Ask Ban Tacs Question
Dear Julia
Further question re Ask Bantacs #459 22 May 2013.
The facts remain the same as our earlier question.
We have 2 scenarios
One scenario is to liquidate the company as a whole (ie sell/transfer both blocks) with a return of capital to the shareholders as you suggested in your answer to question #459.
Some of the funds received will be used by one of the shareholders to repurchase both blocks in their own name. We assume as a consequence they would be required to pay the stamp duty on transfer of the titles. The other shareholder will retain their share of the sale proceeds. Capital gain will be paid on the inherited shares.
Neither the syndicate or the company has ever submitted tax returns as neither ever traded. (Syndicate members/shareholders submitted individual tax returns)
Question: Should we wish to liquidate the company as a whole, what, if any, are the ramifications regarding GST?
The second scenario is for the shares in the company to be transferred from the party wishing to sell to the other shareholder for market value consideration and the company remains as is. Capital gain will be paid by the selling shareholder on the inherited share.
Question: Are there any stamp duty ramifications for this scenario?
Should we submit tax returns for the company or syndicate before undertaking any changes?
Answer
Stamp duty on transferring shares depends on which state you are in, I don’t think all the states abolished the stamp duty on share transfers.
As for the idea of purchasing the properties off the company yes that should involve stamp duty. Stamp duty laws vary from state to state, the conveyancing solicitor you use will be able to advise. But please don’t do this please find another way. I hate the idea of all the tax this is going to generate for the government. It is just too much of a shame to lose the pre 1985 status.
As per this extract from my previous answer, currently if the property is sold by the company there would be no CGT payable by the company because it is still a pre 85 asset something that you want to hold onto as long as possible. Now from my last answer
“B &C now each own 3 shares 2 pre CGT and 1 post CGT.
The assets held by the company are still considered to be pre CGT
because less than 50% of the underlying ownership has not changed hands.
In fact none of the underlying ownership is considered to have changed
because you inherited A’s shares rather than purchased them.
Now if you were to sell the shares the situation would be straight
forward. No CGT on the 2 you each held from before 1985. The one you each
inherited would be subject to CGT on the difference between the market
value of the shares (relevant to the value of the underlying asset) when
you inherited them “
So there would be very little CGT if shares were sold. The problem is changing half of the underlying ownership will destroy the pre 85 status of the rest of the property. This still seems better than selling the whole property but if the whole property was transferred out of the company there maybe future opportunity to utilise the main residence exemption. It is possible maybe the exiting shareholder will be happy to just sell 2 of the 3 shares. Maybe shares can be split without affecting anything so the remaining shareholder is left with just 51%. This needs to be considered by a specialist who knows your whole circumstances and this law a lot better than I do because there is too much at stake.
It sounds like you are all related in some way and may even be in each other’s will. With detailed advice you may be able to come to an arrangement where not all of the 50% is transferred out but the exiting person still gets to do what they want. Remember the fact you inherited the shares meant there was no change in the underlying ownership ie the asset remained pre 85, it just made the shares that became post 85.
As I said in your first answer you need to get professional advice on how best to structure this to your personal circumstances. I think there is potential for the remaining shareholder to purchase the shares from the exiting share holder and still keep the pre 85 status but as there is so much at stake I want you to be absolutely sure. Use my answer as a way of weeding out advisers that don’t have enough knowledge on the topic. I don’t know enough about all the personal needs and wants here but I would think losing the pre 85 status should be avoided at all costs. I am very concerned for the person left with the property.
There are no GST consequences because the company is not registered for GST and its operations would not meet the definition of enterprise as per MT 2006/1
The only time the company would need to lodge a tax return is if it sells the property.
This issue is getting beyond askbantacs because you need to drill right down into every detail of your arrangement. You need to take the other shareholder and have a good talk with a very experienced adviser. There is a lot of money at stake, make sure you get it right.
