A new Bill has been introduced which aims to provide greater flexibility for small businesses to change their legal structure, by allowing them to defer gains or losses that would otherwise be made from transferring business assets from one entity to another as part of a genuine restructure. We will continue to monitor the progress of the Bill.
The Tax Laws Amendment (Small Business Restructure Roll‑over) Bill 2016 (Bill), which is currently before the Senate, will, if passed, allow small businesses (annual aggregate turnover of less than $2 million) to change their legal structure by transferring assets of their business from one entity to another, without incurring an immediate income tax liability that could potentially arise from such a transfer.
A small business may choose to apply the rollover subject to a number of conditions. Broadly, these include:
- the CGT asset (including trading stock, revenue assets and depreciating assets) transferred must be an ‘active asset’ pursuant to section 152-40 of the Income Tax Assessment Act 1997 (Cth). In general terms, a CGT asset is an active asset where it is used or held for use in the course of carrying on a business;
- the transaction must not have the effect of materially changing the ultimate economic ownership of the asset. Discretionary trusts that are family trusts are deemed to satisfy this test if all individuals with ultimate economic ownership in the asset, before and after the transfer, belong to the same family group relating to the family trust;
- the transferor and transferee must be residents of Australia; and
- the transaction must be part of a ‘genuine restructure’, which is a question of fact that is determined having regard to all facts and circumstances surrounding the restructure. However, a small business will be taken to satisfy this requirement where for 3 years following the roll-over:
- there is no change in the ultimate economic ownership of any significant assets of the business (other than trading stock) that were transferred under the transaction;
- those significant assets continue to be active assets; and
- there is no significant or material use of those significant assets for private purpose.
While the rollover ensures deferral of potential income tax implications, GST and stamp duty outcomes should be separately considered as part of any transaction.
The Bill, if passed, is proposed to apply to rollovers from 1 July 2016.
See also the Explanatory Memorandum.