The small business restructure rollover allows small businesses to transfer active assets from one entity to one or more other entities, without incurring income tax liability. This rollover applies to the transfer of active assets that are capital gains tax (CGT) assets, trading stock, revenue assets or depreciating assets.
This rollover relief can be beneficial to you or to your clients if the subject business has grown and requires restructuring or if the business who may be not be operating under the most beneficial structure for their circumstances. You or your clients may be eligible to access the concession if your aggregated turnover is less than $10 million.
The rollover applies where the arrangement is part of a genuine restructure of a small business where the ultimate economic ownership of the asset does not change, meaning the rollover relief can be used for sole traders restructuring to a company structure or a company restructuring operations for asset protection purposes for example.
The rollover applies if each party to the transfer is one of the following in the income year in which the transfer occurs:
- A small business entity;
- An entity that has an affiliate that is a small business entity;
- An entity that is connected with a small business entity, or;
- A partner in a partnership that is a small business entity.
This means that an entity not carrying on a business, but holding assets for a small business entity may still be able to apply for the rollover relief. For example, where one entity owns a property in which another connected entity is carrying on a business
When the Rollover is Available
The below factors should be considered when determining if rollover relief is available.
1. Part of a Genuine Restructure
Many businesses grow and evolve over time and the way the business was originally structured to operate may not always be the best structure for the growth and continued success of the business. Determining whether a restructure is “genuine” depends on all the facts surrounding the restructure, but some examples include asset protection, maintaining essential employees, raising new capital, simplifying your affairs.
2. No Change to Ultimate Economic Ownership
To be eligible for the rollover, the transaction must not result in a change to the ultimate economic ownership of the transferred assets. The ultimate economic owners of an asset are the individuals who directly or indirectly, own an asset. Where there is more than one individual with ultimate economic ownership, there is an additional requirement that each individuals’ share of ultimate economic ownership be maintained.
Find Out More
If you think your business or your clients may require a restructure is ensure their optimal operating structure is obtained get in touch with Groves & Partners and along with your trusted accounting professional we can assist in ensuring the optimal operating structure is achieved.