Subdivision 328-G of the ITAA97 was introduced in 2016 to enable Small Business Entities to restructure their business operations under tax rollover relief.
In addition to the entity transferring the assets being required to be a Small Business Entity (i.e. turnover of less than $10M), and in addition to the transaction satisfying the criteria of being part of a genuine restructure of an ongoing business, section 328-430 of the ITAA97 also requires that the asset being transferred is an active asset.
The question arises whether the Small Business restructure rollover relief contained in Subdivision 328-G of the Income Tax Assessment Act can be used to restructure shareholdings in a Small Business Entity – for example, from an individual shareholder to a related discretionary trust shareholder.
The answer to this question is no.
Where the taxpayer transferring the asset (i.e. in this instance the shareholder) is not a Small Business Entity itself, section 328-430(1)(d) of the ITAA97 requires that section 152-10(1A) of the ITAA97 to be satisfied. In turn, subsection 152-10(1A)(d) of the ITAA97 requires that the CGT being disposed of by the taxpayer, be used in the business of a Small Business Entity that is a connected entity of the taxpayer.
Based on the wording of subsection 152-10(1A)(d) of the ITAA97, it is clear that shares that the taxpayer owns in a Small Business Entity cannot be used in the business of the Small Business Entity. This prevents the shares from being classified as active assets.
Having regard to the above, the taxpayer will be required to consider alternative tax rollover strategies or applying Small Business CGT concessions to restructure their shareholdings in the Small Business Entity from their individual name to a related discretionary trust.