Commercial deals service resources

Commercial deals case studies

These case studies show how engaging with us early and working transparently can mutually resolve tax issues prior to lodgment and help avoid tax disputes post-lodgment.

Capital gains tax case study

Three siblings each had a 33% shareholding in a family company, and 2 of them wanted to sell their shares to their brother. The family trusts controlled by the 2 siblings each disposed of their 33% ownership in the family company to their brother’s trust. This left their brother with 100% ownership of the company.

We enquired if the siblings had considered whether the market value substitution rule for capital proceeds applied. That part of the tax law has the effect of replacing the actual capital proceeds with their market value when the parties to the transaction didn’t deal with each other at arm’s length.

With advice from internal valuation advisers on whether the siblings had transacted for an arm’s length value, we concluded that the capital proceeds were below their market value. We asked the siblings for information and evidence to demonstrate that real bargaining had taken place in relation to the sale.

The 2 siblings provided a valuation of the shares that aligned with our view. They informed the case officer that their brother, who was purchasing their shares, set the price and they accepted to avoid family conflict. For this reason, the 2 siblings couldn’t provide any evidence of bargaining in relation to the terms and conditions of the sale.

With these facts, we took the position that the market value substitution rule applied. A pre-lodgment agreement was reached that the market value amount would be substituted for the capital proceeds.

Company restructure case study

A company was founded by four individuals who were looking to sell some of their business. To do this, they started trading under a new company. The shares were owned 25% each personally by the four individuals. Days later, one quarter of these shares were sold to a third party.

As part of the sale, new classes of shares were issued for $1 each (one A class share issued to the third party and one B class share issued to a family trust, controlled by the founders), with priority to dividends and other specific rights attached.

In the 2022 income year, the rights and terms attached to both the A and B class shares were altered, via a share split and variation of rights, by the ordinary shareholders in anticipation of a scheduled Special Purpose Acquisition Company (SPAC) process. Prior to this, one founder had a valuation prepared for the B class share, which determined the market value of the B class shares based on the priority dividend rights.

We examined this valuation, given our concerns over the valuation presented to us. The A and B class shares, which were split and rights varied, now had an inflated value, equal to the ordinary shares.

Several months after the share split and variation of rights, the SPAC process was successfully completed in the 2023 income year. The change in rights and share split shifted the inflated value from the initial ordinary shareholders (the individuals) to their family trust via a direct value shift.

After reviewing the general value shifting regime, with technical adviser guidance, agreement was reached that the direct value shifting rules applied to effectively deem capital gains for the four individuals in the 2022 income year. This treated it as if they had sold the shares to the trust at that point in time. This determination increased the capital gain from the client’s original position but provided tax certainty on the transaction moving forward.

Foreign resident capital gains case study

A foreign resident held shares in a listed company. The company entered a binding Scheme Implementation Deed where 100% of the ordinary shares would be acquired for non-cash consideration. A timely outcome was necessary due to an upcoming shareholder vote.

The foreign resident proposed to provide us with acceptable security equal to the agreed capital gains tax (CGT) liability, and, in return, they would receive a variation in the rate of foreign resident capital gains withholding (FRCGW) to 0%.

A preliminary assessment by the foreign resident predicted a $30 million tax liability dependent on the market value of the non-cash consideration (shares) at the time of the transaction.

Following open and transparent discussions and collaboration between us and the foreign resident’s representatives, an agreement was reached and an escrow deed was executed. Approximately $30 million in future tax payable was secured and the FRCGW rate was also varied to 0%.

Commercial deals videos

Our video resources explain the commercial deals process and the advantages of engaging with us early to get certainty of the tax implications and impacts of your transaction.

Increased certainty prior to lodgment

With certainty prior to lodgment, you can avoid potential post-lodgment tax disputes.

Practical certainty on your approach

Commercial deals assistance can give you practical certainty that the approach you are taking is acceptable.

Advice and assurance options for early engagement

Exploring the advice and assurance options available for early engagement.