We often see businesses suffer or not grow to their full potential because the tax health of the business is inadequate. What is the tax health of a business? It is simply the adequacy of the tax structures, policies, procedures and systems that a business has in place.

Just like your personal health, the early diagnosis of any issues your business may experience is important. However, preventing those issues from arising in the first place will always lead to a better outcome.

But it’s not all about prevention. It is also about having the right tax foundations in place to facilitate growth and to maximise value on any future sale. A prospective purchaser will generally pay a premium if they have confidence in what they are buying. Would your business in its current form survive a purchaser’s due diligence investigations?

The Pointon Partners Tax Health Check is a four step process which is aimed at enhancing your business’ tax health to prevent risk, facilitate growth and maximise value as follows:

  1. EXAMINATION OF CURRENT STRUCTURES, SYSTEMS AND POLICIES
    Once you have started thinking about the key issues that affect your business’ tax health (see below), we would be happy to assist with any components of your review that you have identified.Alternatively can organise a workshop with you where we will collaboratively discuss and examine your business’ current tax structures, policies, procedures and systems.
  2. DIAGNOSTIC REPORT AND RECOMMENDATIONS
    If you would like us to organise a workshop, then following it we will provide you with a comprehensive diagnostic report of your business’ tax health and provide any recommendations for improvement.
  3. IMPLEMENTATION OF RECOMMENDATIONS
    Once you have reviewed our diagnostic report, we will organise a conference with you where we will discuss the practical implementation of our recommendations. We will work with you to provide practical solutions that work for your business.
  4. PERIODIC CHECK-UPS
    Like your personal health, periodic check-ups are important. Future check-ups will refine current practises as required, but are unlikely to involve in any fundamental actions. Before we get involved, it is important that you start thinking about your business’ current structures, systems and policies. We have set out a number of key issues to guide your thinking in the document that follows.

 

