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17th National Tax Intensive Retreat: Extracting Value

Published on 27 Aug 2009 | Took place at Sheraton Noosa Resort and Spa, National

The focus of this event was extracting value, particularly: using schemes of arrangement, capital reductions, winding up and resettling trusts, and formal and informal liquidations to liberate wealth. The event emphasised practical problems.

This event was aimed at practitioners whose clients need to access funds to meet liabilities exposed by the global recession or who have structures that are no longer required.

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Individual sessions

Recent developments relating to discretionary trusts - getting money out of trusts against the wishes of the trustee & appointor

Author(s):  Lisa HESPE

One of the advantages of owning assets through discretionary trusts is that control may be exercised without the controller necessarily owning any property that can be applied by creditors or other claimants. But recent case law suggests that courts may in some circumstances attribute property belonging to a discretionary trust to the controller of the trust.

This paper examines the recent cases that have considered this question and identifies the circumstances in which claimants may be able to access property in a discretionary trust. Topics covered include:

  • traditional judicial approach to discretionary trusts
  • Pope versus DRP Nominees
  • Richstar Investments
  • Kennon versus Spry
  • future judicial trends in relation to creditor and family claims.
Materials from this session:

Getting value out of companies - Part 1

Author(s):  Paul HOCKRIDGE

This paper deals with a number of tax efficient strategies adapted to extract money from companies. The paper covers principles in each case, the practicalities, what the ATO has had to say to date and the likely areas of focus by the ATO, both today and in the future. Topics covered include:

  • getting money out of cash box companies, dividends, super, termination payments, bonuses, retainers, consulting fees, liquidation
  • accessing the cash before it goes into a corporate beneficiary - via an interposed trust;
  • loans by companies to and out of limited partnerships;
  • acquiring wasting assets in companies with retained earnings;
  • treatment of franked dividends to non-residents (via discretionary trusts);
  • dividends to companies with negative net assets (via discretionary trusts);
  • dividends to negatively geared shareholders;
  • passing shares to the trustee of a testamentary trust;
  • converting 7-year loans to 25-year Div 7A complying loans; and
  • franked dividend to shareholder who makes super contributions.
Materials from this session:

Getting value out of companies – Part 2

Author(s):  David MARSCHKE

Note: This paper was also delivered at the event Getting Value Out of Companies & Trusts: Highlights From the Noosa Intensive in Brisbane on 4 December 2009. This updated paper replaces the previous version here.

This paper covers:

  • funding the sell down
  • giving equity to the key employees
  • employee share schemes - Division 13A
  • phantom or replicator share schemes
  • dividend access shares
  • corporatising a trust
  • sell downs and implications of CGT event K6
  • sell down at subsidiary level
  • other issues.
Materials from this session:

Voluntary liquidation – Getting the money & assets out of a company

Author(s):  Michael BUTLER

Distributing money and assets out of a company by way of voluntary liquidation can often be a highly tax-effective method for returning value to shareholders provided care is taken to comply with the various statutory and judicial requirements. This paper covers:

  • the reasons for liquidating and how it compares with other capital management approaches such as share buy-backs and capital reduction/share cancellation
  • the basic framework and the operation of section 47;
  • the ‘Archer Brothers principle' and the required accounting records;
  • specific issues associated with distribution of assets in specie;
  • the interaction with the franking rules, and managing the challenges associated with the benchmark franking rule and the timing of when franking credits arise;
  • specific issues for pre and post CGT shareholders including the impact of CGT event K6;
  • the interaction with the CGT discount and the small business CGT concessions;
  • specific issues arising for consolidated groups; and
  • stamp duty and GST issues.
Materials from this session:

Offshore wealth - Accessing money overseas

Author(s):  Chris WOOKEY

Clients accumulate wealth in a myriad of different ways and store it in nearly as many different structures - especially those clients who have migrated to Australia or returned from overseas postings. This paper focuses on characterising a number of the unusual arrangements advisers may encounter as well as highlighting the technical issues related to them and some strategies which may be adopted to mitigate the exposure to tax costs. Topics covered include:

  • types of foreign entities typically used for passive investment;
  • peculiar foreign entities and how they are regarded under Australian tax law (eg foundations, purpose trusts, anstalts, stiftungs, guarantee corporations, LLCs, LPs, LLPs, REITs, foreign retirement savings and cell insurance companies);
  • Section 99B issues for immigrants;
  • planning approaches when advising people intending to migrate to Australia;
  • cross-border loans; and
  • application of the reimbursement agreement rule in section 100A - taking money from Australia offshore and bringing it back again.
Materials from this session:

The trust has served its purpose - Now let’s get the money out

Author(s):  Ken SCHURGOTT

During their lifetime trusts are exceptionally flexible structures with distinct tax and wealth protection advantages. As they reach the end of their useful life, extracting the value they harbour can be tricky. This paper considers some of the practical difficulties likely to be encountered along the way and on vesting.

Covered are effective distributions:

  • unit trusts: What constitutes a non-assessable distribution? Timing advantages under an E4;
  • planning ahead to fully utilise the small business CGT concessions;
  • do hybrid trusts present particular winding up problems?;
  • the trustee calls it "income" but the ATO calls it "capital". Does name-calling make a difference?;
  • capital distributions and the legitimacy of following the Practice Statement LA 2005/1; and
  • the impact of the Board of Taxation's Review of MITs.
Materials from this session:

The trust has served its purpose: Now what can we do with it?

Author(s):  Grahame Young

Terminating the trust and distributing the assets may not be the preferred option. This paper looks at some issues arising if the trust is to continue. In particular, it looks at restructuring trusts:

  • cloning: What really happens - cloning after abolition of the concession
  • splitting: What really happens - is ‘merely' a monster?
  • early vesting of the entire trust fund or specific assets
  • vesting then resettling: CGT and stamp duty issues
  • extending the life: 80 years, royal lives and living forever in South Australia
  • renouncing or disclaiming interests after Ramsden and Spry: Which CGT event and what value?;
  • changes to beneficiaries and classes of beneficiaries: Div 149, CGT events K6 and E2, the Statement of Principles; and
  • appointors and guardians: New appointments, changes and successors.
Materials from this session: