Navigating the Tax Implications of Business Restructuring: A Legal Perspective

By Max Gunawan, Platinum Legal

In the ever-evolving landscape of business taxation, the recent proposal by the Government to increase the trustee tax rate to 39% in alignment with the top personal tax rate has significant implications for businesses and trusts. This change, as outlined in the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill, underscores the complexity of tax planning and the necessity for businesses to consider the structure of their operations carefully.

Inland Revenue's guidance sheet GA 24/01, issued on 2 February 2024, provides valuable insights into how the authority may view certain transactions and structural changes in light of this proposed increase. It is a crucial reminder of the importance of due diligence and the need for expert advice when contemplating any business restructuring.

The guidance highlights several scenarios that could potentially raise concerns with Inland Revenue. For instance, a company owned by a trust changing its dividend policy in anticipation of the tax rate change could be seen as an attempt to circumvent the new rate unless such changes are made within the bounds of legitimate business needs and compliance with existing laws.

Moreover, the allocation of income to beneficiaries at lower tax rates, adopting company structures for holding assets, or even the winding up of trusts, while generally permissible, can become contentious if they involve artificial or contrived arrangements to reduce tax liabilities.

In light of Inland Revenue's increased scrutiny of transactions and structural changes following the proposed tax rate adjustments, it is more important than ever for businesses to seek comprehensive advice from their legal and accounting team. A collaborative approach ensures that restructuring efforts are strategically sound and fully compliant with evolving tax regulations, safeguarding businesses from potential disputes and penalties.

 Publication of this post is subject to our Terms of Use.