Some Australian small business owners may now be able to apply the small business restructure roll-over concession upon restructuring their small business.

A key decision when starting up your own small business is deciding on the structure you will use. A small business’s structure depends on the size and type of the business, as well as how the owner plans to grow it.

After operating under a specific structure for a period of time, some owners may choose to restructure their business due to various reasons, such as financial or operational issues, business growth, a change in ownership or management or even due to effects from changes in Australia’s economy.

From 1 July 2016, the Australian Taxation Office’s small business restructure rollover has allowed small businesses to transfer active assets from  one entity to one or more other entities without incurring an income tax liability.

Even though owners can transfer certain active assets without incurring an income tax liability, there may be tax implications later when they dispose of that asset. There may also be other transaction costs to consider, such as stamp duty or GST. The rollover applies to the transfer of active assets that are capital gains tax (CGT) assets, trading stock, revenue assets or depreciating assets.

The rollover applies if each party to the transfer is one of the following in the income year in which the transfer occurs:

• a small business entity
• an entity that has an affilate that is a small business entity
• an entity that is connected with a small business entity
• a partner in a partnership that is a small business entity

This means that an entity not carrying on a business, but holding assets for a small business entity, may be able to apply the rollover. For example, where one entity owns a property in which another connected entity is carrying on a business.

The rollover is available where the transfer of assets forms part of a genuine restructure as opposed to an artificial or inappropriately tax-driven scheme. Determining whether a restructure is ‘genuine’ depends on all the facts surrounding the restructure.

The transaction involved in the restructure must also not result in a change to the ultimate economic ownership of transferred assets. The ultimate economic owners of  an asset are the individuals who, directly or indirectly own an asset. Where there is more than one individual with ultimate economic ownership, there is an additional requirement that each individual’s share of ultimate economic ownership be maintained.