NSW Stamp Duty relief has arrived!

Care for Savings - Woman with a Piggy Bank

We are pleased to confirm that the NSW Government has finally passed changes to stamp duty. As of 1 July 2016. NSW stamp duty on transfers of business assets, unlisted marketable securities and mortgages has finally been abolished. Transactions relating to land will still attract stamp duty unfortunately which includes transfers of land-rich entities and landholder duty.

From 1 July 2016 NSW stamp duty will no longer be payable on:

  • transfers of marketable securities – including shares in private companies and units in unit trusts (assuming land rich duty does not apply)
  • transfers of business assets including goodwill and intellectual property and plant and equipment when part of a transaction which includes goodwill (excluding land, certain goods e.g. when associated with land and not stock-in-trade)
  • mortgages executed after 1 July 2016 (nominal duty if executed prior to 1 July with the initial advance made after that date)
  • transfers of statutory licences and permissions and gaming machine entitlements
  • company charges and security agreements.

For individual investors the benefits will largely be limited to unlisted shareholdings because transfers of listed shares is already free of stamp duty and the application of stamp duty to transfers of land remains unchanged. However the removal of stamp duty on mortgages will be a welcomed change!

Overall these changes will make a range of restructures of businesses and other entities more attractive and will provide significant savings for business sales. To find out what the changes mean for you, please speak with your Prosperity adviser.

Making your business attractive for tax free investing

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In the continued boost to small business and start-ups, new tax concessions came into effect from 1 July 2016 which are set to stimulate investment in innovative companies as part of the federal government’s “Ideas Boom” under the National Innovation and Science Agenda. Just one of the agenda items as part of the “Ideas Boom”, the Early Stage Innovation Company (ESIC) tax concession is to encourage both innovation and investment in Australian companies.

In only two months we’ve seen a growing number of prospectuses aimed at tempting investors under the concessions. Broadly, the tax concession benefits for investors are generous and include:

  • Rebate of 20% of an investment (capped at $200k)
  • Rebate allowed to be carried forward if not all used
  • Rebate can be allocated to beneficiaries if in a trust
  • Modified CGT rules apply to the investment:
    • Hold between 12 months and 10 years – disregard any capital gain
    • Hold longer than 10 years – cost base becomes the market value at the tenth anniversary
  • Tax concessions available to both Australian tax residents and non-residents.

Small business and start-ups that want to leverage the new concessions to attract investment to grow and innovate should keep in mind how they package their offer to investors. To be fully compliant and eligible for the concessions, investors will need to:

  1. Purchase new shares in the ESIC.
  2. The ESIC cannot be associated to the investors.
  3. Cannot own more than 30% of the ESIC.
  4. Investors will need to check the Private Tax Ruling on the ESIC. While it’s not mandatory that an ESIC attain a private ruling, one is likely to be requested so investors can ensure they are able to take advantage of the tax concessions. If your ESIC doesn’t have one, you may want to get one.
  5. For investors who are not deemed to be a “Sophisticated Investor” (gross income over $250k for the past two years or net assets of over $2.5M), their investment will need to be limited to $50k in one or more ESICs in total per annum.
  6. Keep in mind that capital losses are disregarded within the first 10 years of the investment.
  7. Be aware that capital gains within the first 12 months are included as assessable income.

By their very nature an ESIC would be considered a highly speculative investment category – a technology based investment in a rapidly changing world. These are not main stream investments so this style of investing is not for everyone. Often the product being developed by the ESIC is yet to find a market or generate any cash flow, and is unlikely to do so for several years.

The biggest issue for any investor to consider with any investment is the return the investment will make over the long term. Small business and start-ups need to consider how they package the return in order to be compliant and attractive from a tax perspective as well as to deliver a return on investment which is achievable and attractive.

To qualify as an ESIC, a company will need to meet both:

  • the ‘early stage test’ and either the
    • 100-point innovation test or
    • the principles-based innovation test.

According to the ATO, “In practice, if a company undertakes activities that meet the 100-point innovation test, this is likely to be the simplest way to determine its eligibility, when compared to the principles-based innovation test.” Details are available here.

While every business is not Facebook, if you take the Facebook example you can see how powerful these concessions can become. Facebook started in February 2004 and was initially capitalised with US$12,000 from one of the early investors. In 2005, a further US$13.7M was invested into the company. The company floated in a public listing in February 2012 and ten years after being created, the value of the company was US$64.32 Billion. Currently the company is worth US$124.88 Billion. Imagine applying the above concessions to these amazing growth statistics of Facebook!

International Players are not just for Professional Sport!

Alex Bol

International transfers or secondments for accountants are nothing new. But as attraction and retention of quality staff is one of the top 5 challenges of the profession, international secondments are an increasingly important component of a firm’s HR strategy.

