The final tranche of 2015 small business budget announcements have made it into law, now expanding the tax relief available for small businesses to change the legal structure of their business. This new arrangement is designed to provide greater flexibility for small businesses to change legal structures without incurring an immediate CGT liability, and allowing it to defer CGT to a later point in time.

2016_APR Change of structure

Change of structure for your small business

The final tranche of 2015 small business budget announcements have made it into law, now expanding the tax relief available for small businesses to change the legal structure of their business. This new arrangement is designed to provide greater flexibility for small businesses to change legal structures without incurring an immediate CGT liability, and allowing it to defer CGT to a later point in time.

From July 1, 2016, a CGT rollover relief may apply to:

  • transfers of depreciating assets, where the balancing adjustment event arising from the transfer occurs on or after July 1
  • transfers of trading stock or revenue assets, where the transfer is after July 1, and
  • transfers of CGT assets, where the CGT event from this transfer is after the same date.

This new law is in addition to rollovers currently available where an individual, trustee or partner transfers assets to, or creates assets in, a company in the course of incorporating a business. The optional rollover will be available where a small business entity transfers an “active asset” to another small business entity as part of a genuine business restructure, without changing the ultimate economic ownership of the asset.

Whether a restructure is “genuine” will be determined based on all of the facts and circumstances. Relevant aspects include whether it is a bona fide commercial arrangement undertaken to enhance business efficiency, whether the transferred assets continue to be used in the business, and whether or not it is a preliminary step to, as the bill puts it, “facilitate the economic realisation of assets”.

To be eligible for the rollover, both parties to the transfer must be either:

  • a “small business entity” with $2 million or less in turnover for the income year during which the transfer occurs
  • an entity that has an “affiliate” that is a small business entity for that income year
  • “connected” with an entity that is a small business entity for that income year, or
  • a partner in a partnership that is a small business entity for that income year.