Transfer active capital gains tax assets between eligible restructuring entities without tax liabilities.
The small business restructure roll-over allows small businesses to transfer active assets from one entity to another without incurring an income tax liability.
The roll-over applies if each party to the transfer is one of the following in the income year in which the transfer occurs:
You are eligible for the small business restructure roll-over if:
Determining whether a restructure is genuine depends on all the facts surrounding the restructure.
To provide certainty to small business owners, a safe harbour rule is included that provides an alternative way of meeting the requirement that a restructure is genuine.
For more about what the ATO considers to be a genuine restructure of an ongoing business and more about the safe harbour rule, see Law Companion Ruling LCR 2016/3 Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matter.
Penny runs a furniture manufacturing business as a sole trader.
Penny sets up the Just Me Unit Trust with herself as sole unit holder and transfers the active assets of the business to the trust.
This would not result in a change in ultimate economic ownership of those assets because Penny continues to hold a 100% interest in the transferred assets.
Amy, Joanna and Remy run a delivery business as equal partners and want to transfer their interests in the assets of the partnership to a company. Joanna and Remy are a couple.
Amy, Joanna and Remy establish a company, where 300 identical shares are issued as:
This distribution is because Remy has other income and Joanna and Remy, as a couple, want to lower their overall income tax bill. This shows the company restructure is not a genuine restructure but a tax-driven scheme.
The same individuals have ultimate economic ownership of the asset but there is a change in the proportionate share of the ultimate economic ownership. Therefore, Amy, Joanna and Remy are not eligible for the small business restructure roll-over.
Discretionary trusts may meet the requirements for ultimate economic ownership, for example, where there is no practical change in which individuals economically benefit from the assets before and after the transfer.
Family trusts may meet an alternative ultimate economic ownership test where:
This roll-over applies to active assets that are CGT assets, depreciating assets, trading stock or revenue assets transferred between entities as part of a genuine restructure of an ongoing business.
Active assets are assets used, or held ready for use, while running a business.
The roll-over is not available for any other business assets, such as loans to shareholders of a company, as they are not active assets of the business run by the creditor.
If you choose to apply the small business restructure roll-over, there are a number of tax consequences:
The following tax implications apply to transferred CGT assets:
The roll-over cost of an asset that is trading stock is either the:
The roll-over prevents the transferor from having to make a balancing adjustment when assets are transferred. This allows the transferee to deduct the decline in value of the depreciating asset using the same method and effective life as the transferor was using.
If the asset is a revenue asset, the roll-over cost is the amount that would result in the transferor not making a profit or loss on the transfer. The transferee will inherit the same cost attributes as the transferor just before transfer.
This roll-over does not require that market value consideration, or any consideration, be given in exchange for the transferred assets.
Where membership interests are issued as consideration for the transfer, the cost base or reduced cost base of the new membership interests should be worked out the following way:
An integrity rule is included to ensure that a capital loss on any direct or indirect membership interest in the transferor or transferee that is made after the roll-over will be disregarded.
From 8 May 2018, a Commissioner's remedial power instrument ensures no direct income tax consequences from the transfer of depreciating assets undertaken as part of a transaction that otherwise qualifies for small business restructure roll-over relief.