What the small business restructure rollover amendments will mean for your business

By Alexis Kokkinos

The federal government has introduced legislation into Parliament that will make it easier for small business owners to restructure their businesses.

If it’s passed, the Tax Laws Amendment (Small Business Restructure Rollover) Bill will mean small businesses that established their business operations in the wrong structure can transfer into a more appropriate structure without crystallising any income gains or losses.

The exclusion does not cover goods and services tax or stamp duty, so small businesses will have to consider any potential application of these to a restructure. Assets such as land and buildings cannot be transferred into a self-managed superannuation fund and the provision will only apply to Australian small businesses.

Small businesses will qualify for the new provisions if they have a likely estimated turnover of less than $2 million for the current year or if their turnover for the previous year was less than $2 million. Affiliates, connected entities and partnerships of qualifying small businesses will also be eligible for the rollover.

How will it work?

Small business taxpayers will be provided an optional rollover when they transfer an active asset of their business to another small business entity as part of a genuine business restructure, where the “ultimate economic ownership” of the asset does not change.

In order to avoid direct tax consequences occurring over the transfer of assets under these rules, the acquirer of the assets will be treated as having acquired the asset for its rollover cost, irrespective of the amount paid for the asset. The rollover cost is an amount that (if received) would not result in the business making a profit gain or loss.

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 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”.

Once the legislation is passed, it will apply to all taxable gains that occur under a restructure where the gain arises on or after July 1, 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.

Alexis Kokkinos is a partner at Pitcher Partners.