Beware of buying shares
Business Succession Update – Summer 2013
When making a suggestion to their client to buy shares in the company owning the business as opposed to buying the business owned by the company, an issue often overlooked by advisors is considering whether the company in which shares are to be bought is a potential beneficiary of a family discretionary trust which has made a family trust election.
If it is, and the company is outside the family group, then where a distribution is made to the company, the company will be subject to family trust distribution tax of 46.5% – ATO Interpretive decision 2013/21.
This can be a nasty surprise for somebody buying shares in the company whose tax record has otherwise been squeaky clean and the payment from the family trust was made before the purchase.