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Legislation Provides Small Businesses CGT Rollover Relief

Since the release of a draft legislation late last year (November 2015), there have been talks about the amendment of this bill now allowing small business to change its legal structure without acquiring capital tax gains (CGT) liability.

Now that the Tax Amendment has been passed, small businesses now have the flexibility to change as their business changes. “Small business owners who find they are using a legal structure that does not suit their needs will no longer be stuck with that structure. This will allow them to restructure their business without incurring an immediate CGT liability,” says Small Business and Assistant Treasurer Kelly O’Dwyer.

This new rollover allows small businesses to transfer their “active asset” to another small enterprise as part of their genuine business restructure.

Taking effect on July 1, 2016 the legislation applies to:

  • Transfers of depreciating assets, where the balancing adjustment event arising from the transfer occurs on or after 1 July 2016;
  • Transfers of trading stock or revenue assets, where the transfer occurs on or after 1 July 2016; and
  • Transfers of capital gains tax (CGT) assets, where the CGT event arising from the transfer occurs on or after 1 July 2016.

In order for a rollover to qualify, the transfer of the assets must be part of a genuine restructure of a business, and should not be part of “inappropriately tax-driven schemes”. Some factors that qualify a rollover as “genuine” is when a rollover was undertaken in order to enhance an enterprise’s efficiency, that the assets will be continued to be used in the business, and to “facilitate the economic realisation of assets”.

Small businesses that are eligible for this rollover are:

  • The business entity and other enterprises affiliated with the business have a combined annual turnover of not more than $2 million;
  • The business has an affiliate small business entity for that income year;
  • The business is connected with a small business entity in that income year;
  • The business is in partnership with a small business entity.

The Tax Office says that this rollover relief is an addition to the current rollovers such as the rollover relief that allows an individual, trustee, or partner, to “transfer assets to, or creates assets in, a company in the course of incorporating their business.”

For more information on Structures please contact us.


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