The new CGT rollover is intended to provide greater flexibility for small businesses seeking to rearrange their existing legal structure and is in addition to existing rollovers.
In brief, the new concession allows eligible small businesses to transfer ‘active assets’ as part of a ‘genuine restructure’ of an ongoing business without triggering immediate tax consequences.
- All entities involved must be a Small Business Entity (SBE)
- All entities must be Australian tax residents
- An existing entity may be the transferee (subject to eligibility)
- Assets transferred must be ‘active’ (e.g. trading stock, goodwill, depreciating assets)
- Bona fide commercial arrangement to enhance business efficiency
- Assets continue to be used in the business
- Restructure results in a structure likely to have been adopted if client sought appropriate advice when setting up the business
- Cannot be unduly tax driven or artificial
- No material change to the ‘underlying economic ownership’ of the asset permitted
- Individuals’ ultimate ownership must be in the same proportion pre/post transfer
- Concessions available for non- fixed trusts (i.e. discretionary trusts)
Effect of transfer:
- Deemed consideration equal to ‘cost’ is applied ensuring transfer is tax neutral, regardless of any actual consideration
- For post CGT assets, transferee acquires the asset at date of the transfer (12 month ownership period is reset in relation to the CGT Discount)
- If pre-CGT asset, will remain so in hands of the transferee
Other matters to be considered include GST and Duties implications (in WA there is no corresponding concession under the Duties Act 2008, please check in your jurisdiction).
The new measures afford suitable and eligible businesses a great opportunity to adopt a more effective structure without being burdened with a tax liability in order to do so. However, the concessions may not suit every situation and a careful analysis should be undertaken on a case by case basis.