Episode 94: Small Business Structure Planning & CGT Concessions
24th June, 2024
In this episode, Trudi Cowan and Sarah Eifermann interview Peter Johnson, an accountant and tax consultant, about choosing the right entity type for a business and the small business rollover and restructuring. They discuss the importance of considering long-term plans, family involvement, and tax implications when deciding on the entity type. They also explore the four main exemptions available to small business owners when selling their businesses and the importance of pre-planning and seeking proper advice from accountants. The conversation discusses the small business capital gains tax (CGT) concessions in Australia. The main topics covered include the asset test and turnover test for eligibility, strategies for reducing assets to qualify for the concessions, the importance of planning and structuring, common mistakes to avoid, and the difference between small business rollover relief and debt restructuring. The conversation emphasizes the need for early and ongoing advice from accountants and the potential tax savings that can be achieved through proper planning.
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Podcast Transcript Available Here
Peter Johnson (00:06.024)
Trudi Cowan (00:14.416)
Hi everyone and welcome to another episode of the Financial Fofu podcast. Joining us today we have a very special guest, Peter Johnson. Peter is a fellow accountant like me, but unlike me, he has a number of different businesses going on, not just advising clients, but also in the training space and a few other areas as well. Welcome Peter.
Peter Johnson (00:35.592)
Hi, how are you?
Trudi Cowan (00:37.328)
Very well.
Sarah Eifermann (00:37.651)
And not too bad, it's a Monday. Is it freezing? Are you on the Gold Coast? Are you in Sydney today? Yeah, so you're loving life. You're loving life like me. Amazing. Peter, how long have you been an accountant for?
Peter Johnson (00:42.216)
I'm on the Gold Coast so it's not freezing. Yeah.
Trudi Cowan (00:46.636)
I'm going to go ahead and close the video.
Peter Johnson (00:53.416)
well, interestingly, I was on a webinar the other night. My first boss was there and I started working for my first accounting boss. I started working for him in April, 1990. Well, he's more of a veteran.
Sarah Eifermann (01:05.555)
Wow, veteran of the industry amongst other veteran. Yeah, yeah. Well, yeah, he's still around and kicking and still doing well.
Trudi Cowan (01:06.256)
No. Yeah.
Peter Johnson (01:17.928)
Yeah, well, he's retired, but kept about five clients, the usual deal, the fun ones that I want to keep doing. Yeah.
Sarah Eifermann (01:19.891)
Yeah. Okay. That they like. Yeah. The ones that they like to work with. Amazing. So Pete, you're a bit of a subject matter expert these days and you run a lot of training for accountants on a range of different things. And Trudy and I regularly see questions about like small business rollover and restructuring. And we thought, you know what, we're going to get an expert in to talk to our audience today.
Trudi Cowan (01:25.423)
Yep.
Sarah Eifermann (01:47.827)
about all things related to this. So how do you feel? Yeah. All right, Trudy, get your questions lined up. Let's go.
Peter Johnson (01:52.168)
Fantastic.
Trudi Cowan (01:52.624)
I'm sorry.
Trudi Cowan (01:58.736)
The first one is, I mean, one of the really common questions that we get as accountants is what's the right entity type? So when you're talking to clients about that Peter, what are some of the things that you're looking at and considering when a business is trying to decide on the right structure?
Peter Johnson (02:12.296)
Yeah, it's funny, isn't it? A lot of people go, what's the right entity type? And someone will just answer with it should be a company, should be a trust, should be a unit trust, should be a partnership. No one actually goes and says to them, well, tell me a bit about you, a bit about what you're going to do. And that includes what are you going to do about a family? What are your long term plans with this business? Are you actually going to leave this business to your children?
Trudi Cowan (02:27.248)
Yeah.
Peter Johnson (02:39.208)
Are you going to build it up and sell it in your 30s or your 40s? Are you going to keep it for 15 years? Is income tax now more important to you than saving capital gains tax when you sell the business? Have you got a business you can sell? You may not be able to sell it. So I'm going to talk to you about all these other things other than just the business, because you might come in and say, I'm an electrician. I'll come up with the strategy of just being
a company. But you might say I'm an electrician, then I go, no, you need to be a trust. It could even end up that you need to be a partnership. We don't know until we have a detailed discussion.
Sarah Eifermann (03:21.683)
Yeah, completely.
Trudi Cowan (03:22.)
