In the 2015/16 Federal Budget, the Government announced that Small Businesses would be allowed to Restructure to another entity without tax becoming an impediment.
The law introducing this measure has just been passed and will apply to restructures occurring from 1 July 2016.
It will apply to a transfer of an Active business asset by a Small Businesses Entity (< $2 Million turnover) as part of a ‘Genuine Restructure’ to an entity that is an affiliate of or connected with that Small Business Entity. If effective, there will be no tax on the asset transfer, plus the new owner will inherit the same tax cost as the previous owner had. This applies to CGT assets, trading stock and depreciating assets.
There are anti-avoidance rules that provide that the transaction will only be considered a ‘Genuine Restructure’ if within a 3 year period following the restructure there is no change in economic ownership of the assets (other than trading stock), the assets continue to be active assets and there is no significant private use of the assets.
Currently, limited roll-over relief can apply from an individual, partnership or trust to a company. From 1 July, the restructure can now go the other way (i.e. company back to a trust, partnership or individual), or can apply to transfers between any business entity provided the conditions are satisfied.
While the new law does provide more flexibility than before, there are still a number of issues to be concerned with:
- Stamp (Transfer) Duty still applies to a transfer of business assets in most States, so while income tax is avoided, there could still be a significant transaction cost applying.
- Non-Active Assets. The roll-over does not apply to assets that do not relate to the business such as investment assets, or Division 7A loans.
- Genuine Restructures – While the law is vague about what constitutes a ‘Genuine Restructure’, the roll-over may not apply if you are considering selling the assets to third parties within 3 years.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.