In a long awaited decision, the NSW State Government has announced that it will abolish stamp duty that is payable on the transfer of business assets (or a declaration of trust over business assets), effective as and from 1 July 2016. The stamp duty exemption does not apply to business assets that are real property or land (e.g. if a business owns a factory which forms part of a sale, the land or real property component of the assets still attract stamp duty on the transfer value).
The announcement clears the way for restructuring of assets by business owners without having to incur the expense of stamp duty based on the value of the business asset being transferred. Clients need to be careful not to simply jump in and transfer business assets without obtaining appropriate accounting and legal advice in relation to same. Transfers may still trigger capital gains tax considerations (as well as other related issues) and it is important that these issues be carefully considered before any restructuring is considered.
The abolition of the stamp duty is no doubt designed to stimulate the business economy and encourage the sale and purchase of businesses. It is a long awaited decision as these types of state government stamp duties were flagged as duties that would be abolished with the introduction of the Goods and Services Tax on 1 July 2000 by the Howard Liberal Government. Better late than never…
Clients who have business assets in NSW should review their overall circumstances and speak to their accountants and their lawyers about any possible restructuring opportunities that may be available. There were many instances where the costs of transferring from one business entity into another (e.g. from a sole trader or partnership to a trust or company structure) were prohibitive because of the amount of stamp duty that was involved. This will open the way for many business structures to be transferred in order to take advantage of a more effective tax environment and also an opportunity to consider asset protection issues.
There are many business owners who have direct personal liability in relation to their business operations purely because they trade as sole traders or a partnership. Companies and trusts are a much better way to conduct business, particularly if you are in a high risk industry where the threat of claims being made against you or being subject to the threat of insolvency due to creditors owing you large amounts of money. Many of these threats can be avoided by having a relatively simply company structure and reviewing your contractual procedures and documentation. There is nothing wrong with setting up procedures and structures to protect your hard won assets from the threat of creditors and unforeseen litigation.
These structuring issues go hand in hand with your personal estate planning and it is also an opportunity to review your wills, enduring powers of attorney, enduring guardians, insurance cover and business succession planning. An often overlooked but important document is a company power of attorney – this is particularly relevant for sole director companies. If the sole director loses mental capacity because of injury or illness (e.g. a stroke or heart attack), you should have an attorney appointed for the company (usually the spouse of the director). Many people do not realise that a personal EPOA does not cover their position as director of a company. The same issues apply to trustees of self managed super funds.
Attwood Marshall has experienced business structuring and estate planning lawyers who can review your circumstances and discuss these issues with you and your accountants. If we can assist you in this area, please do not hesitate to contact our Department Manager Michelle Hall on 02 6670 1001 or email [email protected]