38 SPONSOR EDITORIAL February <strong>2023</strong> <strong>Def</strong>ence <strong>Bus</strong>iness Planning a Tax Effective <strong>Bus</strong>iness Exit There are many ways to exit a business in the defence sector, for example through trade sale, IPO, private equity and family succession. While each option has its own nuances, they share the potential for complex tax implications. Without proper planning, the tax implications can turn a good deal into bad one. Here are five tips for ensuring a tax effective exit from your business. 1. Understand your tax profile Your tax profile is what informs tax planning and enables better tax outcomes to be achieved. To understand it, you need to assess your business’s legal structure, assets and ownership. Accessing CGT concessions is a major planning objective. For smaller businesses, the small business CGT concession can fundamentally change the tax outcomes from a sale. In the right circumstances, a business could be sold for $4 million with zero tax liability. For owners of larger businesses, the 50% general discount can have a major impact on tax exposure. Delivering Custom Electronic Solutions for Over 60 Years CALL US TO DISCUSS HOW WE CAN HELP YOU DELIVER CUSTOM SOLUTIONS ACROSS Engineering Design and Development ◊ Rapid Prototyping ◊ Manufacturing ◊ Turnkey Assembly ◊ Tester Development ◊ Quality Support System ◊ Thick Film Ceramic Assemblies ◊ Project Management www.hendonsemiconductors.com.au +61 8 8401 9800 | hendon.info@hendonsemiconductors.com For older businesses, in particular family businesses, pre-CGT status can mean a tax-free capital gain. Changes in shareholdings or share structures, in the business and the acquisition of new assets can all adversely impact on your pre-CGT position. Franking credits are another important attribute. In many instances, limited value will be attributed to franking credits by the buyer, so utilising these in pre-sale dividends or dealing with minority shareholders may be tax effective. 2. Plan your preferred exit transaction Once you understand your tax profile, you can identify your preferred path to exit. Fundamentally, this will either be an asset sale or a share sale, but it tends to be more involved than that. First, model the alternatives to identify the different tax outcomes. If the preference is to sell an entity, but it holds assets that are not going to be part of the sale, then restructuring is required. Depending on the intended purchaser and type of exit transaction, you may need to sell a ‘clean’ entity which will necessitate restructuring the ownership of the existing legal entities. Trust structures are common in private businesses but are often unattractive to purchasers and may need to be unwound prior to sale. If the preference is to sell an asset, you need to consider the plan for the sale proceeds. Are these to be reinvested within the existing structure or distributed to the owners? Are you planning to sell in one tranche or in multiple tranches over time? Each of these decisions triggers different tax implications. 3. Do your own tax due diligence The general 50% discount has created a real bias towards the sale of shares in a company over the sale of the business assets. For the same commercial deal, this change in transaction structure can halve the tax payable by shareholders. However, purchasers still have a preference towards asset deals which ensure they receive a full tax cost base in the assets they acquire and are protected from exposure to historical liabilities. When negotiating a share sale, you place yourself at a significant advantage when you address any major tax issue before you engage with a potential purchaser. Private expenses, related party transactions, late payment of employee obligations, and neglecting to identify tax obligations such as FBT and payroll tax are all tax issues that regularly arise in this context. 4. Restructure or reorganise your affairs in advance Good tax planning is not crisis management. Pre-planning is key. For example, if you need to separate assets into a new entity, unwind a trust, or interpose a new clean entity, doing it before a sale transaction is on the horizon is fundamental. Once you have started actively seeking an exit transaction, tax-effective restructuring transactions may not be possible and could be struck down as tax avoidance. The same restructuring transaction undertaken well before any exit transaction is planned is much less likely to be subject to the tax anti-avoidance rules. Having an experienced advisor on your team will help you manage your tax issues and maximise your outcomes. For more information, contact Lee Fuller at lee.fuller@ williambuck.com.
February <strong>2023</strong> <strong>Def</strong>ence <strong>Bus</strong>iness 39 <strong>Def</strong>ence doesn't do second best. Is it time to improve your image? + Strategy + Web Design & Development + E-Commerce + Responsive & Mobile + Content Management Solutions + Graphic Design + Publishing boylen.com.au
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