As with anything, time brings change and your businesses operating structure should be regularly reviewed to ensure it is still achieving your goals. This is especially important due to the constant change in taxation law.
The 2015-16 budget announced that the Government would introduce a new small business Capital Gains Tax (“CGT”) restructure option, enabling small business to change legal structure without incurring a CGT liability. A welcome announcement, as small businesses require flexibility.
The budget papers did not provide much detail as to what this measure would look like, other than it would apply from the 2016-17 year onwards.
The Government has now released an exposure draft outlining some of the proposed mechanisms and what assets the roll-over relief will apply to. Some of the key points from the exposure draft:
• The provisions are intended to apply to businesses with a aggregated turnover of < $2m and satisfy an existing test known as the maximum net asset test;
• The new rules will apply on transfers of assets from 1 July 2016;
• Gains and losses on CGT assets (such as Goodwill) will effectively be rolled over from the entity transferring the assets to the new entity receiving the assets;
• The roll-over relief will extend to trading stock, certain revenue assets and depreciating assets;
• The transferee is taken to have acquired each assets for the amount equal to the transferor’s tax cost just before the transfer.
As with any tax related matter, analysis is required to confirm that you will meet the detailed conditions.
At first glance, once enacted the provisions look to provide a good restructure option to consider. They appear to afford the opportunity to transfer from a company to a trust, which has been a more difficult area the past. The measure complements a list of existing CGT provisions which enable a business to restructure, such as:
• Disposal to a wholly-owned company;
• Exchange of shares in one company for another (Division 615);
• Small Business CGT concessions.
Each concession above can often result in no tax upon the initial restructure event, but all have vastly different outcomes over the long term. It is essential that you review your business structure regularly to ensure it meets:
• Tax efficiency;
• Asset protection;
• Operational goals and efficiency;
• Growth strategies and future divestment / sale considerations.
Unfortunately, we still have stamp duty to consider in many cases.
Some of the most valuable conversations we have with our clients are around planning and your business structure is an essential part of the plan.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.