What is the small business restructure rollover in Australia?
The small business restructure rollover in Australia allows eligible small businesses to transfer assets, including capital gains tax (CGT) assets, trading stock, revenue assets, and depreciating assets, from one entity to another without incurring an immediate tax liability.
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How it works in practice
What is the Small Business Restructure Rollover?
The small business restructure rollover is a tax concession designed to simplify the process for small businesses to change their legal structure. It allows for the transfer of business assets from one entity to another (e.g., from a sole trader to a company, or a trust to a company) without triggering an immediate capital gains tax (CGT) event or other income tax liabilities.
This means that if a business meets the eligibility criteria, assets such as land, intellectual property, trading stock, or depreciating assets can be transferred at their cost base for tax purposes, effectively deferring the tax consequences until a later sale or disposal of the asset. The primary goal is to remove tax impediments to genuine business restructuring.
Eligibility Criteria
To qualify for this rollover, both the transferring entity and the receiving entity must be small business entities. This generally means having an aggregated turnover of less than $10 million. Additionally, the transaction must involve the transfer of an active asset, and there must be no change in the ultimate economic ownership of the assets before and after the transfer. The restructure must also be a genuine rearrangement of the business structure, not just a tax avoidance scheme.
Important exceptions
The rollover does not apply if the restructure results in a change of ultimate economic ownership of the assets. For instance, if a new owner is introduced as part of the restructure, the rollover might not be available. It also doesn't apply if the transferred assets are not active assets or if either entity involved does not meet the definition of a small business entity.
Specific rules also apply to certain asset types or structures, and the rollover cannot be used for restructures primarily aimed at tax exploitation. Furthermore, if the conditions for the rollover are later breached, the deferred tax liability may be triggered.
What you should do now
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Understand if your business meets the small business entity aggregated turnover threshold (under $10 million).
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Determine which active assets are to be transferred and confirm they will maintain the same ultimate economic ownership.
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Seek professional advice from a tax accountant or legal professional to ensure your restructure qualifies for the rollover.
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Prepare all necessary documentation for the asset transfer, including legal agreements and resolutions, ensuring compliance with state and federal laws.
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Lodge the relevant tax forms with the Australian Taxation Office (ATO) to elect to apply the small business restructure rollover.
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