Following on from our previous article we set out the more detailed issues for a pharmacy owned by a company structure in Queensland when the relevant provisions of the new Act come into effect.
There are a number of restrictions on the types of companies who can own a pharmacy and who can be a shareholder in a pharmacy business as:
- only practising pharmacists, their spouse or adult children can be shareholders in a pharmacy business1;
- the majority of the shares must be owned by practising pharmacists2; and
- all voting shares have to be held by practising pharmacists.3
Importantly, the Queensland Government stated when the Act was introduced that this means the shareholders must also own the beneficial interest in the shares as well. This meant that they cannot hold those shares on trust for other parties. This will be an issue for many pharmacists as trustee shareholders are a common structuring tool.
While this was our view of the drafting of the Act, we note that some advisors initially took a different view and considered this interest could be held on a particular type of trust. The Queensland Government's consultation paper is now seeking to clarify and amend the Act to make it absolutely clear that the shares cannot be held on trust.
If you have a company that owns a pharmacy, there are a number of steps that should be taken immediately:
- review the shareholding of the company;
- get legal and accounting advice to ensure that the majority of the shares are owned by practising pharmacists (there are a number of ways to do this);
- talk to lawyers to see if a class of voting rights shares need to be issued to registered pharmacists or other amendments made to the rights of shareholders who are not registered pharmacists;
- if any shares are not held by a registered pharmacist, their spouse or adult children get legal advice; and
- amend your shareholders agreement or consider having one prepared.
Depending on how your company is set up, these steps may be quite complicated. If the shareholding needs to be changed there may be significant capital gains tax issues that need to be considered.
Further, if the shareholders are only the registered pharmacist, their spouse and adult children, this will affect the tax that will effectively be paid when dividends are declared by the company. A tax effective strategy in the past was to have another company own the shares (commonly known as a "bucket company") and the dividend paid to that company at the company tax rate.
That will no longer be available as an option under the Act. While the company that owns the pharmacy doesn't need to pay all the income it receives as a dividend, having money "tied up" in the company creates problems as well.
Legal and accounting advice on ways to try and structure the company to try and reduce the capital gains tax and income tax issues while still complying with the Act is critical to minimise the effects on those companies and their shareholders.
If your company needs to restructure this will require time to organise to work out the most effective way to restructure the company. Pharmacy owners should take advantage of the long lead time for the Act to come into force by preparing now.
If your pharmacy needs to reorganise its affairs you should urgently contact Andrew Lambros or Chris Lillie for advice on the best way to proceed.
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Footnotes:
1 S13 of the Act
2 S10(c))i) of the Act
3 S10(c)(ii) of the Act
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
