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Buying Assets - Structuring for capital gains tax |
Exposure to capital gains tax may depend on how the acquisition of an investment or business is structured, whether bought individually, through a partnership or via a trust or company. While commercial factors might dictate the choice, all structures have different income tax and capital gains tax consequences. |
Individual purchase is the simplest in buying an asset as it has no adverse capital gains tax consequences. Individuals are entitled to the general 0 per cent capital gains tax discount if they owned an asset for more than a year, as well as various small business concessions. |
However, because it provides no protection against liabilities, this alternative is often commercially unacceptable. |
Further, direct purchase is normally unacceptable for tax purposes. In particular, it will not allow deferment of tax or the splitting of income/gains. |
Conceptually, partnerships are no different to individual ownership of assets. They can be used within a family group to facilitate the splitting of income/ gains. They also share unlimited liability disadvantages. Where they become more complex is in the choice of partners. Partners are not restricted to individuals - a popular structure involves partnerships of a number of discretionary trusts. What this means is that when working out whether capital gains tax concessions are available or not, one looks at the partners, not the partnership. |
A company is not the best structure when it is hoped that an asset might be sold for a capital gain. This is because the general 50 per cent capital gains tax discount is not available to companies. However, some companies are required for commercial reasons, or you might have acquired a business by acquiring the company. |
Small business capital gains tax relief is available when an asset being sold is an 'active' asset, meaning being used in a business, and where the net value of the taxpayer's business assets do not exceed $6 million. How you can plan to get the value down below $6 million is another issue. |