Yeah, and I say that to my clients often, you know, just because I've got other clients in the same industry as you doesn't mean that the same structure is going to be appropriate for you.
Peter Johnson (03:28.584)
Mm -hmm. Yep.
Sarah Eifermann (03:31.411)
Yeah, it's a common question that comes up with me and I always direct them for their tax and like future planning questions to their accountant, whether it's Trudy or another accountant, because I mean, we can talk about what entity type is right for you right now. But what are your future implications? A lot of the planning work that I do is about, well, what's the goal? If you're going to blood, sweat and tears into a business, you need to have a saleable asset. Have you even considered that a saleable asset is something that is on the radar for you in the future? And then what are the implications if you have the wrong entity type?
to go with that.
Trudi Cowan (04:02.736)
Yeah, definitely.
Peter Johnson (04:04.936)
And I would leave it to you guys to maximize the value of the entity. I'm a tax consultant. I don't teach people to have a more valuable business, but we still need to look at what it's going to be in 10 years time, 20 years time. And when you've really increased that value, then they can have the minimal tax impact when they see it.
Sarah Eifermann (04:08.187)
Yeah.
Sarah Eifermann (04:13.459)
No. No.
Sarah Eifermann (04:28.531)
I think a lot of people in our audience right now are nodding their head and smiling going this bloke's on the money because we all like saving tax. So for what you do primarily, is it around reducing tax or are there other factors that you take into consideration when you look at the consulting life that you do?
Trudi Cowan (04:34.488)
I'm going to go ahead and close the video.
with.
Peter Johnson (04:47.752)
I do mainly do consulting on tax. In fact, it's all I really and super, but it's unfortunate. It's not always about reducing it. Sometimes it's people are coming to me after a transaction and saying, what are the taxation consequences? And I bang my head against a brick wall going, if someone had spoken to you five or 10 years ago, you'd be a million dollars in front now because you were in the wrong structure.
Sarah Eifermann (04:51.667)
Mm -hmm. Yeah. Yeah.
Trudi Cowan (05:04.592)
Mm -hmm.
Sarah Eifermann (05:05.075)
Yeah.
Sarah Eifermann (05:09.171)
Yes.
Peter Johnson (05:16.648)
and nobody talked to you about your structure until you sold your business.
Sarah Eifermann (05:21.587)
Mm -hmm. Mm -hmm.
Trudi Cowan (05:22.)
Yeah, definitely. Now, in terms of, I guess, changing structures, something that I find clients aren't always aware is it's not just as simple of stopping one structure, one type of and starting up in another. There are obviously capital gains, tax implications and stamp duty issues that we need to consider. But from, I guess, in the small business space, the rollover that we're typically looking at is that that CGT small business rollover. So can you maybe talk to us about, I guess, a really high level of
what that rollover is.
Peter Johnson (05:52.698)
Yeah, so in 2017, the government decided that it was a good idea to allow small businesses to move to a new structure and have capital gains rollover relief when they move to that new structure. So you're a sole trader, but you should be a company or you're a sole trader and you should be a trust. We want to move that to this other entity.
but the new entities deemed to have owned it from when you owned it and paid the price that you paid. The unfortunate part about it was that they made the legislation too complex and got it wrong in a few areas. So whilst you may think I can do this restructure, in some instances, you can't actually do the restructure. So it's important to have a really detailed conversation about can I go from there to there? And...
Most people like the restructure to be as simple as possible, which makes perfect sense. So you've got a trading company that's owned by individuals, you want to move those shares to a trust. But that's one of the ones that didn't work. It's one of the ones you can't do. So you've actually got to go right to the bottom to the goodwill of the business and move that to a new entity, which means you got to change.
Sarah Eifermann (07:13.427)
Yeah.
Peter Johnson (07:16.872)
letterheads and ABNs and stuff like that. The tax is great, but there's a lot more work from the client's point of view in restructuring.
Trudi Cowan (07:26.704)
Yeah, so I guess the message there is if any of our listeners are considering restructuring, you really need to be getting some proper advice from an accountant that knows what they're talking about and not just assuming that what you want to restructure into is going to work tax free for you.
Peter Johnson (07:41.48)
Yeah, I get a lot of people that come to me that have met someone in the pub that has said, you can do this. And just through simple Chinese whispers, what was this becomes that. And they're, well, we did that, but they didn't do that at all. They did something completely different.
