New or exiting shareholder?
18 October 2016
If you are considering buying shares in an existing business, or are a current shareholder looking to exit via sale of your shares, there are several tax matters to carefully consider. Among these are the impact of purchases or sales of shares on the calculation of “shareholder continuity”. This calculation tracks underlying shareholding percentages over time.
The calculation has important implications for tax losses and imputation credits.
Where a company is carrying forward tax losses, shareholder continuity of at least 49% must be maintained to preserve these losses. If continuity falls below this level, the losses are generally forfeited.
Where a company has imputation credits, shareholder continuity of at least 66% must be maintained to preserve the credits. If continuity falls below this level, these credits are lost.
There are a number of actions that can be taken before the purchase/sale event to mitigate or reduce the impact of a loss of continuity. We strongly recommend discussion with your BDO adviser prior to any proposed shareholding changes.
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