Inside Business Seminar Series

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Structuring Businesses

Are you effectively briefed on the various stages of the business – From setting up to retirement?.

• What are the critical issues to consider in structuring the set up of a new business?
• Have they changed since you last looked at these issues?
• Do you know the best way to structure the merger of two businesses?
• Can you hand over your business to the next generation without fear or problems?
• Have you set up an effective retirement plan?

Set Up

• Structuring issues
• Assessing discounted capital gains
• Asset protection
• Grouping issues – CGT payroll tax, consolidations and duty

Growing Pains

• Partnerships, shareholders, buy/sell agreements
• Partnerships and GST
• GST issues – transfers, demergers, rollovers, and goodwill
• Consolidations
• Employee share plans and remuneration packaging
• Borrowings- keeping the interest deductible

Mid Term Review

• GST issues – going concern
• R & D concessions warranties in sale documents
• Due diligence issues
• Losses
• Scrip for scrip – family company reconstructions
• Share value shifting

Remunerating the Owner

• Accumulation of assets
• Salary sacrifice
• Superannuation
• Financing
• Capital raisings
• Debt/equity issues

Pre Post Retirement

• Passing control
• Winding up
• Retirement planning
• Estate planning
• Succession planning

Tax issues that seriously impact you

• Given the significant tax reforms over the last 4 years, are you on top of the issues that affect your SME (small medium enterprise).?
• What changes need to be made to the ‘classical’ solutions for SME clients?
• Are you tax current and ahead of your contemporary’s when it comes to tax solutions for SME’s?

Pearson Partners ‘Inside Business Seminar Series will highlight the key issues that you need to be aware of in this current tax reform environment’.

Seminar Topics

• Focusing on the emerging SME Tax Issues.
• • Trustee Loans under the proposed new 109UB and the transitional rules.
  • Can “at call” or credit loans be refreshed ? What are the dangers?
  • Can you afford to ignore the general valuation shifting rules?

• Interest: Issues that demand attention now!
• Interest before a business starts, after it ceases and on refinancing.
• On lending within a group ( Rocca’s Case)
• Financing asset revaluation reserve distributions.

• Unwitting destruction of asset protection structures.
• Bankruptcy and Insolvency- unpaid present entitlements  (Legudi’s Case)
• Matrimonial Agreements, Marriage, Separation and Divorce.
• Is there a risk of an unwanted appointor to the family trust.

• Trusts & Interest: Issues that demand attention- Now!
• What is better- Beneficiary Loan Accounts V Beneficiary Entitlement Accounts.
• Changes to Sec 109UB – what you need to know.
• How far can you go in correcting wrong accounts.

• Personal Services Income – The Issues
• Business income v personal services income – what are the differences?
• When does APSI not apply?
• Part IVA implications (Mochin’s case)
• Asset protection considerations

• SMSF Investments in Trusts. Negatively geared trusts and third party payments.

• After Lock’s case, does your client have a S.66 problem that needs addressing?
• When is your negatively geared Unit Trust still useful?
• How does Division 13.3A of the regulations operate?

• The interaction between capital gains tax and the main residence exemption

• Introduction
• The main residence exemption: overview of the structure of the provisions.
• There is no definition of what it means for a dwelling to be a main residence and no minimum period of residence.
• Extention of exemption to adjacent land.

• The new value shifting rules introduced as the new business tax system (consolidation, value shifting, demergers and other measure) Bill 2002.

General Value Shifting Regime

The new general value shifting regime (GVSR) applies in relation to interests in both companies and trusts which meet common ownership and control tests, but which are not consolidated groups for the purposes of the consolidation regime. Under the regime value shifts (DVS) or indirect value shifts (IVS).

The GVSR provisions broadly are not applicable in relation to:

• Interests issued at market value;
• rights created at full
• market value consideration;
• DVS for less than $150,000
• Shortfalls not greater than $50,000 on non-depreciating assets;
• IVS not greater than $50,000
• IVS entities dealing at arm’s length; and
• Consolidated groups

Our approach

Our approach is to encourage a closer liaison whereby adequate procedures are initiated between client and their accounting division that delivers a stronger professional relationship as an ongoing event throughout the year.

That single task allows compliance figures to be tabled as a by-product and the real work is the periodic reporting of ‘dynamic’ events. These are the ‘moving balances’ within a business.

In fundamental terms , you have two types of balances, ‘dynamic’ and ‘static’. Things like ‘wages’ and ‘sales’ are dynamic, where ‘plant and equipment’ are static.

The logic to this approach is that if a dynamic balance does not move – why not?, and if so , what is the movement as well as the variance? In other words, is it moving at greater increments than previous  performance.

We compile our approach to monitor four separate areas;

• You                            
• The Business
• Risk
• Protected Assets

As a further departure from convention, we report ( if required) upon a given position measured against nominated ‘what if’ events.

• Estate Planning
• Business Valuation
• Buy-Sell agreements
• Death, Taxes & Trusts
• Business, Tax & Property Acquisition Strategies

Quick Reference Guide

                        Tax Rates

                        Marginal Tax Rates

                        Individual Rates for 2003-2004 and subsequent years

Medicare Levy

• 1% surcharge for singles with taxable income > $50,000 and couples with taxable incomes >$100,000 who have inadequate private health insurance

Minors

Company Tax Rate

                                The current company tax rate is 30%

Tax Offsets (Rebates)

                                Low Income Earner’s Rebate

A rebate of $235 is available for people earning up to $21,600 reducing by 4 cents in every dollar to nil for income in excess of $27,475

Private Health Insurance Rebate

30% of the premiums paid to appropriate private health insurance.

