Transaction Structuring

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About to do a significant transaction? Poor deal structuring can lead to a bigger than necessary tax bill. We help you to structure deals tax-effectively and avoid regret.

Transactions can create a lot of excitement. There is often a temptation to push ahead and get the deal done as soon as possible. However, getting the transaction right is important to ensure you do not pay more tax than necessary. We help you to realise the opportunities and avoid the risks.

We assist with:

  • tax-effective transaction structuring;
  • tax advice regarding transactions – including advice on earnout arrangements and tax clauses;
  • managing any GST consequences on the transaction;
  • capital gains tax concessions and discounts – including the small business CGT concessions; and
  • international tax.

Approach

Our usual approach is to:

  • provide you with a clear and transparent fee quote;
  • discuss your requirements, goals and desired outcomes;
  • work collaboratively with other professional advisors;
  • deliver our work to you in accordance with your wishes; and
  • regularly update you and your professional advisors during the process.
Transaction Structuring
Tax

Director

Rajan Verma

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FAQ

How do you charge?

Trust is one of our core values. We pride ourselves on not causing 'bill shock'. Our usual approach is to provide you with a clear and transparent fee quote to ensure that there are no surprises. You can then make an informed decision about whether you want to proceed or not.

What is an "earn out"?

An earn out involves the seller receiving an amount of money, with the amount determined based on financial performance after completion / settlement. These arrangements are complex and we recommend obtaining legal advice about them.

What are some of the issues to consider with transaction structuring?

Transaction structuring is complex. Planning upfront will help to avoid undesirable consequences and missed opportunities. Some common tax structuring issues we regularly advise on are:

  • what form the transaction should take? (for example, a share sale or business sale);
  • are any pre-transaction steps necessary?
  • is the sale on capital account or revenue account?
  • can the small business CGT concessions apply?
  • utilisation of tax losses; and
  • tax consolidation issues.

Share Sale vs Business Sale – what’s the difference?

Share sales are often confused with business sales. The two may appear to be similar concepts however they are two very different from a legal perspective.

A share sale involves the sale of shares in a company to the purchaser. The business continues to be operated by the same company, however with different shareholders. In contrast, a business sale involves the transfer of business assets to a new owner (for example, goodwill, intellectual property, plant and equipment, land and trading stock).

Depending on the situation, the difference between a share sale and a business sale can result in a very different tax outcome, and after-tax net proceeds. The small business CGT concessions or other CGT relief may also be applicable. Velocity Legal can assist with all aspects of whether a share sale or business sale is most suitable in your circumstances.

What is an Earnout and how is it taxed?

Earnout arrangements are typically used to either deal with uncertainty in value, or as a way of giving the seller ‘skin in the game’ for the post-sale period. Under a typical earnout arrangement, the buyer will pay an initial lump sum amount upfront, however further payments after the sale is completed will depend on the future performance of the business.

Where the arrangement was entered into on or after 24 April 2015, qualifying earnouts will be taxed under ‘look through rules’. Under the look-through rules capital gains/losses from the look-through earnout right are disregarded and are instead treated as attributable to the disposal of the underlying asset. Tax laws regarding earn outs are complex. We recommend seeking specialist tax advice when structuring these arrangements.

Do you assist with tax warranties and indemnities?

Tax warranties and indemnities are routinely included in share sale agreements and share purchase agreements. This is to ensure that the seller remains ‘on the hook’ if the company has undisclosed issues. We assist with advice, drafting and reviewing tax warranties and indemnities on both the buyer and seller’s side.

What are the benefits of engaging with a tax lawyer prior to a major transaction?

Major transactions are often complex and involve numerous competing considerations. Dealing with major transactions without a tax lawyer may mean that you or your representatives may overlook key tax issues or fail to structure the transaction optimally. Velocity Legal’s tax team consists of expert tax lawyers who regularly advise on complex major transactions.

How do pre-CGT assets factor into the small business CGT concessions?

CGT assets acquired before 20 September 1985 generally have ‘pre-CGT status’ (subject to certain integrity rules). This means that the seller can disregarded any capital gain arising from their disposal.

However, where companies and unit trusts hold pre-CGT assets, those companies and trusts may be difficulty paying the sale proceeds to their shareholders or unitholders in a tax-free manner. This will often be the case as some or all of the shares or units themselves may no longer be pre-CGT assets.

The 15-year exemption (one of the concessions available under the small business CGT concessions) allows for a company or unit trust to extract a capital gain from a pre-CGT status in a tax-free manner as a non-assessable non-exempt amount.

Transaction Structuring
Velocity Legal Value
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PO Box 13255, Law Courts VIC 8010

Level 43, 80 Collins Street,
North Tower, Melbourne VIC 3000

Level 10, 580 George Street,
Sydney NSW 2000

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