Sarah Eifermann (07:59.027)
does not pass the pub test.
Peter Johnson (08:00.904)
Yeah, well, yeah, that's right. It didn't pass the pub test.
Trudi Cowan (08:06.448)
Yeah. Now you mentioned earlier, one of the factors that you consider when deciding on an appropriate structure is things like capital gain, you know, income tax now versus potential capital gains later and how long they're planning on holding the business. Now I'm assuming one of the factors you're getting at that is some of the CGT concessions when you actually sell your business that are available. And they're concessions that I think a lot of business owners aren't actually aware of, they're so busy focusing on right now.
Peter Johnson (08:27.144)
Very nice. Yeah.
Trudi Cowan (08:34.544)
that they're not thinking about the plan of how they're going to exit the business at some point in the future. So could you maybe touch on, I guess, what the four main exemptions are that may be relevant to small business owners?
Peter Johnson (08:47.144)
Sure. So the now this one's been in since the late nineties, I think, Howard's government bought it in in either 97 or 98, probably in that tax sheet. And what it was designed to do was small business owners invest in their business. They put the money in the business and then they get to well back then 55 was a retirement age. It's probably changed a fair bit now, but they've still got that number 55 and they sell their business, but they've got no super. But now they were paying tax.
Trudi Cowan (09:10.511)
Thank you.
Peter Johnson (09:16.648)
on the capital gain. And so they said, no, we want people to be able to invest in their business. And then when they sell it, they get tax concessions. Now, the best tax concession is what is known. And this is really poor wording, but what is known as the 15 year exemption. I say it's poor wording, because you have to be retiring to get the 15 year exemption. There's another one called the retirement exemption where you don't have to be retired.
So we might even call this the 15 year exemption. So if you're over 55 and you've owned your business for at least 15 years and you sell it to retire, there can be no tax, no tax. And I'm talking businesses that could sell in the many millions of dollars can still be no tax if you're eligible for that concession. And it is this price.
Sarah Eifermann (09:46.103)
you
Trudi Cowan (09:46.16)
You
Sarah Eifermann (10:11.571)
So you have to be over 55.
Peter Johnson (10:13.768)
You have to be over at 55 at the time you sell it and you have to be the sale has to be in connection with your retirement. So you get those two. Yeah. Well, you can for a short period. If, if let's say I was buying your business, Sarah, and I needed to know all about it, you might have to stay there to take me through a transition period for six months or 12 months.
Sarah Eifermann (10:21.843)
Yeah, so walk in walk out business. You can't stay unemployed.
Sarah Eifermann (10:32.339)
Mm -hmm. Mm -hmm.
Yeah. Okay.
Peter Johnson (10:40.584)
Now that's, so that's first price, but a lot of people will not have owned a business for 15 years or won't be 55 when they're selling it. So then we've got these other concessions to go with it. The first one is just simply called the small business 50 and it reduces the capital gain by half. You already know if you own an asset for a year and you sell it, well, you get a 50 % discount. If it's a small business asset and it complies,
Sarah Eifermann (11:00.339)
Mm -hmm.
Peter Johnson (11:07.752)
You get another 50 % discount. So suddenly we're down to only paying tax on 25 % of the capital gain. So if you sell your business for a million dollars and you've owned it for more than a year, well, first of all, it drops to 500 ,000, just like if you sold a rental property, but then it drops by another 50 % to only 250 ,000. If you're then to say, well, I'll pay that tax, you're paying 125 ,000 max.
bit less on a million bucks. So it's pretty good. But then there's two more options that you can do with that remaining 25%. One option is called the retirement exemption. But here you don't need to be retiring. So it's really poorly worded. And you simply, if you're under 55, you put that money in super. And there's no tax then at all. If you're over 55, you either keep the money or put it in super.
and there's still no tax, you might go, well, what's the difference? Well, this has a lifetime limit of $500 ,000. So depending on your structure, still allows a gain of up to 2 million with no tax if you're over 55. You do have another option. You might've been 35 when you sold that business and you're not gonna pull the pin now. You wanna buy another business. And so you can actually say with that last 25%, I'm actually gonna,
buy another business within the next two years and you get rollover to that new business. And so again, you don't pay any tax and you move the asset forward to another one. But then when you sell that asset, well, you've made more of a capital gain because you're, if you're rolling over that 250 ,000, well then that comes off the amount you paid for it. And that's called rollover relief. So you're moving it to a new asset and getting the rollover.
