The rollover relief for restructure of small business entities received Royal assent on the 9th March 2016. This legislation provides many SME’s the opportunity to choose a more appropriate business structure with out triggering certain tax consequences.
Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016
The Bill was introduced to Parliament on 4 February and passed the Senate on 29 February 2016. It contains the new rollover rules that will be available when small businesses undertake a restructure from 1 July 2016.
A number of fundamental changes have been made to the new rules since the draft legislation was released late in 2015 including:
There is no longer a $6m net asset value test that needs to be passed. The parties involved in the transaction will need to pass a small business entity test based on having aggregated annual turnover of less than $2m.
The entity acquiring the assets will be able to provide consideration, but there is no requirement to provide consideration.
The assets being transferred need to pass an active asset test (i.e., they need to be used in a business of the entity disposing of the asset or a connected entity or affiliate).
Applying the rollover will not reset the ownership period of the asset under the small business 15 year exemption.
Applying the rollover will reset the ownership period under the CGT discount.
If all the conditions for applying the rollover are satisfied then Division 7A will not apply, even if assets are transferred from companies for less than market value consideration.
The rules retain the use of the family trust election system for facilitating transfers from or to a discretionary trust. However, there is still some uncertainty around how the rules would operate in situations where a company or unit trust is involved in the restructure and shares in that company or units in that unit trust are held by a discretionary trust.
The rules apply tax relief not only to CGT assets but also to trading stock, depreciating assets and other assets held on revenue account if the basic conditions are met.
