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Tax structuring and thin capitalisation
- 1. Clive Bird Enterprise Tax Partner, KPMG TaxstructuringandThinCapitalisation
- 2. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 CommonInvestmentStructuring Company Asset Protection Company Tax Rate Ability to Accumulate profits Limited Liability X Capital Gains Tax Discount X No Flexibility Trust Asset Protection Flexibility Capital Gains Tax Discount X Ability to accumulate profits X Accessing Company tax rate Partnership Access to development losses Capital Gains Tax Discount X Liability Issues
- 4. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 PropertyInvestmentStructure Family Distributions Capital Gains to Family Members Income Distributions Equity Equity Family Trust Family Company Special Purpose Vehicle Self Managed Super Fund Property & Investments Assets Features and Benefits • Asset protection • Access to Company tax rate • Capital Gains Tax Discount for tax residents • Long term profit accumulation • Complete flexibility • Reinvestment without loans Bank Funding
- 5. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 DevelopmentStructures Dividends Development Company Pty Ltd Property Development Single Developer Multiple Partners Australian Shareholder Development Company Pty Ltd Property Development Family and Corporate Beneficiaries Discretionary Trust & Corporate Trustee Discretionary Trust Development Partnership Property Development Australian Shareholder Corporate Trustee Discretionary Trust Discretionary Trust or Company Discretionary Trust or Company
- 6. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 DevelopmentStructures Features and Benefits • Revenue account for tax • Access to reduced company tax rate (27.5%) • Development risk quarantined (separate property entity) • Entity can be wound up on completion • Ability to transfer development profits into separate property investment structure • Access to losses in development phase • Within consolidated company group (for companies) • Distribution of income (into trusts) • Share of partnership deductions • Note Partnership joint & several liability.
- 7. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 ThinCapitalization Foreign Investor perspective • Australian withholding tax on interest payments to foreign residents is 10% • Under Thin Capitalization rules, debt used to fund Australian operations or investments is limited. • Debt–equity ratio of $1.5 of debt, to $1 of equity • Debt deductions include interest expenses, borrowing costs, bank charges • Applies to Foreign Controlled entities • Potential denial of interest deductions • Will not apply where deductions are below $2M
- 8. © 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 QuickTipsandTraps • Determine if the project is revenue or capital upfront • Investment or development • Determine if development partners will be involved • Consider the length of project and potential early deductions • Consider financing requirements (internal and external) • Internal and external • Debt vs equity • Establish an ideal structure from commencement • Determine whether profit will be accumulated or distributed • Be aware of potential stamp duty on sale of shares or units in a landholding entity • Good luck!
- 9. Questions?