The small business restructure rollover is great news for small business owners looking for a tax-effective way to restructure their operations.
At its simplest, the small business restructure rollover allows eligible businesses to transfer business assets from one entity to another, without incurring a capital gains tax (CGT) liability. How good is that? So good! Now here’s the nitty gritty.
When Should You Consider the Small Business Restructure Rollover?
If you're a small business owner, there’s plenty of reasons you might need to restructure at some stage. And if you do, you may be able to take advantage of the small business restructure rollover.
Protecting Your Assets
Some business structures provide more asset protection than others. E.g. as a sole trader, personal assets such as the family home are at risk if you’re facing potential legal claims, disputes or insolvency. Contrast this with a company structure, which is a separate legal entity and although not completely risk free, it offers far more protection than many other business structures.
Restructuring for asset protection can benefit business owners operating in high-risk industries or professions, those concerned about protecting assets in the event of a family law dispute, and where there’s a high risk of significant financial hardship if things go awry.
Easy to Operate Globally
Some business structures are not well suited to global operations. So if your business is ready to take on the world , taking advantage of the small business restructure may make it easier to transact or expand globally.
Simplifying Business Operations
Some business structures are more complex than others, but an unnecessarily complex business structure is no good. It can lead to increased compliance costs, reduced efficiency, limited flexibility and a lack of transparency. Basically an administrative pain in the bum. Utilising the small business restructure roll over to simplify business operations can make it easier to manage tax and legal obligations, as well as reducing ongoing costs (and headaches).
Incentivising Employees Through an Employee Share Scheme Offer
An employee share scheme is an effective tool to provide employees with a non-cash benefit while incentivising them to grow the business. In some circumstances, it may be possible to utilise the small business restructure rollover to transfer business assets to a company thereby making a future employee share scheme offer possible. We strongly recommend obtaining tax advice in these circumstances to ensure that the ATO would consider it a genuine restructure of an ongoing business (one of the key conditions for accessing the roll over).
Raising New Capital
We love businesses with aspirational plans for expansion and growth, but that often requires fresh courses of capital through investors . The small business restructure roll over may be used to transfer business assets to a company, making it easier to raise cash and facilitate the growth of the business in the future. We recommend obtaining tax advice in these circumstances to ensure that the ATO would consider it a genuine restructure of an ongoing business (one of the key conditions for accessing the roll over).
Reducing Tax Liability
You might be wondering why we haven’t included reducing tax liability as a reason for restructure. While the reduced tax liability (i.e. through a lower taxed entity) might be a nice consequence of a restructure, it can’t be the “dominant purpose”. Trust us on this one, the ATO is not a fan of ‘artificial or inappropriately tax-driven schemes’.
Determine Your Eligibility for the Small Business Restructure Rollover
To qualify for the small business restructure rollover, there are a number of conditions that need to be met. Firstly, you need to be carrying on a business with a turnover of less than $10 million. The assets transferred must be actively used in the day-to-day running of the business and it must be a ‘genuine’ restructure of an ongoing business. For example, the restructure mustn’t be part of a business sale process. Also, the ownership of the business before and after the restructure must remain the same.
We’re just scratching the surface here. The rules are quite complex and we recommend seeking tax advice before embarking on a restructure. Getting it wrong could land you with a large and unintended tax bill. Yuck!
Interested in the Small Business Restructure Rollover?
If a restructure might be what your business needs, get in touch with us today . Our tax advisory team will work with you to determine whether you’re eligible for the small business restructure rollover and we’ll hold your hand along every step of the restructure adventure.
