There are many reasons for a company to decide to restructure its asset ownership. Protection of ownership of land and buildings from the risks of an operating business is one of the major concerns.

If you are considering restructuring your business to protect appreciating assets such as land and buildings, intellectual property, goodwill or shares, we recommend that you do this now.

The proposed changes to the associated persons definitions, that have been delayed due to the change in government, will also greatly affect the sale of assets to related parties that result in a capital gain.

A company can distribute capital gains tax free in the course of liquidation, however the definition of capital gain excludes capital gains realised in a transaction with a “related person” (except for small companies where the gain is realised in a transaction with a related person other than a company in the course of liquidation).

Therefore, once the new definition comes into effect (expected to be 1 April 2010), the capital gain on the sale of any assets to a related person will need to be distributed as a taxable dividend when the company is wound up.

As the dividend will be the result of a capital gain, it is unlikely that the company will have paid sufficient tax at 33% or 30% to have imputation credits to fully impute the dividend. This will result in the company having to pay dividend resident withholding tax to bring the tax credits up to 33%. In addition, the distributions will be assessed at the marginal tax rate of the shareholder which could be as high as 38% (less the 33% company tax already paid).

If you hold land and buildings in your company and are considering transferring them to a trust or other related party, please contact us now to discuss these issues further.