Tax Bites: The limits of the Small Business Restructure Rollover

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.

If you have any further questions, please do not hesitate to contact Tim Olynyk on (03) 9810 0700 or at t.olynyk@banksgroup.com.au.

Talk to us…

Banks Group is an association of independent firms that operate in Melbourne, Sydney, Perth and Auckland under the same trading name. Neither the Melbourne Banks Group, Sydney Banks Group, Perth Banks Group or Auckland Banks Group are partners or agents of each other and shall not be liable for any act or omission of each other. Liability limited by a scheme approved under Professional Standards Legislation

MAG_WEB

All services are provided as a Corporate Authorised Representative of Magnitude Group Pty Ltd (ABN 54 086 266202, AFSL 221557).

Count_WEB

Financial Planning Services provided as an authorised representative of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au

"Please note that any taxation and accounting services are not endorsed nor the responsibility of Count Financial Limited".