Today the Government introduced a Bill to give effect to its 2015 Budget promise of a small business rollover. The measure is to apply from 1 July 2016 and will allow a small business entity, and certain entities connected to a small business entity, to rollover an active asset to another entity structure.
The greatest opportunity that will arise because of the rollover will be the ability to take a business asset owned by a trading entity out of that entity without triggering tax. For instance, the rollover will allow a company that owns plant and the building it operates from, to move that plant or the building (or both) out of the company and into a family trust without triggering capital gains tax or income tax.
A small business entity is broadly an entity that, together with entities related to it, has a turnover of less than $2 million.
An active asset is broadly an asset that is used in a business being carried on by the entity that owns the asset, or an entity that is connected with it. Goodwill of a business is likely to be an active asset of the business owner for example, and if an entity owns a property from which it conducts its business, then the property is likely also to be an active asset.
As expected, the measure comes with eligibility criteria and contains rules designed to prevent tax advisers from using the rollover simply to get a tax benefit for their clients.
The anti-avoidance part of the measure requires that the restructure be part of a ‘genuine’ (i.e. not solely tax-driven) restructure. However, there is a safe harbour rule that says that a restructure will be a ‘genuine’ restructure if you can meet certain criteria in relation to assets you transfer that are ‘significant’. The safe harbour applies if for three years after the assets are transferred:
- there is no change in the underlying economic ownership of any of the significant assets (with an exception for trading stock),
- the significant assets transferred continue to be active assets, and
- there is no material or significant private use of the significant assets transferred.
When the Bill becomes law the only real impediment to restructuring a small business entity will be the potential for State and Territory Duty.
The potential to fix inappropriate structuring choices, or to gain asset protection by transferring passive assets out of a business entity will be welcomed by small business owners and their advisers.