Maxim Group

July 2007

Volume 2 Issue 6

 

Maxim Insight

Restructuring Jointly Held Shares

In a recent decision, the Administrative Appeals Tribunal (AAT) confirmed that where assets held in joint names are divided between the owners, CGT will apply.

In this case, two brothers owned a parcel of shares jointly and undertook a transfer so that each could own half of the shares in their own right. The taxpayers submitted that CGT would not apply to the restructure of the jointly held shares as it was always intended that the shares were held equally.

The Commissioner argued that CGT did apply on the basis that the share register showed that each share was held jointly, and therefore a part disposal of each share was required to divide the shares between the brothers.

The AAT agreed with the Commissioner that CGT applied to the restructure, concluding that there was not sufficient evidence to suggest that the shares were not jointly held or not intended to be jointly held. Furthermore, the AAT found that no CGT rollover relief was available in relation to the restructure.

Tip: If assets held in joint names are transferred, the CGT consequences should always be considered.

Redundancy Payment to Director

In a recent test case, the AAT has held that a payment made on termination of an employee, who was also a director of the company, was a bona fide redundancy payment in the circumstances of the case.

An eligible termination payment (ETP) is any payment made in respect of the termination of employment. Excluded from an ETP is a bona fide redundancy amount which is tax-free. This amount is calculated based on a prescribed formula. 

A bona fide redundancy occurs where an employer no longer requires an employee to carry on work of a particular kind and the termination is not in relation to the employee’s performance.

The taxpayer in this case was a director and employee of a company, who contracted to install hardware on behalf of another company. This was the only operation of the business.

The contracting company terminated this contract and as a result the taxpayer’s company was required to close its operations.

The taxpayer was paid out her salary and an amount of a redundancy payment.

Cont...