What is restructuring?
Restructuring involves rearranging your existing business structure that is no longer fit for purpose. For example, you may have started a business in a discretionary trust, however, you now wish to raise external capital or take on a business partner and a discretionary trust is lacking in this regard.
Ordinarily, the transfer of assets has tax and/or duty consequences, however, the tax law and duty legislation provide various concessions or exemptions in particular circumstances.
Understanding which rollovers are potentially available and whether they can deliver the intended outcome is critical in deciding whether and how to proceed.
CGT rollovers
The main CGT rollovers are:
- individual or trust transfers assets to wholly-owned company (Subdivision 122-A of the Income Tax Assessment Act 1997 [ITAA 1997]);
- partners in a partnership transfer assets to proportionately owned company (Subdivision 122-B of the ITAA 1997);
- scrip for scrip rollover (Subdivision 124-M of the ITAA 1997;
- disposal of assets by trust to a company (Subdivision 124-N of the ITAA 1997);
- the small business restructure rollover (Subdivision 328-G of the ITAA); and
- top-hatting (Division 615 of the ITAA 1997).
It is important to note that some rollovers only apply to CGT assets, whilst others apply to CGT assets, trading stock and revenue assets.
Duty rollovers
Although less of any issue today given that many jurisdictions have generally abolished duty on the transfer of business assets (other than real property), Queensland, Western Australia and the Northern Territory still impose duty in these circumstances.
However, even if certain assets are otherwise dutiable, various jurisdictions provide relief in relation to certain business restructures. for example, New South Wales provides an exemption in relation to:
- Corporate reconstructions—that is, a transfer or agreement to transfer dutiable property between corporations that are members of the same group; and
- Corporate consolidations—that is, a transfer that is made to interpose a corporation between another corporate and the holders of its securities under a scrip-for-scrip arrangement
What if no rollovers are available?
If no rollovers are available, then a restructure will trigger tax and duty issues in the ordinary course. However, in these circumstances, you may consider the availability of any CGT discount and/or the small business CGT concessions to minimise the tax impact of transitioning to the intended structure.