A Week in Review

Taking that first step

IR has now finalised its QWBA on the question of what is the first step legally necessary to achieve liquidation when a liquidator is appointed. Understanding the Commissioner’s position in this regard is important, because distributing capital gains to shareholders outside of the ‘on liquidation’ period for a company, converts that capital gain into a taxable dividend, often with the inability to attach imputation credits subsequently due to timing restrictions.

QB 20/03 is also useful, because while it is targeted towards long-form liquidations (that where a liquidator is actually engaged to complete a formal liquidation process), it also provides commentary on short-form liquidations (arguably of more interest to most of us I would suggest) in order to point out potential differences in timing triggers between the two options.

Most of you are hopefully aware by now, post the previous release of BR Pub 14/09, that in respect to a short-form liquidation, you simply need to have your client’s sign a resolution that their company will:

• Cease business
• Pay all creditors
• Distribute surplus assets, and then,
• Request removal from the register of companies.

Once this resolution is signed (and provided the company actually ceases to trade and does end up being removed from the register), then capital gain distributions can proceed and will retain their tax-free status, as the distribution will be deemed to have occurred ‘on the liquidation’ of the company.

However, as QB 20/03 points out, the taking of the same action under a long-form liquidation process, will not necessarily trigger the commencement of the ‘on liquidation’ period. In this regard, a long-form liquidation of a solvent company generally commences when the shareholders pass a special resolution to appoint a named liquidator. From a timing perspective, this requires that the named liquidator has validly consented in writing to be appointed prior to the shareholders passing the resolution.

Consequently, if the above resolution is signed prior to the liquidator having provided their written consent to act, then it does not trigger the commencement of the ‘on liquidation’ period. Equally, steps undertaken such as the holding of a special meeting of the shareholders to discuss the liquidation of the company, and/or obtaining the written consent of the liquidator, are considered to be only preparatory steps to a liquidation process, and it is not until the above resolution is signed post the receipt of the liquidators written consent, that the company will be considered by the Commissioner to have commenced the ‘on liquidation’ period. The shareholders for example, may not proceed to sign the resolution even though the liquidator has consented to act for the company, and consequently the liquidation never actually proceeds.

So be conscious of the timing issues, as with the requirement for imputation credits to be attached to a dividend at the time it is paid, subsequently discovering that your client’s capital gain distribution is now considered to be a taxable dividend, could be an expensive learning lesson!

2020 kilometre rates confirmed

Section DE 12(4) requires the Commissioner to annually set and publish motor vehicle kilometre rates, which can then be used by taxpayers to calculate expenditure claims for the business use of a motor vehicle, or alternatively used by employers as a reasonable estimate for reimbursement of expenditure incurred by employees for the use of a private motor vehicle for business purposes.

The rates to be used for the 2019/20 year are:

Vehicle Type	Tier One Rate	Tier Two Rate
Petrol or diesel	82 cents	28 cents
Petrol hybrid	82 cents	17 cents
Electric	82 cents	9 cents

The increase in tier one reflects a slight increase in vehicle ownership costs, whereas the reductions in tier two are in essence tied to reductions in fuel costs.

Covid support announcments

A few Covid support package announcements were made during the week.

1. A new resurgence support payment is being introduced to help businesses directly affected when there is a move to Alert Level 2 or above for a week or more. The package includes a one-off payment of $1,500 plus a $400 payment per employee up to a total of 50 FTEs. Businesses will need to declare a drop of 30% or more in income over a 14-day period as a result of an increase from Alert Level 1 to Alert Level 2 or higher. They must have been in business for at least six months in order to apply. Legislation containing the measure is expected to be introduced early next year.
    
2. A commitment to the Wage Subsidy Scheme where there is a regional or national move to Alert Levels 3 and 4.
    
3. Retention of the Leave Support Scheme, including the addition of a new short-term absence payment to cover eligible workers needing to stay at home while awaiting a Covid-19 test result. This will be a one-off payment of $350 to employers to pay workers who need to stay home while awaiting a test or while someone who is their dependent is doing so in accordance with public health advice.
    
4. A reminder that the Business Finance Guarantee Scheme, has been extended to June 2021 with additional availability and flexibility.
    

The Small Business Cashflow Scheme has been modified. Going forward:
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(a) The eligibility criteria will be broadened to include new businesses. Businesses established after 1 April 2020 and which have existed for six months will now be eligible for a loan if they meet other eligibility criteria.

(b) There is a change to the 30% decline period – the new criteria is that businesses can demonstrate an actual drop in revenue of at least 30% because of Covid-19 over any 14-day period in the previous six months, compared with the same 14-day period a year ago. If the applicant was not in business a year ago, the 14-day period can be compared with the same or similar period in the previous month. Businesses must also declare that the drop in revenue was due to Covid-19 and have records to support this.

(c) Businesses will be able to draw down a second loan if they meet the eligibility criteria and have repaid the original loan in full.

(d) The purpose of the scheme will be extended and will enable borrowing for investment in new equipment and digital infrastructure.

A Merry Christmas to all

Well yet another year is quickly drawing to a close. I hope you all have found the AWIR content over the year useful, and I wish you safe travels over the holiday period.

I’ll be back on the 11^th with the first edition for 2021.