CGT Rollover relief for small business restructures
Structuring and restructuring
At Ballantyne Law Group, we often talk about the importance of properly structuring a business. One factor that often prevents small businesses from restructuring is the capital gains tax consequences on the transfer of assets.
For many small businesses, that is about to change.
What was the announcement?
The 2015/16 budget included reference to the introduction of capital gains tax rollover relief for small businesses.
On 5 November 2015 The Treasury released an Exposure Draft and Explanatory Materials, inviting interested parties to make submissions with a view to implementing this relief by the start of the 2016 financial year. The proposed amendments to the Income Tax Assessment Act 1997 (Cth) (the Act) will allow many small businesses to roll over their capital gains tax liability incurred on a restructure.
The proposal also goes further than the original announcement, extending the relief to the transfer of trading stock, revenue assets and depreciating assets.
What are the proposed changes?
Divisions 122 and 124-N of the Act already provide rollover relief for sole-traders, partnerships and trusts converting to a company structure. The effect of the new amendments is to grant rollover relief to companies restructuring into a sole-trader, partnership or trust.
The relief extents to ‘small business entities’ and affiliates of ‘small business entities’.
A ‘small business entity’ is, effectively an entity that carries on a business and has a combined annual turnover (with affiliated or connected entities) of less than $2 million, and net CGT assets (with affiliated or connected entities) of less than $6 million (the maximum net asset value test).
An affiliate of a ‘small business entity’ is one that satisfies the maximum net asset value test and passively holds assets used by the small business entity in its business.
In addition to the eligibility referred to above:
- there must be no change in the ultimate economic ownership of the transferred assets;
- no consideration must be provided for the transfer;
- the transferor, transferee and ultimate owners of the transferred assets must be Australian residents;
- the transferee must not be an exempt entity or a complying superannuation entity.
What do I do next?
Comments on the Exposure Draft are open until 4 December 2015.
If you , or one of your clients, is considering restructuring their business, you should contact our Commercial Team to discuss strategy and timing.
The Ballantyne Law Group is well placed to assist in relation to all aspects of commercial law – please contact us now on (07) 5606 7332 to speak to us.
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