Spouse Contribution Rate

Rebate of 18% available on up to $3,000 of spouse contributions. Maximum rebate of $ 540 is available when spouse’s assessable income + reportable fringe benefits is $10,800 or less. Rebate cuts out at $13,800.
Rebate equals the lesser of:
[$3,000 – ( assessable income - $10,800)] X 18%
or
[Total spouse contributions in that year] X 18%

Medical Expense  Rebate

A 20% rebate is payable on net medical costs in excess of $ 1,250 that have been incurred by a taxpayer in a tax year on behalf of his or her self and any dependants. There is no upper limit on the amount that can be claimed.

Pensioner Rebates 2002-2003    
Taxable Income
Age Pension Age Pensioners#    Rebate           Shade-out     Cut-out
Level              threshold       threshold

Rebate reduces by 12.5 cents for each dollar of taxable income in excess of the shade-out thresholds.
# These are the same figures as the Senior Australians Tax Offset.

Social Security

            Age Pension Assets Test

                                                         Home Owner                                     Non Home Owner

Pension reduced by $3/fortnight for each $1,000 of assets over min. limit

Age Pension Income Test

Income over these amounts reduces the pension payable by 40 cents in the dollar for singles, and 20 cents in the dollar for couples.

Age Pension Rate

# Excludes Pharmaceutical Allowance ( $5.80 per fortnight)

           
Deeming Thresholds and Rates

                                                            Threshold                  Deeming Rate
(Effective 1/7/03)      ( Effective 20/3/02)

            Pension Age for Women

Tax Capital Gains

            Consumer Price Index

Capital Gains Tax

            Assets bought pre 21 September 1999

For assets held for at least 12 months, individuals have the choice  to either:

1. Apply a 50% allowance and pay capital gains tax on the whole of the difference between the original cost base and the disposal price

OR

1. Index the cost base and pay capital gains tax on the difference between the indexed cost base and the disposal price.

Indexed cost base = Original cost base X (123.4/CPI factor) as indexation of a cost base was frozen at 30 September 1999.

For assets held for less than 12 months, capital gains is payable on the whole gain.

Assets bought on or after 21 September 1999

For assets held for at least 12 months, individuals must pay capital gains tax on 50% of the difference between the cost base and the disposal price. That is, the 50% allowance rule is applied.

For assets held for less than 12 months, capital gains tax is payable  on the whole  of the difference between the cost base  and the disposal price.

No indexation is available to these assets.

Retirement Income Streams

            Minimum and Maximum Pension
            Valuation Factors (PVF)

Life Expectancy Table 1995-97
Used in calculating the deductible amount for social security

Deductible Amount (for Tax)
Deductible amount = (Undeducted Purchase Price- Residual Capital Value) /Relevant Number

Reasonable Benefits Limits

RBL Limits
Amount (03/04)
Lump Sum Reasonable Benefit Limit                  $    588,056
Pension Reasonable Limit                                                $ 1,176,106

These amounts are indexed to AWOTE each July.
The lump sum RBL figure is discounted by 2.5% for each year a person taking benefits is under age 55

Transitional RBL (TRBL)
Higher transitional reasonable benefit limits may apply for some people.
To calculate the present lump sum transitional RBL:
(Original Pension TRBL/$400,000) X current flat dollar pension RBL

AWOTE Figures

Eligible Termination Payments (ETP)

Tax of ETP

# $117,576 threshold is indexed annually.  Medicare levy must also be added to the tax rates except where the nil rate applies.

Preservation Age (men and women)

Other Termination Payments

Annual Leave

On bona fide redundancy, invalidity, approved early retirement:

Long Service Leave

On bona fide redundancy, invalidity, approved early retirement:

Bona Fide Redundancy and Approved Early Retirement Scheme
Tax free component equals:
2003/4  $5,882 plus $2,941 for each complete year of service.

This amount is tax free, will not count for RBL purposes and cannot be rolled over.
These amounts are indexed to AWOTE each July.

Amounts in excess of the tax-free component are treated as employer (untaxed) ETPs.  They are split between pre and post June 1983, are counted for RBL purposes and can be rolled over.

Super – contributions
Employer and Self Employed Contributions
Maximum Deductible Contributions (MDC) for employer contributions.

*age in years as at date of last contribution for financial year.

Self employed and unsupported persons
Can claim deduction for superannuation contributions equal to lesser of:

• $5,000 + 75% of the amount of contributions exceeding $5,000 OR
• taxpayer’s age based limit.

Employee Contributions
Employees with assessable income plus reportable fringe benefits of $27,000 pa or less can claim a rebate equal to 10% of their rebateable contributions (up to 41,000).  Maximum rebate is $100 (10% x $1,000). Rebate reduces by 2.5 cents per dollar over $27,000. No rebate once assessable income plus reportable fringe benefits equals $31,000 pa.

Super Contributions Surcharge
Surcharge rate depends on Adjusted Taxable Income (ATI), the sum of taxable income, surchargeable contributions & reportable fringe benefits.

Adjusted Taxable Income

Super Guarantee (SG)

The maximum salary to calculate the Superannuation Guarantee required in 2003-2004 is $122,240 or $30,560 per quarter.