Insights – Getting your structure right without the tax- using the Small Business Restructure Rollover.

3rd June 2024

Posted in: Insights

We often meet with clients who find that their current structure is not quite right.

They may not be happy with asset protection that they are achieving or their current structure will not allow them to achieve the succession planning goals they want to as they are unable to bring others into the business in their current structure.

Normally with any change of structure there will be tax implications and in particular when your business is operating successfully these tax on any transfer of business can be quite high.

 

Provided that you meet certain criteria, then there may be an option to allow you to make the change, but not incur unwanted tax costs.

 

What is the Small Business Restructure?

A small business restructure allows businesses with a turnover of under $10m to transfer active assets from one entity to another entity without incurring an income tax liability (capital gains tax event), if the restructure forms part of a genuine restructure of an ongoing business and the ultimate economic ownership doesn’t change.

 

So what does this mean?

If you currently run your business as a sole trader, partnership or in a discretionary trust “trust” structure, you can transfer the assets into a company or unit trust, as long as the shareholding in the company or unit holding in the unit trust is the same ownership that it was previously.

  • For a sole trader, you need to be the sole shareholder of the New company / unit holder of the New unit trust.
  • For a partnership, the partners must have the same percentage shareholding in the New company / unit holding in the New unit trust as they did under the partnership arrangement.
  • For a trust, the trust becomes the shareholder for the New company / unit holder of the New unit trust.

For tax (capital gains) purposes, there is a small business structure rollover exemption available, meaning no tax is payable on the transfer of the business to the new entity.

Any assets transferred as part of the business can also be done without incurring tax on the disposal of assets.

 

Does this mean that I don’t pay stamp duty as well?

Stamp duty is a state tax so it will vary from state to state.

Qld currently (at the time of writing) offers an exemption which allows small businesses (turnover less than $5million and value less than $10million) to restructure from a discretionary trust to a trading company without incurring stamp duty so you should discuss this with your business lawyer to see if you are eligible.

There are still requirements to lodge transfer of ownership forms with the relevant state government revenue offices.  This transfer duty form discloses the value of the business and assets transferred to the new entity.  You should engage a lawyer to lodge this form.

So, how do you determine the value that needs to be disclosed on the transfer form?  A valuation of your business and assets needs to be undertaken. This is a detailed process which looks at the profitability of your business and net assets to then determine a value.

 

How Can Alto Help?

If you feel this is something you would like to consider or need a valuation prepared for a restructure, please reach out to the team at Alto to discuss further.

 

       

Authors: Tanya Holtham