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_Lee2021(Newbie)Newbie
12 July 2021

Hi,

The Company that I work for has an unregistered company vehicle which they wish to sell to a shareholder in lieu of a company dividend. It will be transfer for less than market value ($26000 to be sold for $8000). What are the tax implications?

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1,154 views
2 replies

Most helpful response

Most helpful reply

KylieATO(Community Support)Community Support
21 July 2021

Hi @Lee2021

The transaction would be classed as non-arm's length between related parties. So, you would use the market value of the car rather than the price the shareholder paid to work out the tax consequence.

For the shareholder Division 7A may apply to deem the difference between the price paid by the shareholder and the market value of the vehicle to be an unfranked dividend which would be included the shareholder's assessable income. See Private Company Benefits - Division 7A dividends | Australian Taxation Office (ato.gov.au)

For the company the income tax treatment will depend on the nature of the car in its hands:

    • If the car is a depreciating asset held in respect of which the company has claimed deductions for depreciation, a balancing adjustment event will occur when it is sold. In calculating the tax consequences arising as a result of the balancing adjustment the company will treated as if it received the market value of the car (its termination value), rather than the contract price.
    • If the car was trading stock the company may be taken to have received its market value on disposal.

    The sale of the car may also have GST implications. If the company is registered or required to be registered for GST, the sale of the vehicle will be a taxable supply and GST will be payable on its disposal. As the sale is between associates, the company will be liable to pay GST on the GST exclusive market value of the vehicle, not the contracted sale price.

    We have tried to cover all possibilities for you but if you need more tailored advice please contact our Early Engagement team for a private ruling.

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    Most helpful reply

    KylieATO(Community Support)Community Support
    21 July 2021

    Hi @Lee2021

    The transaction would be classed as non-arm's length between related parties. So, you would use the market value of the car rather than the price the shareholder paid to work out the tax consequence.

    For the shareholder Division 7A may apply to deem the difference between the price paid by the shareholder and the market value of the vehicle to be an unfranked dividend which would be included the shareholder's assessable income. See Private Company Benefits - Division 7A dividends | Australian Taxation Office (ato.gov.au)

    For the company the income tax treatment will depend on the nature of the car in its hands:

      • If the car is a depreciating asset held in respect of which the company has claimed deductions for depreciation, a balancing adjustment event will occur when it is sold. In calculating the tax consequences arising as a result of the balancing adjustment the company will treated as if it received the market value of the car (its termination value), rather than the contract price.
      • If the car was trading stock the company may be taken to have received its market value on disposal.

      The sale of the car may also have GST implications. If the company is registered or required to be registered for GST, the sale of the vehicle will be a taxable supply and GST will be payable on its disposal. As the sale is between associates, the company will be liable to pay GST on the GST exclusive market value of the vehicle, not the contracted sale price.

      We have tried to cover all possibilities for you but if you need more tailored advice please contact our Early Engagement team for a private ruling.

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