Small businesses are constantly evolving as they react to market demands, seize new opportunities, and adjust to industry changes. This evolution often requires substantial structural changes, such as ownership transitions, mergers and acquisitions, or expanding into new markets.
What is the Small Business Restructure Rollover?
The Small Business Restructure Rollover, provided by the Australian Taxation Office (ATO), offers tax relief to qualifying small businesses. It allows these businesses to transfer assets within a group structure without incurring capital gains tax (CGT) liability. This is particularly advantageous for businesses that need to reorganize their structure for strategic reasons, as it helps avoid significant tax consequences.
By utilizing this rollover, small business owners can better position their business for success, longevity, and resilience in Australia’s competitive market.
Who is Eligible for the Small Business Restructure Rollover?
To qualify for the Small Business Restructure Rollover, businesses must meet specific criteria:
- Small Business Entity Status: The business must be classified as a “small business entity” by the ATO, typically defined as having an aggregated turnover of less than $10 million.
- Active Asset Test: The assets being transferred must be active assets, which are used or held for use in the course of business. This includes:
- Capital gains tax assets
- Revenue assets
- Trading stock
- Depreciating assets
- Genuine Restructure: The restructure must be a legitimate business transaction rather than a tax-driven scheme. Assets not used in the business, like shareholder loans, do not qualify. The ATO requires that the restructure be genuine, meaning it should be conducted in good faith to improve business efficiency rather than solely to gain tax concessions.
- Continuity of Ownership: There must be continuity in the economic ownership of the transferred assets. The same individuals or entities should retain a significant economic interest in the business after the restructure.
What is Considered a Genuine Restructure?
A restructure is deemed genuine if:
- It is conducted in good faith to improve business efficiency.
- The business operations continue under the new structure.
- The transferred assets remain functional in the new entity.
- The business obtains appropriate professional advice throughout the process.
- There is substantial evidence that the restructure is not merely tax-driven.
- The restructure is not used to dispose of business assets outside the business entity.
For instance, a sole trader may transition to a company structure with a trust shareholding and transfer business assets to the new company as part of a genuine restructure.
What is the Safe Harbour Rule?
The Small Business Restructure Rollover regulations include a ‘safe harbour’ provision. This rule states that a restructure will be deemed genuine if, for three years following the rollover:
- There is no change in the ultimate economic ownership of any significant assets (excluding trading stock) transferred.
- The significant assets remain active.
- The significant assets are not used significantly or materially for private purposes.
A restructure intended solely to facilitate a tax-effective sale of the business shortly thereafter would not be considered genuine, as it suggests the restructure was merely a tax strategy rather than a step toward ongoing business operations.
Benefits of Small Business Restructure Rollover
- Capital Gains Tax Relief: One of the primary advantages of utilising the Small Business Restructure Rollover is the exemption from capital gains tax on the transfer of eligible assets. This can result in substantial cost savings for the business.
- Flexibility in Business Structure: Small businesses can restructure their operations without the burden of immediate tax liabilities. This flexibility allows for better adaptation to changing market conditions and strategic goals.
- Simplified Transactions: The rollover simplifies the process of transferring assets within a business group, making it more efficient and cost-effective.
How to Process a Small Business Restructure Rollover:
Seek Professional Advice – Consult with tax experts or financial advisors to ensure eligibility and compliance with regulations before starting the restructure.
Complete the Necessary Forms- Fill out the required ATO forms, including the Small Business Restructure Rollover Election form.
Notify the ATO- Inform the ATO of the restructure and your intention to apply for the rollover within the specified timeframe.
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How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
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