FINANCIAL SERVICES Managed Investments Seminar May 2007.
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Transcript of FINANCIAL SERVICES Managed Investments Seminar May 2007.
FINANCIAL SERVICES
Managed Investments SeminarMay 2007
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Managed Investments Seminar
• Introduction – Tony Mulveney, Partner
•Tax Update – Saminda Fernando, Senior Manager
•Superannuation – Wayne Hirt, Partner
•Unit Pricing – Martin Paino, Senior Manager
•Financial Reporting & IFRS – David Kells, Partner
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Key tax developments
Saminda Fernando
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Key tax developments
•CGT and foreign residents
•Withholding tax - Tax Laws Amendment (2007 Measures No. 3) Bill 2007
Distributions to non-residents from managed investment trusts
Distributions to non-resident trustee beneficiaries
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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CGT and foreign residents
• Implications for non-resident investors:
Disposal of interests in managed funds
Capital gains through fixed trusts
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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CGT and foreign residents
• Disposal of interests in managed funds
Non-portfolio interest test
Less than 10% at disposal or throughout a 12-month period in the 2 years before disposal
Principal asset test
More than 50% of the entity’s assets are TARP
Tracing through chains of entities
• Capital gains through fixed trusts
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Distributions to non-residents from managed investment trusts
•Flat 30% non-final tax regardless of identity of non-resident (from 1 July following Royal Assent)
•Managed investment trust
Relevant connection with Australia
MIS
Listed or widely held
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Distributions to non-residents from managed investment trusts (cont)
•Fund payment
Estimation of net income adjusted for excluded amounts and deductions
Excluded amounts (interest, dividend, royalties, non-TAP capital gains and foreign income)
Reasonable estimations required based on trustee’s knowledge at the time of making the payment
Timing
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Distributions to non-residents from managed investment trusts (cont)
•Trustee required to withhold on Fund Payment
•Remittance
•No withholding for payments to Intermediaries
Notices
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Distributions to non-resident trustees
• Distributions to non-resident trusts assessable to resident trustee
• Tax rate is the non-resident individual top marginal tax rate (currently 45%)
• Non-final tax
• Generally effective 1 July 2006
• Carve outs:
Australian managed investment trusts
Trustee intermediaries (managed investment trust income only)
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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2007 Federal Budget Announcements
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2007 Federal Budget Announcements
•SBT ceiling to be removed
Effective 1 July 2005
•Restructuring stapled entities
Effective from 2006-07 year
•Venture capital - further concessions
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Presenter’s contact details
Saminda Fernando
Senior Manager
02 9335 8809
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Superannuation
Wayne Hirt
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Superannuation – Is it really Simplified?
•Topics
‘Simplification’ overview
Implications
Administration systems
Pensions
TFNs
Contributions
Taxation on death benefits
Superannuation Guarantee (SG) / Ordinary Time Earnings (OTE)
Anti Money Laundering (AML) / Counter Terrorism Financing (CTF)
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Liability limited by a scheme approved under Professional Standards Legislation.
Everything is rosy – Overview of key changes
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Budget overview
• Changes to the tax arrangements for superannuation termination payments
• Reasonable Benefit Limits (RBLs) will be abolished
• Tax on benefit payments
Lump sum
Pension
Death
• Removal of the current age-based deductible contribution limits
• New pension structure
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But danger lurks beneath (Implications)
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Administration systems implications
• Administrative issues
Update of fund documentation (Trust Deed, PDS, etc)
Contributions reporting – Surcharge reincarnate
Treatment of excess contributions
Refund of contributions
- No TFNs
- Excessive amounts
Crystallisation of pre July ’83 components
• External software providers
• System upgrade
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Pensions implications
•Allocated pensions
•Morphing / Commutation to new pension
Trigger events
•New superannuation minimums
•Transition to retirement pensions
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Allocated pension minimums compared to new superannuation pension minimums
0
20000
40000
60000
80000
100000
120000
20 30 40 50 60 70 80 90 100
Age
Acc
ou
nt
Bal
ance
Allocated Pension Super Pension
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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TFN implications
• TFN collection and taxation consequences (penalty tax)
• Rejection of undeducted monies
• Risk only products
• TFN quoted post payment
• Quotation of TFNs by employers
• What are you ding to collect TFN’s?
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Contribution implications
• Contribution limits
Concessional
Non concessional
• Monitoring of contributions against limits
Who is responsible…
- Member?
- Fund?
- Employer?
• Reporting requirements
• Salary packaging
• DB funds
• Early / Late balancers
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Death Benefit implications
•Payment to a dependant
•Payment to a non-dependant
•Payment to an estate
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Just when you thought it was safe to go back into the water!