Step aside Jarryd Hayne, accountants are the new sports stars when it comes to international transfers. As Alex Hardy, Senior Manager at the Prosperity Advisers Group explains, there are as many benefits to firms and clients as there are to the individual at the centre of the transfer.

Having recently returned from a secondment to Prosperity’s affiliate, Bol Adviseurs in the Netherlands, I have seen first-hand the benefits to both firms. The thought of being paid to travel overseas appeals to every professional at some stage in their career, however international secondments have traditionally been on a case-by-case basis, infrequent and carried out by the larger firms. Times have changed. Through Prosperity’s membership of the Leading Edge Alliance (LEA), the frequency of secondments appears to be increasing. Just this month, Prosperity will welcome two colleagues from Burr Pilger Mayer (BPM), San Francisco and we have fielded a number of other expressions of interest in secondments during the 2017 peak audit season.

So why the sudden rise in popularity?

Firms committed to evolving into the “Firm of the Future” understand the need for innovation across their business. In an industry that sells advice, attracting and retaining quality professionals must be central to any business strategy.

The benefits

  • Scaling of the local work-force during periods of peak demand

For Australian accounting firms, the peak audit season typically runs from July to October each year. In the past, firms have often relied on contract labour or driving increased output from existing resources. There are a number of challenges with both of these approaches. Contract staff are often not incentivised to deliver on client outcomes leading to a poor client experience whereas overworking existing staff may lead to burnout and decreasing team morale. Secondments can also assist with solving local skill shortages.

  • Boost to local team morale and outcomes for clients

A secondee’s interaction within their new team encourages learning across cultural boundaries. Sharing experiences is always fun and provides motivation to the secondee and local team. Development of communication skills and adapting to new working environments provides a different form of team engagement. When teams are engaged they usually produce better outcomes for clients!

  • Impress clients and demonstrate the firm’s commitment to a global footprint

For firms that don’t have a recognised global brand, bringing an international secondee to client meetings demonstrates the firm’s commitment to being a truly global business. My interaction with an international client based out of Ireland during my stint in the Netherlands was really well received and a valuable experience for all involved.

  • Improving the local team’s language skills

English dominates as the language of choice for the international business community. Countries where English may not be the first language usually are seeking to improve their language skills. Placing a native English speaking secondee into a non-English team will encourage all staff to practice their English on a daily basis and likewise the secondee will learn or develop their own language skills. Better communication will also lead to better client experiences for firms with international clients.

  • Development of firm systems and methodologies

Firms generally compare systems and methodologies at conferences and seminars, but this often occurs at Partner level. Understanding and comparing methodologies at other career levels on-the-job creates additional opportunities for teams to immediately implement efficiencies or enhancements which drive better outcomes.

  • Attraction and retention of quality staff

Keeping staff engaged and innovating is a must for all firms. Constantly competing for the best talent in the market is a priority for accounting firms and firms like Prosperity who recognise the value of international secondments will continue to have it as part of their HR arsenal. If done well, the ability to keep staff learning and engaged plus broadening their personal international networks in an increasingly globalised business environment helps to attract and retain the best talent.

  • Facilitate client engagements across geographies

Importantly, there is also the potential for new relationships with clients of the other firm should they be active or considering expansion to the secondee’s home country. Facilitating advisory relationships across borders becomes smoother with the familiarity that working shoulder to shoulder provides.

Things to consider!

Select the right team members to be involved:

  • Will the employee best represent the firm?
  • Has the employee experienced overseas travel previously?
  • Does their skill set provide opportunities for the other firm?
  • Are they a confident communicator?

Get the right people involved in making it happen:

  • Encourage the HR leaders from both firms to build a relationship to ensure the secondment is seamless.
  • Ensure there is adequate on-boarding for work and team building but also living arrangements, getting around and integrating with the host Country.

Working visas:

  • These are often not difficult to obtain between most OECD countries.
  • Some up front commitment will be required to assess each specific jurisdiction.
  • Leverage each firm’s HR resources for the best outcomes.

Accommodation:

  • Depending on the length of the secondment, services such as AirBNB may offer a solution should a local host be unavailable.
  • The remuneration of the employee may need to be negotiated during their secondment to factor in the difference in living costs between countries.

International secondments significantly add to the secondee’s professional and personal development, they are fun and the benefits to both firms involved shouldn’t be underestimated. Smart firms are increasingly taking advantage of this strategy and providing exciting opportunities for their staff and business.

Thank you very much for your enthusiasm, professionalism and open mind. You have been a real “asset” and inspiration for Bol.

Pascal Graat (Managing Partner, Bol Adviseurs)