The government has passed legislation that will make it easier for small business owners to restructure their businesses. So if you’ve established your business in the wrong structure, it’s now easier to transfer it into a more appropriate structure for your current operational requirements, without crystallising any income gains or losses.

Your small business will qualify for the new provisions if you have a likely estimated turnover of less than $2 million for the current year, or if your turnover for the previous year was less than $2 million. Any affiliates, connected entities and partnerships of qualifying small businesses will also be eligible for the rollover.

 

Be aware though that the exclusions do not cover GST or stamp duty, and assets such as land and buildings cannot be transferred into a self-managed superannuation fund.

The legislation provides small business taxpayers with an optional rollover when they transfer an ‘active asset’ of their business to another small business entity as part of a genuine business restructure. Be aware that the ‘ultimate economic ownership’ of the asset cannot change in order for these provisions to take effect.

 

In order to avoid direct tax consequences from transferring the assets under these rules, whoever buys the assets will be treated as having bought it for its rollover cost, regardless of how much was paid for the asset.

The rollover cost is an amount that, if it were received, would not result in the business making a profit gain or loss on the sale of the asset. For example if the cost base of an asset is $100 and the market value of the asset is $200, the rollover cost is equal to $100.

To ensure that the provisions won’t be exploited for purposes other than business restructures, small businesses will have to comply with integrity rules to make sure the business and its associated assets are part of a ‘genuine restructure’.

The legislation applies to all taxable gains that occur under a restructure where the gain arises on or after 1 July 2016.

Small businesses will obviously still need to seek professional advice on applying the new provisions, but overall this reform will make it a lot easier for businesses to make sure they’re operating in the right structure and can continue to grow.