The Small Business Restructure Rollover (SBRR) rules that commenced 1 July 2016 aim to make it easier for small businesses to change their legal structure without incurring unintended tax consequences. The ATO realise that businesses change and develop over time and that different structures may become more appropriate for several reasons.
Generally, small business entities will have the option to defer gains that would otherwise occur from transferring assets from one entity to another. Assets must be ‘active assets’ that are either CGT Assets, depreciating assets, trading stock or revenue assets. The transferor will be taken to have received an amount equal to their cost base and the transferee is taken to have acquired the asset for the same amount. The following rules regarding a transfer also apply:
- The transfer will not affect the pre-CGT status of an asset.
- For the transferee to claim the CGT discount, they will need to wait 12 months from the transfer date.
- Eligibility for the 15-year CGT exemption will not be affected by a transfer.
Eligibility for rollover also requires that there is no material change in the underlying economic ownership of the asset. For example, an individual or individuals who directly or indirectly own an asset must maintain their proportionate share in the asset after the transfer has occurred.
These rules will only be available where changes have been made as part of a genuine restructure. Changes made by artificial or tax driven schemes will not be eligible. Further details of what constitutes a ‘genuine restructure’ can be found at the following ATO Link: ATO Genuine Restructure Guidelines.
Should you wish to further investigate how the new small business restructure rollover rules would apply to your business, please do not hesitate to contact the team at MPT Group Accountants & Advisors.
Submitted by George Pakis.