The small business restructure rollover allows small businesses to transfer active assets from one entity to one or more other entities, on or after 1 July 2016, without incurring an income tax liability.
BDO partner Dr Mark Pizzacalla said that while the rollover provides flexibility for small business owners, the provisions were strict and required advisers to carefully consider the eligibility of their client’s business.
“This is a leading-edge policy, it's unique to Australia's tax landscape. [But] the provisions are new and there are always things to look out for,” said Mr Pizzacalla.
“You need to make sure you've got a genuine restructure because that's one of the conditions. A genuine restructure is not a defined term but the tax office has released some guidance on that.”
Broadly, the tax office’s guidance on a genuine restructure includes that the transaction is a bona fide commercial arrangement; the business continues under the same ultimate economic ownership; the transferred assets continue to be used; the new structure is the one likely to have been adopted originally had the owners obtained professional advice; and the restructure is not unduly tax driven.
Mr Pizzacalla stressed that practitioners needed to familiarise themselves with the ATO’s Law Companion Guideline LCG 2016/3 as it addressed some examples directly on point.
While there may be some level of uncertainty regarding the operation of the eligibility test, Mr Pizzacalla believes the rollover has its merits and should be considered in helping a small business grow.
“It's important to look at the context of the small business life cycle, if you are looking from an SME position, what that point is in the life cycle you're trying to assist the business and these provisions really assist small businesses in that early growth stages,” said Mr Pizzacalla.
“If they find they are not in the right structure it gives them the opportunity to be in the right structure they should be in to help them grow.”