What's most important to understand here is that one of them requires you to be in the business for 15 years and to be over 55. And you should be speaking to your accountant about this issue now, today. If you've owned the business for five years, you have a conversation and go, hey, I'm definitely gonna own it for another 10 and then I'll sell it. And they can go, well, this is where you need to be. But if you've...
Sarah Eifermann (13:22.067)
Mm -hmm. Mm -hmm.
Trudi Cowan (13:22.928)
Hmm.
Peter Johnson (13:33.672)
been in there and saying, well, no, I'm not going to hang around for that long, I'm going to sell it. And I'm going to sell it in four, five, six years time. Well, then we've got to have a conversation about what is the best structure for then. But the thing to understand with restructuring, if we go, this is the wrong structure for a sale, you should say, let's say you're in a company and we go, no, a better structure is a trust. And I'm not saying that that is your position. Just in this
Trudi Cowan (13:45.872)
Yep.
Sarah Eifermann (13:46.895)
Yeah. Yeah.
Sarah Eifermann (14:01.651)
Yeah.
Trudi Cowan (14:02.16)
This is an example.
Peter Johnson (14:03.448)
But let's say, now under the rules with the restructure, we can move you from the company to the trust and we can get rollover relief, but you've got to be in that trust for four years. Otherwise, it's a capital gain event four years ago. So we've got to know in advance, we've got to be talking to you now. This is 2024. You've got to stay there till 2028.
So I've got to have conversations with you now about 2028, 2029, 2030, rather than I solve my business, what's the tax position, because that's just too late.
Trudi Cowan (14:43.728)
Well, way too late, yeah. And there's nothing more frustrating to an accountant than having someone come after they've done the transaction and there's nothing you can do to help them other than just advise them the implications of what they've already done.
Sarah Eifermann (14:47.827)
Yes.
Sarah Eifermann (14:58.035)
Yeah, this just feeds into the stuff we talk about all the time about pre -planning and asking questions and getting the right advisors and building relationships with them so that you can get these things answered before they become problems. I did have a... yeah.
Peter Johnson (14:58.12)
Exactly. Exactly.
Peter Johnson (15:11.172)
And yeah, I just wanted to add about how important it is because the best structure for the 15 year exemption is a company usually like most of the time, but the best structure under the retirement exemption is a trust. So we need to work out which one are you going to be claiming. And so we know we've got you in the right structure and that does require a lot of pre -planning because to get it wrong can...
Sarah Eifermann (15:20.659)
Mm -hmm.
Sarah Eifermann (15:26.547)
Mm.
Peter Johnson (15:40.808)
can have severe impacts. I've done some of them just in the last week where they were in a company, they should have been a trust and although they didn't pay any extra tax, the guy was in his 30s and he wanted as much money as possible. By being in a company 62 and a half percent had to go into super, whereas in his own name, only 25 % would have gone into super. So it's cost him more money.
Sarah Eifermann (15:52.531)
Yeah.
Sarah Eifermann (16:02.739)
Yeah, so I did have one question. You mentioned earlier that you don't pay any tax if you roll it into super. I assume that you still pay tax within the fund on the contribution on the earnings. Yeah.
Trudi Cowan (16:03.984)
Yeah.
Peter Johnson (16:13.384)
Yeah, on the earnings. So let's say that that limit is $500 ,000. You put that 500 ,000 in super, that is a non taxable contribution, also a non concessional contribution, which means that comes out tax free to your kids and everything. It's not subject to any other caps. So even if you've got 2 million in super, you can still put that 500 ,000 in, by the way, under the 15 year exemption, it's 1 .715 million.
Sarah Eifermann (16:18.515)
Mm -hmm.
Okay. Sessional? Yeah.
Mm -hmm.
Peter Johnson (16:43.048)
this financial year and 1 .78 million next financial year. But yeah, then the earnings on that 500 ,000, if you're not in pension phase, it's 15%. If you're in pension phase, there's no tax on it.
Sarah Eifermann (16:43.091)
Yeah.
Sarah Eifermann (16:53.875)
Yes, yeah. But you don't get taxed on the actual contribution to Super. Yeah, which is a big, where the benefit can be for a lot of people because it really is then tax free. Yeah, amazing. Amazing.