•AML / CTF
•Superannuation Guarantee / OTE
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Conclusion
• Is it really Simpler?
•Have you identified the system / process enhancements required?
•Resourcing – I.T. and Human
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Appendices
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Tax rates for lump sums paid by superannuation funds
Age Current treatment New treatment
Under 55 Pre-83
Post-83
5% assessable at MTR
20%
Nil
20%
55 to 59 Pre-83
Post-83
5% assessable at MTR
Nil on 1st $135,590; balance at 15%
Nil
Nil on 1st $140,000; balance at 15%
60+ As per 55 to 59 above Nil
Excess above RBLs
Pre-83
Post-83
45%
38%
Nil
Nil
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Tax rates for pensions paid by superannuation funds
Age Current treatment (assuming the individual has not exceeded their relevant RBL)
New treatment
55 to 59 Deductible or tax exempt amount
Balance
Nil
MTR less 15% rebate
Nil
MTR less 15% rebate
60+ As for age 55 to 59 Nil
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Presenter’s contact details
Wayne Hirt
Partner
02 9335 7871
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
31© 2007 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Unit Pricing
Martin Paino
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Agenda
•Unit Pricing Attribution (A new development)
What is it?
What are the benefits (for unit pricing controls and processes)?
Practical Issues to be aware of.
•APRA’s Risk Management Standards for Life Insurers
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Actuarial Attribution of Unit Prices
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What is Actuarial Unit Pricing Attribution?
• It is a more advanced form of the standard “unit price benchmarking” control that:
compares the movement in unit price against the movement in a benchmark (e.g. ASX 200 Index)
• Who is doing it? We know of 2 large fund managers
• Why are they doing it?
Better understand why unit price moves differently to assets
To help with communicating with investors (esp. external options)
Identify problems that can not be detected under standard approach
Identify small errors that accumulate over time
• The market is heading in this direction (i.e. more robust controls)
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What Factors impact a Unit Price?
Unit Price @ t(Australia Equities)
Unit Price @ t+1(Australia Equities)
Asset Growth
Tax
Fees
Back Dating
Transaction Spreads
Liability EffectsDelays in investing Money
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Standard Benchmarking
Unit Price @ t(Australia Equities)
Unit Price @ t+1(Australia Equities)Asset Growth
Tax
Fees
Back Dating
Transaction Spreads
Liability EffectsDelays in investing Money
Unit Price @ t(Australia Equities)
Benchmark Return net of Tax and Fee
(S&P/ASX 200 Index)
Residual Check within Tolerance
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Unit Pricing Attribution
Unit Price @ t(Australia Equities)
Asset Growth
Tax
Fees
Back Dating
Transaction Spreads
Liability EffectsDelays in investing Money
Unit Price @ t(Australia Equities)
Residual
Residual
Residual
Residual
Residual
ResidualResidual
Expected Tax
Expected Fees
Zero
Zero
SmallSmall
Check within Tolerance
Benchmark Gross of Tax(S&P/ASX 200)
Check within Tolerance
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How do you do Unit Pricing Attribution?
Unit Price @ t(Australia Equities)
Asset Growth
Tax
Fees
Back Dating
Transaction Spreads
Liability EffectsDelays in investing Money
1. Attribute Investment Return into 7 categories on the left (minimum).
(Using the unit pricing formula and attribution techniques commonly used by actuaries in life insurance and by finance specialists to attribute investment returns)
2. Calculate the expected impact of each category on unit price
(Using knowledge of unit pricing process, products, and unit pricing formula)
3. Compare the difference between 1 and 2 for each category against tolerance level
(Set tolerances based judgement and historical experience of funds)
4. Aggregate daily attribution effects
(Using techniques commonly used to aggregate daily investment attribution effects
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Practical Considerations
• Must help resolve issues, not just identify issues
• Lots of data required. Need detailed transaction data (units and cash flows)
• Process must be automated (computations can be significant)
• Should be tested in spreadsheets before being implemented (each fund manager’s solution will be slightly different)
• Must select aggregating technique (no correct approach, each has advantages and disadvantages)
• Frequency of doing aggregation calculation (resources vs benefits)
• Areas to be aware of:
Transaction Spreads
Back dating
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Summary
• Unit Pricing attribution in a new tool that is likely to replace the standard benchmarking check used by managers
• Advantages are:
Help identify small errors in unit price
Better understand (short term and long term) performance of fund against benchmark
Help with communicating with investors
Help with improving unit pricing processes
Identify errors that accumulate over time
Help ensure investors are treated equitably
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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APRA’s Risk Management Standard for Life Insurers
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Brief Overview
• Major recent development for Life Insurers. APRA Standard are: LPS 220 Risk Management; and LPS 232 Business Continuity Management
• Applies in full from 1 January 2008
• Standards are similar to those applying to General Insurers and Super Funds (Managed Investment Schemes next??)
