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Small business restructures to become much easier

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By Jack Newton, Law Graduate, MST Lawyers

Last Thursday, the Commonwealth Government released an Exposure Draft of legislation that will allow small businesses to restructure without incurring tax liabilities.

Many people will be aware that an existing roll-over is available for a restructure from an individual or partnership to a company and for a restructure from a trust to a company.

A roll-over will be introduced will allow small businesses to transfer CGT assets, depreciating assets, revenue assets or trading stock to a new trading entity without incurring a CGT liability. The tax liability will not be realised upon the transfer of the asset and will instead be deferred.

Practically, this will occur by rolling over the tax cost of the transferring asset from the old entity to the new entity.

The Government considers that many small businesses would operate more efficiently if their structure was changed, and would reduce other compliance costs. The Government hopes that the increased flexibility will reduce tax obstacles through deferring gains and losses that would otherwise have been realised upon the transfer of assets.

Who and what will be eligible?

Entities that meet the two small business requirements (less than $2million in income and less than $6 million in net asset value) for the financial year in which the transfer of assets will take place will be eligible for the roll-over.

A transaction must meet the following requirements to obtain the roll-over:

  1. a transfer of assets (either a CGT asset or all of its business assets);
  2. the transferor chooses to apply the roll-over;
  3. the transaction is a restructure;
  4. no consideration is provided for the transfer;
  5. all relevant parties are Australian residents;
  6. the transfer does not change the ultimate economic ownership (in other words, direct or indirect beneficial ownership) of the asset; and
  7. no exemption applies.

When does the roll-over begin?

The roll-over will apply to asset transfers taking place on or after 1 July 2016.

Small businesses looking to restructure should seek advice to prepare the relevant assets and entities in preparation for a transfer. Notwithstanding the transfer is between the same entity, in the sense that the same entity must remain the ultimate economic owner, the transfer must nonetheless be documented appropriately, after obtaining specialist legal and accounting advice.

For more information or to discuss your business structure or transaction, please contact our Corporate Advisory team by email corporate@mst.com.au or by telephone +61 8540 0200.