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Tax
Technology ... making tax easy
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The purpose of this free* calculator is to highlight the impact that consolidation has on the pre-CGT status of shares held in wholly owned resident entities. Some surprisingly adverse results are likely to arise, depending on the fact scenario (see Commentary below). Key benefits
The Tax Consolidator™ - PreCGT Calculator has been created using Microsoft® Excel 97 for PCs. Users will require Excel 97 or a later version. Excel 97 PC files may run on some Apple® computers, however the PreCGT Calculator has not been tested on the Apple platform. The space required on your hard drive is 162kb (ie approximately 1/10th of a floppy disk). You may obtain a free copy of the Tax Consolidator™ - PreCGT Calculator by completing the Product request form below. CommentaryThe problem ... Any
group with pre-CGT shareholdings will most likely lose the benefit of pre-CGT
status if the group consolidates under the proposed tax consolidation rules. Despite
a clear policy intention to preserve such pre-CGT status, the legislation
contains a complicated mechanism which results in the loss of pre-CGT status, unless all
assets held by the relevant subsidiary are non-current assets. In
practice, this means that solvent groups are guaranteed to lose pre-CGT status, the
extent of such loss being dependent on a number of factors. One
key factor is the extent to which the relevant subsidiary holds current assets
compared to non-current assets. The
loss of pre-CGT status is exacerbated by holding current assets, hence providing
an incentive for groups to reduce their liquidity ratios. Another
key factor is the extent to which assets are funded through liabilities such as
loans (compared to assets funded through equity). The rules are based on an assumption that liabilities of the
relevant subsidiary are “optional” and penalises any group that decides to
retain such liabilities in the subsidiary on a disposal of shares in the
subsidiary. Holdings
through interposed entities add significant complexity to the calculations under
the proposed rules and invariably result in further loss of pre-CGT status. These
issues exist despite having been brought to the attention of the Taxation Office
during its public workshops held in February 2002.
The issues register available on the ATO’s web site shows that the
draft rules will remain unchanged despite the noted conflict with stated policy. Free calculator to assess impact on your situation ... Tax
Technology Pty Ltd has released a free* pre-CGT calculator to highlight the operation of the abovementioned
rules. The
worked example included in Tax Technology's calculator shows a loss of 93% in
pre-CGT status based on the operation of consolidation rules supposedly designed
to fully preserve such status. The
calculator allows users to input their own key variables to assess the likely
impact of the rules on their particular situation. Potential solution ... As a result of the abovementioned issues, the proposed means of preserving pre-CGT status should be replaced. The professional bodies attended a meeting with Treasury in November 2004 and it would appear that Treasury is prioritising the resolution of this issue. Our founding Director Gerry Jaworski attended this meeting on behalf of the ICAA, however confidentiality restrictions prevent details of discussions from being released at this stage. *Use of the software is provided by way of royalty free license. Users without an email account incur a charge for materials, handling and postage Microsoft® is a registered trademark of Microsoft Corporation. Excel is a trademark of Microsoft Corporation. Apple® is a registered trademark of Apple Computer, Inc.
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