Peter Johnson (16:58.76)
No, no, it's a non -concessional contribution. Yeah. Yeah, exactly. Yep. Yep.
Trudi Cowan (17:09.904)
I think it's also important to point out to people that there are, yes, there's four, I guess, concessions that we've just spoken about, but it's not a case of you apply one and then you can't get the others. They do actually work together to sort of get you that best outcome, which is even more so important to talk to your accountants. It's not a case of you can just look something up on the ATO website because working out which order to apply and which ones to do first and second and so forth is actually really important to get the best outcome.
Sarah Eifermann (17:36.727)
Yes. Which is why Trudy had a nice little spreadsheet she operated from when I sold my part of my business, because this was all part of the, you know, I was 35 and yeah. And so, you know, a little bit older than that, 36, but like it does filter through as to how all the implications then work so that you can get the best benefit to ensure that. But again, then again, like we had planned it too, right? Like I had come to you and asked you, what do I do moving forward before I went and did it?
Trudi Cowan (17:41.488)
I'm out.
Trudi Cowan (18:06.416)
Yeah, yes, which is perfect client. That's what we like to have. Let's talk about before the event's actually going to happen. Now with these exemptions, there are actually obviously a whole bunch of threshold tests as to whether you can actually eligible to apply them, many of which we won't go through today because they do get rather complex. But I guess just a basic level, what are sort of the income and assets or the size of business type thresholds that are relevant?
Sarah Eifermann (18:06.451)
So.
Yeah.
completely.
Peter Johnson (18:28.712)
And this is really, really, really important. And thankfully, it's an either or. Now the two tests, there's an asset test, which says that your net asset value for CGT assets has to be under $6 million. And it's a fairly high threshold, but there's still a lot of people, farmers, for example, now it seems to me that I've never had a farm referred to me that's under $6 million.
So if your assets are under $6 million, you're there and not every asset counts. And sometimes we've got to tell people, we're going to have a plan where you're not losing assets, but you're moving them around so you can get below the 6 million. And the other one is the turnover test, which has to be under $2 million in turnover, which has never really gone up. And so $2 million turnover now is...
a lot less really than what it was 10 years ago. And it's a bit unfair too, because if you're a furniture shop, turning over $2 million a year, you got to buy your furniture. So you're probably not making as much money as say, me, who just does online training. And if I turn over $2 million, it's all is going to be profits. It's a little bit unfair, the way they do it. It's also important to note that they aggregate.
Sarah Eifermann (19:36.275)
Mm -hmm.
Sarah Eifermann (19:46.003)
Yeah. Yeah.
Peter Johnson (19:51.944)
You said yourself, Sarah, that you know, I've got a number of businesses. Well, I can't just take one of them and say that turnover is under 2 million. So I'm there. They go, no, no, no. What else do you control, Pete? Even if in different entities. Yeah. There's some really good tricks for getting your assets below the $6 million that a lot of your viewers are going to like if they're men and their wives are going to hate. But I remember once saying to someone, you've got to go and buy yourself a brand new Ferrari.
Sarah Eifermann (20:00.595)
Yeah. Yeah. Even if in different entities. Yeah. Yeah. Yeah. So group position.
Peter Johnson (20:22.056)
because a million dollars in the bank counts towards the $6 million test. But if you go and buy a brand new Ferrari with that million dollars, it doesn't count. So if you were just over the $6 million and not getting the concessions and you went and spent a million on a Ferrari, you might actually save $1 .25 million in tax by doing it. Yeah.
Sarah Eifermann (20:32.627)
Mm -hmm.
Sarah Eifermann (20:44.467)
on the tax, so buy a non -depreciating asset and then potentially clear it on later.
Trudi Cowan (20:45.648)
Yep.
Peter Johnson (20:49.064)
Yeah, it's one of those rare things where normally to save $1 in tax, you got to spend $2 and it's gone. Whereas here, you can go and buy a boat or a Ferrari or a holiday house. Obviously a holiday house makes a lot more sense. And, and that reduces your assets by that amount. So, or converting a rental property to a holiday house. You can't do it the day before yourself. You'd have that we know the tax office.
Sarah Eifermann (20:52.307)
Mm.
Sarah Eifermann (20:56.819)
Yes.
Sarah Eifermann (21:07.187)
Yeah. Yeah.
Trudi Cowan (21:12.432)
Yeah.
Sarah Eifermann (21:14.515)
Yes.
