The Tax Laws Amendment (Small Business Restructure Roll-Over) Act 2016 received royal assent on the 8th March 2016. From 1st July 2016 the legislation allows Small Businesses to transfer active assets, including CGT assets, trading stock, revenue and depreciating assets, to one or more other entities without incurring income tax liabilities.
Broadly, the roll-over can apply where a small business entity transfers an active asset of the business to another small business entity as part of a “genuine” business restructure.
To be eligible for the Small Business Restructure roll-over the following criteria must be met:
- The transferor and transferee are required to be:
- A ‘small business entity’ (an entity with an aggregated turnover of less than ten million); or
- An entity who is an affiliate of, or connected with, a ‘small business entity’
- The rollover must be part of a “genuine restructure” (as opposed to an artificial or tax-driven scheme)
- There must not be any change to the ultimate economic ownership of the asset transferred
- The asset to be transferred is an active asset at the time of transfer
- The transferor, transferee and ultimate owners of the assets are required to be Australian tax residents
- A transferee cannot be an exempt entity or a complying superannuation entity; and
- The transferor is required to choose to apply the roll-over.
After the roll-over, any gains that would have otherwise eventuated by the transferor are disregarded. The transferee is taken to have acquired the assets ‘roll-over cost’, which generally is the cost base of the asset, however this can vary depending on the type of asset acquired.
The “genuine restructure” criteria will be satisfied where three years after the roll-over; there is no change in ultimate economic ownership of any of the significant assets of the business that were transferred, the assets continue to be active assets and there is no significant or material use of those significant assets for private purposes.
Please be aware that there are other considerations when considering a change in business structure and transfer of assets, including Duty and GST that may be applicable to the transaction.
This legislation provides opportunities for clients who may have ‘out grown’ their initial business structure. It will significantly reduce costs associated with changing structures and transferring assets to new entities. This allows business owners a chance to rectify any past structure setups where proper advice was not sought. However, clients must consider their eligibility carefully to ensure the transaction will be deemed as part of a ‘genuine restructure’, not one that is just an arrangement to ensure a more favorable tax outcome on the potential sale of CGT assets.
Please contact our office if you would like further information on the legislation and whether you may benefit from the roll-over relief.