11/21/2017 Law Australasia 2017 Richard Friend Balena Tassa Pty Ltd www.balenatassa.com.au Topics • Downsizer contributions • CGT SB concessions: There goes the “sweet spot” • What is carrying on a business? • Which companies are eligible for 27.5% tax rate? What is the effect on imputation • Divorce structuring for companies with retained earnings • Division 7A and interposed entities: Things that “concern” the ATO • Rental property rorts attacked • CGT SB concessions: The problem with different share classes • Corporate beneficiaries: Sub-trusts which end in 2018 • Family Trust Distribution Tax on benefits to non-beneficiaries • Division 7A: Who or what is an associate? 2 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Contributing proceeds of downsizing to super $300,000 outside contribution caps 1
11/21/2017 Downsizer contributions Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No 1) Bill 2017 • Legislation will allow an individual to use the proceeds in relation to one sale of their main residence to make contributions ( downsizer contributions ) of up to $300,000 to their super fund if they are 65 years of age or over • Downsizer contributions can be made regardless of the other contributions caps and restrictions that might apply to making voluntary contributions • No work test • Date of effect : The amendments apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018 • The Bill also includes First Home Super Saver Scheme, to enable first home savers to make voluntary contributions into the superannuation system and to withdraw those contributions and associated earnings for the purposes of purchasing their first home 4 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Downsizer contributions For a contribution to qualify as a downsizer contribution , the following conditions must be met: • The contribution is made to a complying superannuation fund in respect of you when you are aged 65 years or over; • The contribution is an amount equal to all or part of the capital proceeds received from the disposal of an ownership interest (the old interest ) in a dwelling • Note: Dwelling could be part business but no apportionment of proceeds • You or your spouse held the “old interest” just before the disposal; • Note: Effectively, downsizer contributions can be made in respect of an individual if they or their spouse held an ownership interest in the dwelling, whether that ownership interest was held solely, jointly or as tenants in common • Therefore, even if property only in one name, a couple can each make up to $300,000 contribution if they would otherwise have qualified had they both been on the title 5 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Downsizer contributions Conditions continued: • Any capital gain or capital loss from the disposal of the old interest would have been wholly or partially exempt under the main residence exemption (or would have if it had been post-CGT) Note: This includes if it would have been wholly or partially exempt through use of the absence election or any other concession in the main residence rules • The dwelling is located in Australia, and is not a caravan, houseboat or other mobile home • The contribution is made within 90 days, or such longer period as the Commissioner allows, after the time the change of ownership occurs as a result of the disposal [ie 90 days after settlement, not after contract date] 6 Balena Tassa Pty Ltd Law Australasia 12 November 2017 2
11/21/2017 Downsizer contributions Conditions continued: • There is not already a contribution covered under this section, and made to a complying superannuation plan in respect of you, from an earlier choice you made in relation to the disposal of: • another ownership interest in the dwelling that was not a related spousal interest to the old interest; or • an ownership interest in another dwelling • You satisfy the 10-year ownership condition [see next slide] 7 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Downsizer contributions 10-year ownership condition • The condition is met if either or both of the following paragraphs applies: (a) at all times during the 10 years ending just before the disposal: (i) the old interest was held by you, your spouse or your former spouse; or (ii) an ownership interest in the land on which the dwelling is situated was held by you, your spouse or your former spouse (b) [Special rules if original dwelling destroyed or compulsorily acquired] • Note: For these purposes the holding period of an ownership interest is settlement to settlement, not contract dates 8 Balena Tassa Pty Ltd Law Australasia 12 November 2017 The cap The cap is the lesser of: • $300,000; and • The sum of the capital proceeds from the disposals of: • The old interest; and • Any related spousal interest to the old interest A related spousal interest is another ownership interest if: • Sold at the same time; and • Just before the disposal, you held one ownership interest and your spouse held the other Effectively cap is on lesser of $300,000 and your share of the proceeds 9 Balena Tassa Pty Ltd Law Australasia 12 November 2017 3
11/21/2017 The election • Will only qualify if you make a downsizer election • To make the election, you must: • Make the choice in the approved form; and • Give the form to your superannuation provider at or before the time when the contribution is made • Can make multiple contributions (eg to different funds) but only in respect of one sale 10 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Example: Only one spouse on title Example 2.7 – contribution for spouse that did not hold an ownership interest • Amy has owned the dwelling that is her main residence since 2005. In 2015, her new spouse Laze moves in with her • Laze lives in the dwelling as his main residence from 2015 • Amy turns 65 in 2019 and decides to sell the dwelling – capital proceeds are $500,000 • Laze is also 65 at that time • Amy chooses to make a downsizer contribution in respect of herself of $300,000 and also in respect of Laze of $200,000 • The downsizer contributions in respect of Amy and Laze are both valid, assuming all the other criteria are also met 11 Balena Tassa Pty Ltd Law Australasia 12 November 2017 Death Example 2.5 - transfer ownership interest between spouses • In 2015, Andrew and Tara are both 70 years old and have lived in their family home for the 40 years. The title for their home is solely in Andrew’s name. • Andrew passes away in mid-2015. He leaves the family home to Tara • On 1 December 2016 the title for the home formally passes to Tara, however for CGT purposes, Tara is taken to have acquired the asset on the day Andrew died. • Tara sells the home on 1 December 2019. • Tara satisfies the 10 year ownership test: At all times over the period starting on 1 December 2009 and 1 December 2019, the ownership interest in the home was held by Andrew (for the first 5 and a half years) or Tara (for the last 4 and a half years). 12 Balena Tassa Pty Ltd Law Australasia 12 November 2017 4
11/21/2017 Making multiple contributions Example 2.8 - making multiple contributions • Nisha is aged 72 and has $400,000 from selling her main residence • She makes a $200,000 downsizer contribution Super Fund 1 • She also attempts to make an additional $200,000 downsizer contribution to Super Fund 2 • The Commissioner forms a view that the second contribution is only a downsizer contribution to the extent it does not exceed the $300,000 cap when combined with the first contribution • After being notified by the Commissioner, the provider assesses whether Nisha could have made that $100,000 contribution as a non-concessional contribution • As Nisha was employed part-time and was under 75 years old, the $100,000 is able to be retained in the fund • If that was not the case, the fund must refund the amount to Nisha 13 Balena Tassa Pty Ltd Law Australasia 12 November 2017 CGT SB concessions There goes the “sweet spot” The issue • Assume Steve is selling shares in TechGuru Pty Ltd for $7m. For Steve to get the CGT SB concessions: • Steve must be an SBE for CGT purposes or he must satisfy the $6m net assets test • But based on value of the shares he fails the $6m test • The shares must satisfy the active asset test (assume they do) • He must be a CGT concession stakeholder (which generally means he has to have a 20% or greater interest) • For Steve to be an SBE for CGT purposes, he must • Carry on a business in the year of the gain • Have an aggregated turnover of less than $2m 15 Balena Tassa Pty Ltd Law Australasia 12 November 2017 5
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