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Reduced risk for SBE restructures

Doing her budget at home

The Australian Treasury’s recently released draft legislation will allow small businesses to change their legal structures without incurring a capital gains tax (CGT) liability.  The draft legislation follows on from an announcement in the Federal Government’s 2015-16 Budget.


The exposure draft Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015: Small business restructure rollovers is proposed to introduce subdivision 328-G ITAA 1997. This subdivision will facilitate taxation rollover that simplifies business restructures by allowing entities to defer gains or losses that would otherwise be realised when business assets are transferred from one entity to another.

What does subdivision 328-G ITAA 1997 do?

The new subdivision intends to provide a small business entity (SBE) with the opportunity to choose to rollover for gains and losses arising from the transfer of business assets – including CGT assets, depreciating assets, trading stock or revenue assets – as part of a restructure.

The term “restructure” is very generally defined in subsection 328-440(1)(c) as:

“…the transaction is, or is a part of, a restructure of the business that has either or both of the following effects:

  • changing the type of any or all of the entities through which all or part of the business is operated;
  • changing the number of the entities through which all or part of the business is operated…”

When will the measures apply?

Measures will apply from 1st July 2016.

Who can access the rollover?

The rollover will be available to:

  • An SBE that also satisfies the MNAV test
  • An entity connected or affiliated with the SBE

What are the rollover requirements?

The requirements to use the rollover include:

  • The transferor transfers a CGT asset or all of its business assets that are CGT assets, depreciating assets, trading stock and revenue assets
  • The transferor chooses to apply the rollover
  • The transaction is a restructure that has the effect of changing the type of any, or all, of the entities and/or the number of entities through which all or part of the business is operated
  • No consideration is provided for the transfer
  • The transferor, transferee and the ultimate owners of the transferred assets are Australian residents
  • The transfer does not have the effect of changing the ultimate economic ownership of the asset or transferred assets
  • The transferee is not an exempt entity or a complying superannuation entity, or none of the transferees are exempt entities or complying superannuation entities

Interestingly, there are no restrictions (other than the last requirement point above) on the type of entity that can be the transferor or transferee.

What does this mean for me?

No matter what path has led your client to restructure, the process may involve the transfer of assets from one entity to another – such as from a company to a trust. Such a transfer of assets currently brings with it significant tax income liabilities that could impact upon the business’ cashflow and restrict options. The proposed amendments of this exposure draft will help to reduce these risks and make it easier for entities to restructure.

There are a number of additional features of the draft legislation that need to be considered. Not the least of these is how, or whether, Division 7A applies if an asset is transferred to a shareholder or an associate of the shareholder, where no consideration has been provided for the transfer of the assets.

For further advice on the tax implications of restructuring for your clients, please contact our office at tax@redchip.com.au or phone +617 3223 6100.

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