The Federal Treasury has released the Exposure Draft for the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015: Small business restructure rollovers to amend the Income Tax Assessment Act 1997 to allow small businesses to defer gains and losses arising from the transfer of capital gains tax assets, depreciating assets, trading stock and revenue assets between entities as part of a restructure.
The proposed amendments attempt to provide greater flexibility for small businesses to change the legal structure through which they operate without triggering adverse taxation consequences.
The capital gains tax roll-over relief is presently available for individual sole traders, partnerships and trusts that convert to a company structure (through Division 122 and Subdivision 124-N of the Act). The proposed amendments in new Subdivision 328-G extend roll-over relief to transfers of assets from a company to a sole trader, partnership or trust, occurring on or after 1 July 2016.
Eligibility for the roll-over extends to:
- an entity that qualifies as a “small business entity” (being a business entity with an annual turnover, which when combined with that of its affiliated and connected entities, is less than $2 million, or with a maximum net asset value, which when combined with that of its affiliated and connected entities, is less than $6 million) in the income year in which the transfer takes place; and
- an entity that is an affiliate of, or that is connected with, a small business entity for the income year that satisfies the maximum net asset value test at the time of the transfer, and which passively holds assets that are used by the small business entity in its business.
The roll-over is restricted to circumstances where there has been no change in the ultimate economic ownership of the transferred assets. Where assets are transferred to discretionary trusts, identifying the individuals who will ultimately benefit economically can be difficult as beneficiaries of discretionary trusts generally do not have an interest in any asset or income of the trust until the trustee has exercised is discretion. However, where discretionary trusts have made a family trust election, the members of the specified family group will be regarded as the ultimate economic owners of the business assets for the purposes of the roll-over.
Comments in relation to the Exposure Draft must be submitted to Treasury by 4 December 2015.
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