Question

Windmill Ltd commenced a takeover of its principal competitor WindPower Ltd in June 2019. The takeover was hostile and WindPower Ltd fought it vigorously.

WindPower Ltd was under financial stress due to misappropriation of funds by a former employee. This provided Windmill Ltd with the opportunity to mount the takeover.

Legal costs were significant due to the hostility against the takeover.

Just prior to the finalisation of the documentation, the senior management staff of Windpower Ltd won Lotto and were in a position to take over the company and pay off all outstanding debts.

Windmill Ltd spent a total of $1.5 m on the unsuccessful takeover in both 2019 and 2020.

Mr Abbott, the Managing Director of Windmills Ltd, has asked for your advice of how this large expense is to be treated for tax purposes.

This section must be referenced in accordance with the Australian Guide to Legal Citation (AGLC).

Part B (300 – 500 words)

Prepare a letter of advice to Mr Abbott explaining how this expense can be treated for tax purposes.

Answer 1

Ans : In Corporate restructuring activitieslike merger, acquisition and takeover huge amount of deal seen to happen in the market. So care to be taken especially for acquireer for tax liabilities for target company.

Letter of Advice for Tax purpose in the event of Takeover for Mr Abbott:

-You must be able to start transaction tax planning early to realize tax benefits, since tax benefits of this move accrues to purchaser.

- Look for credits and incentives that benefits the deal.

-There is always need to consider the transaction structuring options. Generally assets purchase provides better tax results for the acquireer.Acceleration of amortisation of the acquired assets takes place,which generates significant near term cash flow benefit.

-You should explore your tax due diligence to the tarfet company's current and projected tax liabilities.

-Also check viability of target company's tax attributes, tax attributes of the target company's provide key tax benefits.