06 Oct 2016

Small Business Restructures

The government recently passed into law new small business rollover rules.

The new rules are designed to enable any small business to restructure their business without Capital Gains Tax (CGT). Rollover is generally available providing the following conditions are met:

1. Both entities involved are small business entities (Turnover less than $2 million dollars or net assets less than $6 million)
2. There is no change in the ultimate economic ownership of the significant business assets
3. Those significant assets continue to be active assets
4. No significant private use of these active assets.

The rollover relief rules apply from 1 July 2016 to transfers between sole traders, companies, partnerships or trusts.

Consider Jake’s Case:

Jake is thinking of restructuring his Earthmoving business which turns over $1 million per annum. Currently a company he is looking to trade as a trust. Jake owns 100% of the shares in the company. Jake’s advisor sets up a Trust called Jakes Trust and Jake is made the test individual in the Family Trust Election. There is no change in beneficial ownership. The business assets continue to be used in the trust and they are not used outside of the business. Jake can therefore apply the CGT rollover relief. Jake may need to consider GST and stamp duty.

Should you wish to discuss further please feel free to contact Andrew Marshall or Janine Orpwood on 5427 8100 for an initial consultation.