Peter Johnson (21:17.16)
want to, they'll look at last year's tax return and go, was that a rental property last year or a personal use property? So if you're going to sell, we need, we need four years notice to get the structure right. And we need two years notice to get your asset situation right.
Sarah Eifermann (21:19.827)
Mm -hmm.
Sarah Eifermann (21:24.339)
Yeah.
Sarah Eifermann (21:28.979)
Yes.
Sarah Eifermann (21:33.299)
Mm -hmm, exactly.
Trudi Cowan (21:33.552)
Yeah, and I know Peter, these are sort of figures you like to track on a yearly basis for your clients as well so that you know if people are getting into a situation where it's going to be a problem if they did decide to sell.
Peter Johnson (21:44.008)
Yes, every year when you're talking to your accountant, go through the $6 million assets test, you go through the $2 million turnover test, you have a look at what would the consequences be if we sold the business now, what are your plans? And if your plans don't suit the structure, we restructure now and then we're there and it's going to save you minimum in the tens of thousands of tax but potentially up to
The max really is about 1 .25 million. We can save you in tax for someone else. Yeah. Yeah.
Sarah Eifermann (22:17.459)
deal better off in your pocket than in the ATOs, personally. That's how I feel about that. I'd rather you, it's like interest, I'd rather you keep the interest in your pocket than pay it to a lender too.
Peter Johnson (22:27.304)
Yes, correct, absolutely.
Trudi Cowan (22:30.316)
Now, I guess what's some of the biggest, I guess, I mean, obviously other than planning, because we're talking about planning, but what's some of the biggest problems or issues that you see that come up with clients that just get it wrong?
Peter Johnson (22:42.696)
First of all, they are in just simply the wrong structure. And then what they do, the most common one is in a company. And this is getting technical. But where a company has division 7A loans to its shareholders, that can actually mean that the company does not get the small business concessions. Because it's got to have most of its assets in active assets and this Dib7A loan is not
an active asset. So that can cause problems there. Going over the 2 million and you've actually aggregated with other people that shouldn't be aggregated. So it's I've got a trust and I distribute some money to mum and dad one year. Well, sadly, mum and dad's assets added up for the $6 million test because they're connected. And so we go over the $6 million.
Sarah Eifermann (23:12.499)
Not active. Yeah.
Sarah Eifermann (23:36.083)
They're in the pool. They're in the pool.
Trudi Cowan (23:37.68)
Yeah, okay. Yeah.
Peter Johnson (23:42.024)
So all these problems are around connected entities and affiliates that can be addressed because again, you're connected to a trust for the next four years once it pays the distribution to you.
Sarah Eifermann (23:53.715)
Yeah, because it's a four. Yeah, right. So if you get a distribution, you got four years to sit on that as inclusion in the assets pool. And I'm assuming that's all of their assets. Their super, their personal assets. Okay, so super is excluded, right? Yeah. Or a Ferrari. Ferrari's are not. Okay, so money in the bank or assets that are property. Yeah.
Peter Johnson (24:02.6)
Yeah, no, no supers, supers out. But if you've got an investment property, if they've got money in the bank, that no, no Ferraris around. Yeah, yeah, any asset really, and the exemptions, which are good to know is your main residence. So we might say to someone, go and sell your house and buy a house worth $3 million more than that. And bang, you can save a million in tax.
Trudi Cowan (24:12.464)
And it's really bad.
Peter Johnson (24:32.072)
Personal use asset. So a holiday house is a personal use asset, even though it is subject to CGT. But if you've got it on Airbnb, then no, it counts. A car is a personal use asset. A painting, you want to go and buy a Monet, a painting would be a personal use asset as long as you hang it on the wall at home and don't have it in a gallery. If it's in a gallery, it's not a personal use asset. These are the sort of things.
Sarah Eifermann (24:36.339)
Yeah.
Sarah Eifermann (24:47.187)
Yep.
Sarah Eifermann (24:56.691)
And I would like to add here in most instances you'd need to be paying cash because you won't be borrowing money to do these things.
Trudi Cowan (25:02.48)
Hahaha!
Peter Johnson (25:02.632)
Now if you're booking that's right. Well, yeah, exactly. I can't imagine a bank would lend you money to buy a Monet. So I think, well, you can borrow to buy a Ferrari. Yeah. Costs 8 ,000 a month in repayments, but you can borrow to buy a Ferrari.
