异常复杂的税务难题， 请教税务达人

jeff_lawsons

Company A purchased a residential investment property in 1995 。

Company A’s only activity is to derive passive rental income ($20K each year)

Mr X is the sole director and shareholder of Company A

The land was rapidly appreciating in value, the cost base of the property is $200K, but the land value is $1M now

Mr X proposed to demolish the building and subdivide and land and build 4 units capable of being strata titled. 3 units will be transferred to Mr X’s three children, 1 unit will be retained by Company A as a rental property to be held for the long term

Company A and Mr X are not in the business of property development and have no other business relating to property development

The proposed project to build the dwellings will be contracted to a builder.

Company A, Mr X and his children will not have a direct involvement in the construction of the dwellings




My questions:

1. Company A proposed to enter into a joint venture agreement with Mr X three children, Company A’s involvement in the project was to provide the land. The total construction cost will be shared between Mr X's children and Company A based on the value of the 4 units. What are the GST, CGT and VIC stamp duty issues?

2. Anther plan is that Company A to sell some interests in the residential property to MrX three children before construction, so they become tenants in common and each have shares in the land before subdivide. Then Company A and three children shared the total construction cost for the project. Three units will be transferred to three children at the end of the project. the last one will be retained by Company A as a long term investment. What are the GST, CGT and VIC stamp duty issues?  Does CGT rollover relif apply for the transfer?

billcats

It seems the biggest mistake made by X was to use a company to purchase the property rather than himself as an individual years ago, creating the inevitable CGT situation.

In my opinion, it seems neither option mentioned would provide the desired outcome - reducing due taxes.

If, it is a if, that the block can be subdivided into 3 or 4 sub-blocks, so that individuals can purchase the sub-blocks and build their own (
Torrens title) houses, then I could see lowered CGT, GST and stampduty.  

The way you descibed it, I could not see a way. Hope others could offer different opinions.

jeff_lawsons

Yes, i totally agree, the initial structure was not set up correctly.

I also agree that Company A subdive and then sell the block to the children is an easy way, but client thinks it will take much longer for council to approve. They prefer to use joint venture/tenants in common for the project. Anyone has experience in dealling with the tax issues for this kind of property development ?

Emm

几个地方不是很明白,请楼主详细点:
1.company a的本身是属于什么性质的
2.一年的turn over是多少.
3. Mr X年纪是多少大

jeff_lawsons

Emm 发表于 2013-5-31 00:06
几个地方不是很明白,请楼主详细点:
1.company a的本身是属于什么性质的
2.一年的turn over是多少.

company only derives passive rental income from one residentail property
Annual Turnover less than 25K
Mr X - 65

Small Business CGT Concession is not relevant because the company does not carry a business , the property is never used in the couse of carrying business by connected parties or affiliates.

cerinahe

There is another way.

The company can issue more shares to 3 children at the cost of building cost. The land will be subdivided and held in the company. The company cannot claim any GST on the building cost. But there will be no CGT issue now.

After mr x pass away years later, the shares will be transferred to children or held in deceased estate. CGT only arises when they sell the property to outsiders.

lee2267

cerinahe 发表于 2013-5-31 10:19
There is another way.

The company can issue more shares to 3 children at the cost of building cost. ...

The land will be subdivided and held in the company" 那房子造好了。只能全部出租啊。
如果自住。。DIV7A issue ？？？？

cerinahe

lee2267 发表于 2013-5-31 13:09
The land will be subdivided and held in the company" 那房子造好了。只能全部出租啊。
如果自住。。DI ...

http://www.ato.gov.au/businesses ... =/content/40556.htm


The exception applies where:

1. the provider of the dwelling is a company that owns a legal or equitable interest in the land on which the complex is erected
2. there is more than one share in the company, and each share (whether singly or as part of a parcel of shares) gives the relevant shareholder the right to occupy a flat or home unit in the complex
3. each flat or home unit in the complex is covered by a share, or a parcel of shares, in the company
4. the dwelling is provided to the entity because a shareholder holds such a share, or parcel of shares
5. the company does not have legal or equitable interests in any assets other than legal or equitable interests in:
• the complex and the land on which it is erected
• any related land and buildings
• any related plant, machinery, equipment, furniture or fittings
• any assets relating to the management and maintenance of the complex
6. the assessable income of the company is derived predominantly from:
• managing and maintaining the complex (including the related assets mentioned above)
• interest and dividends relating to income derived from managing and maintaining the complex (including the related assets mentioned above).

The exception does not apply to a case where the interposed entity rules in Division 7A apply.

jeff_lawsons

cerinahe 发表于 2013-5-31 14:00
http://www.ato.gov.au/businesses/PrintFriendly.aspx?ms=businesses&doc=/content/40556.htm

Good idea. Thank you.

Further steps:

1. The shareholders can then surrender of shares in exchange for taking titles in the units?

2. The ownership of the shareholder's share will end and a stratum unit (the new asset) will be acquired by the shareholders as part of the strata title conversion.

3.  The units then effectively transferred to the children without triggering CGT, because the shareholders of the company are entitled to obtain a rollover under section 124-190 of the ITAA 1997 where they receive strata title in exchange for surrendering the shares?

If the above strategy works, the only issue I think is the issued share price and VIC stamp duty. Market substituion rule/value shifting rule will apply, it looks like Mr X will have a huge upfront capital gain and no CGT rollover relif is available to him.  Also, it is a land rich company, VIC stamp duty will apply.

