Small Business Restructure Rollover – What It Means For Your Business
Last month the Federal Parliament passed legislation that will allow small business owners to restructure their business without a tax penalty.
The new legislation enables small businesses to change their legal structure without incurring an income tax liability as part of a new rollover for gains and losses arising from the transfer of assets between entities.
The legislated changes apply to asset transfers from 1 July 2016.
The changes provide small business owners with an optional rollover when they transfer assets of their business from one entity to another where the ultimate economic ownership of the asset does not change. The rollover essentially allows small businesses to restructure their business by transferring assets and deferring gains or losses that would otherwise be made in the transfer.
This optional rollover applies to active assets (i.e. assets being used or held for use in the course of carrying on a business) that are CGT assets, including trading stock, revenue assets and depreciating assets. In this context an active asset is one that it is used or held for use in the course of carrying on a business.
The new rollover is in addition to currently available rollovers where an individual, trustee or partner transfers assets to, or creates assets in, a company while carrying out a business restructure.
Small businesses with an aggregated turnover of less than $2 million will be eligible for the restructure rollover, as well as any affiliates, partnerships or connected entities for that income year.
A key condition for the rollover is that the transfer of assets must form part of a ‘genuine restructure’, i.e. not an artificial tax-driven restructure. Whether a restructure is deemed ‘genuine’ will depend on all of the facts and individual circumstances surrounding the restructure.
However, the legislation does include a safe harbour rule as an alternative to the above condition, which provides more certainty and clarity to small business owners.
The legislation aims to provide greater flexibility for small businesses to change their legal structure without incurring an immediate tax liability. This means that businesses whose legal structure is no longer appropriate to their needs and objectives can restructure without penalty.
The rules around the restructure rollover are technical in nature and eligibility will depend on a number of criteria specific to individual cases.
Should you have doubt as to whether your business is eligible, or questions relating to the new legislation in general, please contact us or call your ESV engagement partner on 02 9283 1666.
Article by Edwina Ring