Sarah Eifermann (25:10.387)
Well, I mean, you can sometimes, depending on circumstances.
Trudi Cowan (25:15.856)
I'm sorry.
Sarah Eifermann (25:19.347)
Correct, right? So I mean, there are implications of these are amazing things that are to save tax, but we also have to think through the total cycle here because there are some interesting implications and they may not be affordable to you either depending on circumstances. So that's the whole purpose of coming early and understanding them and doing the plan and working them out. So, yeah, fascinating because people will be listening going, wow, I did not know that I'm going to go buy a Ferrari now.
Peter Johnson (25:43.944)
Yeah, now, as long as they don't go and buy a Ferrari, and they come and talk to you, and then you you inform them that we would have got the concessions anyway. So now you got to sell the Ferrari and you're going to get 300 grand less for it than you bought it for. You've got to speak to someone and get the advice and don't get it from the pub go to Trudy get it from your accountant. So hmm.
Trudi Cowan (25:44.336)
No
Sarah Eifermann (25:50.547)
Yeah. Yeah.
Sarah Eifermann (25:54.675)
Anyway.
Trudi Cowan (25:55.536)
Anyway.
Trudi Cowan (26:01.264)
Yeah.
Sarah Eifermann (26:08.627)
Correct. Yeah. Agreed. Agreed. Trudy, have you got another question? I think you've got another one, don't you? Yeah.
Peter Johnson (26:12.136)
So it's all done correctly.
Trudi Cowan (26:15.056)
I did, I thought that was my last one, but...
Peter Johnson (26:18.344)
Let me have a look.
Sarah Eifermann (26:18.611)
Trudi Cowan (26:20.912)
Trips and traps, any tips.
Peter Johnson (26:21.32)
Sarah Eifermann (26:22.739)
Mm.
Peter Johnson (26:24.776)
Take advice early and often. Always, always talk to your accountant about your exit strategy. Now, of course you can change it, but it would be good to know the consequences of changing it because if we go, you set up perfectly to hand this business over to your children and then you go, well, what if I don't? What if I say I want to sell it now? Well, now we want it to be a bit different. As long as you know about that while you're going forward.
Sarah Eifermann (26:27.571)
Yeah. Yeah.
Sarah Eifermann (26:38.707)
Mm. Mm.
Peter Johnson (26:53.96)
So always, always have the exit. Always talk about your exit from the business. We're all gonna exit our business. All of us will exit our business. Yeah, some of us will be dead when we do it. And I'm the classic that got this wrong in that I had a business that was there for my daughter and someone came along and offered me too much money for it back in 2017. I had to sell it, but I was the wrong structure.
Sarah Eifermann (27:02.835)
At some point, whether we like it or not. Yeah.
Trudi Cowan (27:04.464)
Yeah.
Peter Johnson (27:23.24)
And had I looked at restructuring, I didn't pay any tax on it anyway, so it wasn't too bad. But had I wanted more money in my own pocket, I would have restructured earlier. But I needed four years in the restructure. But yes, I will actually, yeah. And so it's funny that I've overcome that, but it really would have been good to have been having the conversations.
Sarah Eifermann (27:23.315)
Yeah.
Trudi Cowan (27:36.144)
Yeah.
Sarah Eifermann (27:40.819)
Yeah, right. So you're going to have to sit on it for four years.
Peter Johnson (27:52.104)
back in 2014 or 15, where this business was staying in my name until I was 70 and then going to my daughter. But then someone said he's too much money. I was in the wrong structure. Yeah. Yeah.
Sarah Eifermann (27:54.483)
Yeah. Yeah.
Trudi Cowan (27:55.216)
Yeah.
Sarah Eifermann (28:02.067)
Yeah, plans change though, right? So sometimes no matter how much planning you do, things change as well. And again, that's okay. Again, but as you said,
Trudi Cowan (28:11.92)
That's why you should be constantly considering constantly revising so that you're factoring in those changes that are happening.
Peter Johnson (28:14.28)
Hmm.
Sarah Eifermann (28:16.627)
Correct, correct. Now I have one random question and it might be a tangent, but I often hear people talk about business restructure, but it's in relation to debt, as in they're effectively trading insolvently and they're running at a debt level. Is that the same thing as what we've been talking about now or is that something different?