Any Comment?

wqs045

Emm

well, you don't need pay CGT, dont need involve in any child, all amount of GCT will be excempted.
use Small business entity CGT relief, 15years full excemption should be ok.

jeff_lawsons

Emm 发表于 2013-5-31 23:26
well, you don't need pay CGT, dont need involve in any child, all amount of GCT will be excempted.
...

15 year small business CGT exemption is not available.

Section 152-10 outlines the various basic conditions which need to be met before a taxpayer can access the small business CGT concessions.

Paragraph 152-10(1)(d) addresses one of these conditions and states the requirement that 'the CGT asset satisfies the active asset .

As the property is never used in the couse of carrying business by taxpayer , its connected parties or affiliates,  all it receives is passive rent, hence the property is not considered to be  an active asset under section 152-40 it cannot pass the active asset test in section 152-35 and fails one of the basic conditions for relief at paragraph 152-10(1)(d). It follows that the taxpayer is unable to access any of the small business CGT concessions in relation to the disposal of this property.

Emm

what's kind of business then?
you just told me company is not carrying on rental or development property business, and all company revenue comes from rental income. that does not make sense.

jeff_lawsons

Emm 发表于 2013-6-3 23:57
what's kind of business then?
you just told me company is not carrying on rental or development prop ...

Company only holds passive investment - one residential property

Only income is the rent from one residential property.

Does the company carry on a business?

Thanks

Emm

once you registered as a company, you should descripe what's kind of business activities, is that investment on property or something else?

jeff_lawsons

Emm 发表于 2013-6-4 22:08
once you registered as a company, you should descripe what's kind of business activities, is that in ...

investment on property

But I think Small Business CGT relif is not available because the main use of the asset was considered to be the derivation of rent. section 152-40(4)(e) excludes it.

thomas-wang

jeff_lawsons 发表于 2013-5-31 17:23
Good idea. Thank you.

Further steps:

Firstly, the company will not be eligible to SBE CGT Concession. It's not conducting a business. The property is only a passive investment. Also, it doesn't pass the active asset test.

Second, if you are going to do the issue of share strategy, my thoughts are:

1. If new shares are issued, they must be at market price, otherwise value shifting rules will apply given the value will be over $150,000. However, incoming shareholders will need to have enough cash to cover it, or Div 7A applies.

2. If existing shares are sold, there's no difference to sell the property.

Lastly, I don't think the rollover under S 124-190 will apply . Because, the company is not a home unit company and shareholders don't have "right to occupy a unit". Normally, rollover applies if a) company has the legal ownership of the land and any building on it, b) a right of occupation to an area of the building is granted to other parties (e.g. shareholder).

Please correct me if I am wrong. Thanks

jeff_lawsons

thomas-wang 发表于 2013-6-5 13:17
Firstly, the company will not be eligible to SBE CGT Concession. It's not conducting a business. T ...

Thanks for your reply.

My thoughts:


Agree -   The company will not be eligible for SBE CGT Concession.

Agree -    If new shares are issued, they must be at market price, otherwise value shifting rules will apply given the value will be over $150,000. However, incoming shareholders will need to have enough cash to cover it, or Div 7A applies.


Disagree - If existing shares are sold, there's no difference to sell the property.

Reason:   Shareholder sells share, 50% general discount is avaibale, capital gain will be included in the individual's tax return and taxed at marginal rate,  Company sells property, no 50% discount, taxed @ 30% company tax rate. Then ccompany needs to distribute the dividend to shareholder, principle and tax rates are totally different/


Diagree -  Lastly, I don't think the rollover under S 124-190 will apply . Because, the company is not a home unit company and shareholders don't have "right to occupy a unit". Normally, rollover applies if a) company has the legal ownership of the land and any building on it, b) a right of occupation to an area of the building is granted to other parties (e.g. shareholder).

Reason:  The ownership  of share may give shareholder the right to occupy the property, If the company title of the units are transferred to strata title, he will continue to own his particular unit. Then the conditions of subsection 124-190 will met.

What do you think?

thomas-wang

jeff_lawsons 发表于 2013-6-5 14:11
Thanks for your reply.

My thoughts:

Yes, I forgot the CGT discount. You are correct.

I am not 100% sure about the rollover. But, after revisit the section, I am still under the impression that if it's a company, it applies to home-unit company or similar arrangement, not all companies.

But, it if two individuals bought a land tenants in common, then subdivide & transfer title , the rollover will apply.

Sction 124-190 is basically a rewrite of s 160ZZPG of ITAA 1936, so I might be useful to read TR97/4 before consider the rollover relief.

I would also seek advice from a liquidator to seek if there's any CGT consequences, because effectively what you are doing is to dissolve the company eventually.

jeff_lawsons

thomas-wang 发表于 2013-6-5 14:28
Yes, I forgot the CGT discount. You are correct.

I am not 100% sure about the rollover. But, aft ...

Thanks so much, this strategy is a complex area.  We may need to seek specialist advice before undertaking any transaction.

Emm

jeff_lawsons 发表于 2013-6-5 14:11
Thanks for your reply.

My thoughts:

sounds like your guys right
you mean shareholder or partnership?
i don't think shareholder can be in proportion in CGT asset of company, but partnership can.

guangcai

不顶

guangcai

顶