• Life Insurers are well placed, but need to pull together documents
• Our experience is that:
Operational Risk (well documented)
Asset liability management (needs some work)
Capital management / Enterprise Capital (over arching philosophy required)
• For more information KPMG Actuaries has a 4 page fact sheet
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Presenter’s contact details
Martin Paino
Senior Manager
KPMG Actuaries
02 9335 7914
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2006 KPMG, an Australian partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative. All rights reserved. The KPMG logo and name are trademarks of KPMG.
Liability limited by a scheme approved under Professional Standards Legislation.
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Financial reporting update
David Kells
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Financial reporting update
• AASB 7 Financial Instruments: Disclosures
• AASB 8 Operating segments
• Amendments to existing standards
• Future developments
• KPMG’s Example Managed Investment Scheme
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AASB 7 Financial Instruments: Disclosures
•Applicable to financial reporting periods beginning on or after 1 January 2007 with early adoption permitted.
•Replaces the disclosure requirements of AASB 132 Financial Instruments: Presentation and Disclosure
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AASB 7 Financial Instruments: Disclosures
• Key requirements:
Existing AASB 132 requirements plus:
Sensitivity analysis
Concentrations of risk
Quantification of sensitivity to ‘reasonably possible’ variances in credit, liquidity and market risk
Details of impaired or past due assets
Example disclosures provided in Appendix 2 of KPMG’s Example Managed Investment Scheme
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AASB 7 Financial Instruments: Disclosures
•Practical implications
Will impact schemes for periods commencing on or after 1 January 2007 and preparing accounts for period from inception to 30 June 2006
Impacts all financial instruments, including cash, investments, trade payables and receivables, borrowings and derivatives
30 June 2007 comparatives will be required for 2008 accounts
Disclosures may require data which is not currently available from accounting systems
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AASB 8 Operating segments
• Applicable for periods beginning on or after 1 January 2009 with early adoption permitted
• Requires segment reporting based on segments monitored by the chief operating decision maker
• AASB 8 only applies to individual and consolidated financial statements of entities whose debt or equity instruments are traded in a public market or are in the process of issuing any class of instruments in public markets
• If not meeting the criteria above, adoption of AASB 8 will result in removal of the segment note but…...
• “Public market” is not defined and interpretation may change (especially due to AASB’s SME project)
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Amendments to existing standards
• AASB 101 Presentation of Financial Statements
Applicable for years beginning on or after 1 January 2007
Amended to remove some (but not all) Australian specific additional disclosure
Replaces Australian specific guidance with IASB implementation guidance
Retention of some Australian specific amendments applying to for-profit entities, including statement re compliance with Australian Accounting Standards, auditor remuneration and franking account disclosures
If not early adopted, need to include a statement in 30 June 2007 financials re potential impacts
Minimal impact for schemes
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Amendments to existing standards
• AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments
Applies to periods commencing on or after 1 July 2007 with early adoption allowed.
Principally driven by changes in consolidation requirements for reporting entities
Reinstates optional treatments allowed under IFRS but previously excluded from AIFRS, including allowing cash flow statements to be prepared using either the direct or indirect method.
Removes some minor Australian specific disclosures.
Must justify why a new accounting policy is more appropriate
Need to include a statement re potential impacts if not early adopted
Minimal impact for schemes - disclosure only
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
Future developments
• IASB has committed to no new standards to apply before 1 January 2009 with following exceptions:
AASB 7
IASB annual improvements program
IFRIC will continue to issue interpretations
AASB removal of some further Australian specific items from AIFRS
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Future developments
• Convergence with US GAAP is gathering momentum
• Accounting for superannuation funds (AASB project)
AASB released project summary in July 2006
An issues paper and draft consultation paper is expected in Q2 2007. Main implications
consolidation requirements for parent entity super funds
Application of AASB 119 Employee Benefits to super fund defined benefit obligations
An exposure draft is expected in Q3 2007
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rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.
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Future developments
•Classification of financial instruments puttable at fair value
Final standard is expected in Q3 2007 (likely to apply from 1 January 2009)
Exposure draft issued in June 2006 proposed: (a) financial instruments puttable at fair value; and (b) instruments that impose an obligation to deliver a pro-rata share of the net assets of an entity upon its liquidation
to be classified as equity, subject to meeting certain criteria
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Presenter’s contact details
Name David Kells
Position Partner
Phone 02 9455 9602
Email [email protected]
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