YOUR TAX HEALTH CHECK

        1. Companies
          • Do you have a private company with accumulated profits that has lent money to shareholders or their associates? This includes borrowers who are trusts that carry on a business.
          • Does your company have an employee share plan? Does your company provide interest free loans to employees, or the employee’s company or trust to fund the share acquisition? Are you certain of the FBT and Div 7A position on those loans? How did you value the shares issued under the plan?
          • Does your group ever make loans which the Commissioner might argue are not likely to be repaid? Are those debts likely to become statute barred? Have you thought about the “commercial debt forgiveness” provisions? Have those loans funded the acquisition of depreciable assets?
          • Are you thinking of putting a company into liquidation? Are you able to specify the source of distributions the liquidator will make?
          • Do you have trading entities that also hold valuable assets, such as shares in other companies? How can you keep the risk of insolvency to a minimum?
          • If you have a “large” company, do you have any loans at call? Have you thought about those loans being non-share capital?
          • Do you have a company that has issued dividend access shares? Was there a value shift from pre-existing shares? Will the Commissioner challenge the franking of the dividends paid on the access shares?
          • Should you really be a director of a company that has PAYG and Super Guarantee responsibilities?
        2. Trusts
          • Are your year-end minutes always prepared on or before 30 June?
          • Have your trusts made “family trust elections”? Have your company and trustee beneficiaries made “interposed entity” elections? Have you ever distributed outside the “family”?
          • Does your deed allow streaming; a discretion to treat capital gains as income; allow for sub-trusts?
          • Have you used corporate beneficiaries? Who is the corporate beneficiary owned by? If the corporate beneficiary isn’t owned by another trust, should it be, rather than by at-risk individuals?
          • Does the trustee know the TFN of ultimate beneficiary of a distribution?
          • Did you know that the Commissioner has withdrawn his “statement of principles” on trust resettlements?
          • Do you want to exclude unsatisfactory spouses from being able to benefit under the trust? Have you considered the stamp duty implications?
          • Do you have a unit trust? Does it get franked dividends, or does it have losses? Do you know whether the trust is a “fixed trust”? Do you know the Commissioner has a discretion to treat it as being a “fixed trust’?
          • Do you have a “hybrid trust”? Do you know about the Commissioner’s position on deductibility of interest to invest in income units?
          • Do you have a service trust? Do you know the limits on what tax deductible charges it can make?
        3. Partnerships
          • Are you a member of a partnership? Should you do something to limit your liability?
          • Have you considered a partnership of companies or trusts to maximise CGT small business concessions relief for each partner?
        4. Individuals
          • If you provide personal services, especially though a company or trust, do you satisfy the PSI provisions?
          • Even if you do, can Part IVA still apply?
        5. Contractors/Employees
          • Do you pay contractors? Are they really employees? Even if they aren’t, are they paid principally for the provision of their labour?
          • Do you know about directors penalty notices, and how you can become personally liable for a company’s PAYG and SGC?
        6. Superannuation
          • Has your SMSF had dealings with related parties?
          • Has your SMSF complied with the rules on non-recourse borrowing?
          • Has your SMSF been involved in property development, or hold units in a unit trust that does?
          • Do you know about the proposed rules for penalties payable personally by SMSF trustees who breach rules?
          • Have you made un-deducted contributions of $450k each 3 years to shelter income on those amounts?
        7. Capital Gains Tax
          • Have you thought of using the small business CGT concessions now to uplift cost base to asset limit, if have a need to restructure anyway?
          • Do you have enough shares to be a “significant individual”?
          • Have you deferred tax to next tax year though put & call options?
          • Are you sure you will have held CGT assets for more than 12 months to get the 50% CGT discount for residents?
          • If you are a non-resident should you get a valuation now to get the market value cost base from the date the rules changed?
          • Are you sure you have preserved the pre-CGT status of assets? For instance, have you issued shares post- CGT in a pre-CGT company, which has pre-CGT assets?
        8. Succession Planning
          • Does your will set up a testamentary trust? Do you know if your beneficiary is in financial trouble, your bequest may go to the beneficiary’s creditors?
          • If you have a trust or are setting up a testamentary trust under your will, should your children’s spouses and de factos be beneficiaries? What if the children’s marriages or relationships break down? Is your bequest going to go partly to the unsatisfactory spouses de factos? Should there be one big trust or one for each child?
          • Should you be a trustee or director of a corporate trustee, and the appointor of a trust? How big is the risk the trust is likely be regarded as the alter ego of client, and the trust assets vulnerable?
          • If you have, or can have, offshore assets, have you thought about having them held by an offshore asset protection trust?
          • If you have significant wealth but want to start donating, have you considered the control benefits of a “private ancillary fund”?
        9. International
          • Do you know that under the new transfer pricing legislation, the Commissioner can use profits based methodologies, rather than just transaction pricing?
          • Do you know that now, failure to have transfer pricing methodology records, will be deemed to be failure to have a “reasonably arguable position”?
          • Do you know the impact of the proposed foreign source income re-write?
          • Do you know about the opportunities until, and under, the proposed “foreign accumulation fund” rules?
          • Did you know that non-residents are no longer entitled to acquire assets and obtain a 50% CGT discount?
          • Do you know about the maximum level of deductible debt rather than use of share capital?
          • Do you have a pricing methodology for royalty flows?
        10. Part IVA
          • Do you know what the new amendments affect? Do you know that they will apply retrospectively from 16 Nov 2012?
        11. Tax Timing
          • Do you know the Commissioner’s attitude to “wash sales”? Can you crystalise losses before year end and defer gains till next year?
        12. Penalties
          • Have you taken advice on transactions to ensure you took “reasonable care” and to build a case there is a “reasonably arguable position”?

We want to see your business grow, and we are here to assist in any way that we can. For further information in or any queries in relation to Tax Health Check, please contact Anthony Pointon and Robert Gordon.

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