Cruz and Co

We know tax. Let us look after yours.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog

Connect with us

  • Facebook
  • LinkedIn

SMEs can now restructure their businesses without a tax penalty

By: TERRY HAYES

office-681x333Legislation has been passed in Federal Parliament that will allow small businesses to change the legal structure of their business and have the capital gains tax (CGT) liability disregarded and deferred until eventual disposal. The changes generally apply from 1 July 2016.

Below is a snapshot of the changes. No one will be particularly surprised to learn the new rules are rather technical in nature!

What the amendments mean

The changes provide an optional rollover for small business owners who change the legal structure of their business on the transfer of business assets from one entity to another.

The effect of the rollover is the tax cost(s) of the transferred asset(s) is rolled over from the transferor to the transferee. The changes are designed to provide greater flexibility for small businesses to change legal structures.

The legislation – the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 – was passed by the Federal Parliament without amendment.

The amendments apply to:

  • transfers of depreciating assets, where the balancing adjustment event arising from the transfer occurs on or after July 1, 2016;
  • transfers of trading stock or revenue assets, where the transfer occurs on or after July 1, 2016; and
  • transfers of CGT assets, where the CGT event arising from the transfer occurs on or after July 1, 2016.

The new rollover is in addition to existing rollovers where an individual, trustee, or partner transfers assets to, or creates assets in, a company in the course of incorporating their business.

The optional rollover will be available where a small business entity transfers an “active asset” of the business (i.e essentially, an asset used in the business) to another small business entity as part of a genuine business restructure, without changing the ultimate economic ownership of the asset.

The rollover will apply to gains and losses arising from the transfer of active assets that are CGT assets, depreciating assets, trading stock or revenue assets between entities as part of a genuine restructure of an ongoing business.

Does your business qualify?

To qualify for the rollover, the transfer of the asset(s) must be part of, a “genuine” restructure of an ongoing business, as opposed to “inappropriately tax-driven schemes”.

Whether a restructure is “genuine” will be determined based on all of the facts and circumstances. Relevant matter include whether it is a bona fide commercial arrangement undertaken to enhance business efficiency, whether the transferred assets continue to be used in the business and whether or not it is a preliminary step to facilitate the economic realisation of assets.

To be eligible for the rollover, each party to the transfer must be either:

  • a “small business entity” with $2 million or more in turnover for the income year during which the transfer occurred;
  • an entity that has an “affiliate” that is a small business entity for that income year;
  • “connected” with an entity that is a small business entity for that income year; or
  • a partner in a partnership that is a small business entity for that income year.

The asset transfer must not change the ultimate economic ownership of transferred assets in a material way. The ultimate economic owners of an asset are the individuals who, directly or indirectly, beneficially own an asset and only natural persons can hold ultimate economic ownership of an asset. Therefore, where a company, partnership or fixed trust owns an asset it will be the natural person owners of the interests in these interposed entities that will ultimately benefit economically from that asset.

If there is more than one individual who is an ultimate economic owner of an asset, there is an additional requirement that each of those individuals’ shares of that ultimate economic ownership be materially unchanged, maintaining the same proportionate ownership in the asset.

In the case of discretionary trusts, they may be able to meet the requirements for ultimate economic ownership “on their facts”. For example, where there is no practical change in which individuals economically benefit from the assets before and after the rollover, there will not have been a change in ultimate economic ownership on the facts.

The effect of the rollover

The rollover provides for tax neutral consequences for a transfer by “switching off” the application of the existing income tax law. However, this only occurs for the purpose of the transfer and not for the purposes of goods and services tax, fringe benefits tax or stamp duty.

The rollover provides that the transfer takes place for the asset’s “rollover cost”, which is the transferor’s cost of the asset for income tax purposes, such that the transfer would result in no gain or loss for the transferor. The transferee will be taken to have acquired each asset for an amount that equals the transferor’s cost just before the transfer.

For the transfer of a CGT asset, the tax law will apply under the rollover as if the asset had been transferred for an amount equal to the cost base of the asset. Further, pre-CGT assets transferred under the rollover will retain their pre-CGT status in the hands of the transferee.

Assets that are trading stock of the transferor will be held as trading stock by the transferee. The transferee will inherit the transferor’s cost and other attributes of the assets as the transferor just before the transfer.

Needless to say, obtaining professional advice would be prudent to enable an SME to take advantage of the restructure rollover.

Source via SmartCompany

About Ritchie Cruz

Ritchie has 20+ years experience in Public Practice, being trained as a Chartered Accountant in one of the largest 2nd Tier accounting firms in Australia. Experience also includes working in management positions in Medium to Large ASX Listed Companies. Recent experience includes working as a Group Financial Controller in medium size business going through the ASX listing process. Ritchie can offer big company management and reporting experience, to small & medium businesses.

Ritchie has a passion for small business start ups, helping clients grow from humble beginnings. See our small business start up page to see how your business can benefit.

Testimonials

  • Zac Fryer

    Director, Import and Distribution Company

    Ritchie Cruz provides and high level of accounting expertise and goes above and beyond in answering any queries we have.

    Read full testimonial
  • Kellie Pincham

    Director
    Automotive Parts Retailing business

    Cruz & Co offer a great professional and friendly service. Ritchie gave me confidence running the business knowing that he was readily available for…

    Read full testimonial
  • Jonathan Fambart

    Business Tax – Travel Industry

    Cruz & Co was introduced to me this year and it was the best decision for my sole trader and personal taxation affairs. Ritchie the…

    Read full testimonial
  • Jonathan Yeoman

    Director, Technical Design Company

    This is a new business startup and Cruz&Co. have provided great help, guidance and reassurance from the beginning.

    Ritchie has provided us with excellent service and…

    Read full testimonial
  • Dr Krish Perananthan

    Cosmetic and Implant Dentistry

    Ritchie was recommended to me by my father and I have also continued to recommend him to my friends. He is reliable, efficient and has a…

    Read full testimonial
  • Daniel Robey

    I have and continue to recommend Cruz and Co to many businesses and individuals who are looking for a business advisor and accountant that goes over and above…

    Read full testimonial
  • Vanita Aloda

    Restaurant Owner

    Ritchie Cruz is my Accountant. We have a solid 10 year relationship.

    Ritchie as always provide me with honest and efficient service.

    Is a great communicator, always replies efficiently to…

    Read full testimonial
  • Napoleon Guines

    Director, Travel Company Operations

    Ritchie Cruz and Co are accommodating and have excellent service.

    Cruz & Co have impressed me the most is due to their efficient service.  They are…

    Read full testimonial
  • Jae Kwon Yoo

    Business Tax – Electrical Contractors

    Ritchie is awesome. He is very professional and responsive and he is always there to help you. He even replies during weekend. He needs some…

    Read full testimonial
  • Regina Wang

    Business Tax – Beauty Salon 

    Ritchie has been managing my tax matters as a sole trader for 2 years+. Always very responsive to my questions and make effort to reply…

    Read full testimonial

© 2025 Cruz & Co.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog