Tax Facts

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  • ATO's draft Law Companion Guidelines on the Small Business Restructure Roll-over

    In brief:    The new Small Business Restructure Roll-over has been enacted and will commence on 1 July 2016. It will be a very useful concession in the right circumstances but, as is typically the case, requires very careful thought as to the best way in which it should be applied. That is particularly the case in relation to the price (if any) for which assets are transferred. These 2 draft Law Companion Guidelines from the ATO about the operation of the new roll-over are helpful aids and very worthwhile reading.

    More:    It is particularly important that note be taken of the Commissioner's views in LCG 2016/D3 about what amounts to ‘a genuine restructure of an ongoing business’ for the new roll-over. That is an essential element to engage the concession and it is evident that it will be a potential attack point if the ATO views a restructure as overly aggressive. It is also noted in the LCG that the general anti-avoidance provisions in Part IVA may still apply in appropriate circumstances, even if the 3 year ‘safe harbour’ rule for a genuine restructure is satisfied. (LCG 2016/D2 & LCG 2016/D3)

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    28 Apr 2016

    Topic: CGT/Income Tax/Trusts

  • Losses allowed for luxury yacht charter business

    In brief:    The Commissioner has failed in his bid to quarantine losses (including costs of a captain and crew) incurred by two companies successively carrying on a business of chartering luxury yachts. At issue was whether each company used its vessel (only one yacht was used at any time by each company) ‘mainly for letting it on hire in the ordinary course of a business’ carried on by each respective taxpayer company (s26-47(3)(b)). Although chartered from time to time by the high wealth person who controlled both companies, it was observed that he was scrupulous in ensuring that commercial charter rates were paid for his use. Also, the yachts were available publicly for charter, charters from unrelated parties were entered into and each corporate taxpayer presented themselves publicly as carrying on a business and were administered internally in that way. Despite the substantial losses incurred from the charter operations, Logan J held that the respective operations amounted to the conduct of a business ‘with an expectation and purpose of profit’.

    More:    This case largely turned on factual considerations relating to the yachting operations. From that perspective, it is a good illustration of the need for careful documentation and execution of arrangements in order to achieve the tax outcomes anticipated. And it was particularly important that oral evidence from the controller of the companies about the background circumstances and charter activities was accepted by the judge as reliable and candid. (Lee Group Charters Pty Ltd v FC of T [2016] FCA 322)

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    28 Apr 2016

    Topic: Income Tax