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Business valuations during the Crisis

The turbulence and uncertainty in global and domestic markets makes a business valuation a very difficult exercise now. Business owners who had been considering involving employees or family members in the business are naturally focused solely on the business itself as they work their way through this crisis, with such succession planning being temporarily put on hold. However, now may be an opportune time to proceed with same, particularly if it can be established that the business valuation has been adversely impacted. The valuation itself will need careful consideration but in the event that there is a reduced valuation, some benefits are:

Lower personal income tax implications on awarding shares to staff – for key staff that a business wishes to retain share schemes may be a very good alternative particularly where pay cuts/reduced bonuses are in play
Lower capital gains tax for the shareholder on transferring the shares/business to family
Lower gift tax for the beneficiary on receipt of a gift of shares/interest in the business
Lower stamp duty costs.

Losses on investment portfolios

If, from an investment perspective, you have decided to realise losses on your portfolio, be mindful that:

Capital losses can be used against gains in the current year or carried forward – they cannot be carried back.
If shares disposed of at a loss are re-acquired within 4 weeks, the loss realised can only be used against that particular investment when subsequently disposed of
If you have not used existing gift tax thresholds, a share portfolio that is breakeven or sitting at a loss could be transferred to a family member without any CAT liability or CGT liability. However, if losses arise on the transfer, such loss is a restricted connected party loss and can only be used to offset against gains on subsequent disposals to that family member. Stamp duty at 1% will apply on any transfer of shares.

Download PDF of the Tax Issue - April 2020