one office.

    Thanks Affinitas you for all your assistance and I would strongly recommend them to anyone to use

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