Trudi Cowan (28:37.328)
That's different. You're talking about the, I can't think of the technical name for it, Peter, the debt restructuring rules.
Peter Johnson (28:40.936)
Yeah, it's a different, it's a liquidators restructure and it really comes in when it's all just too late. But it can be.
Trudi Cowan (28:46.128)
Hmm.
Sarah Eifermann (28:46.355)
Correct. Yeah.
Sarah Eifermann (28:50.515)
Yeah, so for those listening to us, we're not talking about like debt rollover relief is not the same thing that we've been talking about today with the small business rollover, right? They're not the same thing. And it's important to know the difference. Both of them really require planning ahead of time before you actually are in a position to go bankrupt and need a liquidator. But not the same thing then.
Trudi Cowan (28:58.32)
No, it's different.
Peter Johnson (29:12.392)
And while you're talking about the debt restructuring, some people think that, well, if I've got my business in a company, I'm going to sell it to a trust and I'm going to get the trust to borrow half a million dollars to pay for the business. And now I can take that money and pay it off my loan and claim interest on the debt, which you can't do that. That's that's a tax scheme. And so you're not allowed to use this to actually control.
Sarah Eifermann (29:33.043)
Mm -hmm. Mm -hmm. Yep. Yep.
Peter Johnson (29:42.152)
Recycle debt from non -deductible to deductible. Yeah. Yeah.
Sarah Eifermann (29:44.787)
That's exactly what it is, is debt recycling, which is not deductible. So don't do it. If anyone tells you, you can do it, get a different opinion. It doesn't work. Yeah. It's the same even in, with investment properties and the like and purpose. Purpose is always relevant. So.
Peter Johnson (29:54.152)
Yes, exactly. Yes. Yeah.
Peter Johnson (30:00.52)
Yeah, what I see from some, from some mortgage brokers with investment properties and now, and this is probably off the tangent of it, but the tax office now is saying to people when they audit them, we want your loan statements from the date you took out the loan to work out whether or not you can claim an interest tax deduction. And then when the client says, well, I haven't got access, they say, don't worry, we'll get them. So they just get them direct from the bank and they're
Trudi Cowan (30:02.832)
Yeah, we hope you enjoyed the fans.
Sarah Eifermann (30:08.243)
Mm -hmm.
Peter Johnson (30:29.095)
They're on the warpath with interest deductions this year.
Sarah Eifermann (30:32.691)
Yeah, I bet they are. I bet they are trying to justify positions because, you know, we're going backwards as a country.
Trudi Cowan (30:38.288)
Interest rates have gone up a lot, so those deductions are a lot higher this year than they have been in previous years.
Sarah Eifermann (30:41.827)
Yeah, and the bank wants the H .E .O. wants to make sure that they're that you're legitimately entitled to those deductions because it costs them money if you are. So well, this has been an amazing episode. Great amount of volume of information in a short space of time. But I really appreciate I learned a lot today again, which is fantastic. I appreciate it. Can people come direct you, Peter? Or do you work with accountants? You don't do any.
Peter Johnson (31:06.248)
I work, I solely work with accountants. So yeah, no, I don't go, don't go direct. No.
Sarah Eifermann (31:09.139)
That's what I thought, you don't do any direct consulting anymore, so... No. And if your accountant doesn't know these things, tell them to call Peter.
Peter Johnson (31:16.616)
Yeah, that's right.
Trudi Cowan (31:16.784)
Yeah, but I think that's also useful for people to know that even accountants, you know, we can't all know absolutely everything. So we have experts like Peter that we can go to as well when things are outside our.
Peter Johnson (31:24.84)
No, no different to your doctor like an accountant, they wouldn't get a small business CGT matter more often than once a year, whereas I do three to five a week. So it's a big difference.
Sarah Eifermann (31:29.811)
Mm -hmm.
Sarah Eifermann (31:37.619)
Mm -hmm. Yeah. Exactly. Fabulous. Well, it's been amazing having you. If anyone's got any questions, shoot them through to our usual contacts and we'll pass them on to you, Peter. But otherwise, enjoy the sunny afternoon you've got going up on the Gold Coast.
Peter Johnson (31:52.872)
I certainly will. 22 degrees in the middle of winter, I love it.
Sarah Eifermann (31:56.787)
You're always welcome to visit Trudy.
Trudi Cowan (31:56.912)
I wish.
You
Peter Johnson (32:03.688)
Exactly.