23 Feb 1818 Regarding Senior Tax Counsel’s Report on structuring for asset protection

MEMBER 45 writes: 

I agree with the sentiment of Bob Deutsch’s article. Structuring is more often than not about asset protection and economic positioning rather than tax minimisation. Chasing a tax advantage first is often the wrong approach and leads to bad economic outcomes. Most advisers would know this and so structure their clients appropriately. I encourage the Government to go into the real world and research the position correctly. 

MEMBER 46 writes: 

With regard to the analysis of the application of the recent amendment to the Division 152 basic conditions and in particular the requirement that where a share is sold, the additional basic condition (section 152-10(2)) now requires, inter alia, that the “object entity” be carrying on a business. 

The article in the latest TaxVine suggests that where a company holds a “passive” asset, albeit used by a connected entity, that the new requirement would preclude the asset protection strategy you exampled. 

I raise the question whether such an assertion is correct having regard to the ATO’s draft ruling TR 2017/D7 which deals with the issue of whether an entity is carrying on a business, albeit for the purposes of section 23AA ITRA. In accordance with that draft ruling and the authority referred to therein, a company holding property for the principal purpose of generating a profit for the benefit of its shareholders would be regarded as carrying on a business. The examples provided by the draft ruling would support this conclusion. 

It might be that the asset protection strategy using a separate company, where the relevant entities are connected, might still be useful, IF the draft tax ruling is finalised in its present form with regard to a company. 

MEMBER 47 writes: 

Dear Bob, 

Regarding your article “Structuring for asset protection”, is it possible in the case of a corporate entity to apply the reasoning set out in TR 2017/D7 (I note this is only a draft ruling!!) whereby its purpose as a company is regarded as having a profit making intention and thus carrying on a business. Also at para 43 it refers to an example of a company invested in real property for deriving rent and property that is sold at a profit. 

Would this be sufficient to satisfy the requirements of Div 152-10(2)(c)?