Small business owners – Are you considering to restructure your business?
22 September, 2022 BY Bibek Nepal, CPA

Small business owners – Are you considering to restructure your business?

Many businesses grow and evolve over time and the way the business was originally structured to operate, may not always be the best structure for the growth and continued success of the business.

There could be a number of reasons to restructure a business for example asset protection, raising new capital, simplifying your affairs, etc.

If your existing business structure no longer suits you, you can consider restructuring your business. Restructuring a business may involve setting up a new entity as appropriate and transferring assets from the old entity to the new entity.

Normally, when an entity transfers its assets to another entity, any gains on transfer are subject to income tax liability. However, thanks to the Small Business Restructure Roll-over provisions as it allows small businesses to transfer active assets from one entity to one or more other entities, without incurring income tax liability.

The rollover applies to the transfer of active assets that are CGT assets, trading stock, revenue assets or depreciating assets used or held for use, in the course of carrying on a business.

In order to qualify for the SBRR, your business must meet the following criteria:

  1. Both entities involved in the transfer must be small business entity.
  2. Both entities must be Australian tax residents.
  3. Both entities must agree to apply the rollover in relation to the assets transferred.
  4. There must be no change to the ultimate economic ownership of the assets after the transfer.
  5. The transaction must be part of a genuine restructure. 

To be eligible for the rollover, the transfer of assets must form part of a genuine restructure as opposed to an artificial or inappropriately tax-driven scheme. For example, if you’re restructuring the business specifically to create a more tax-effective sale, then your small business entity won’t qualify for the small business rollover relief.

Similarly, to be eligible for the rollover, the transaction must not result in a change to the ultimate economic ownership of the transferred assets. The ultimate economic owners of an asset are the individuals who directly or indirectly, own an asset.

Get in touch with us today, If you would like to know more about business restructuring and determining your eligibility to apply for the small business restructure rollover.

Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.



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