With the Federal Budget’s proposed changes to superannuation taking all the attention, many clients are not aware of an interesting new piece of legislation that commenced just over 12 months ago on 1 July 2016. These new regulations offer extensions to CGT exemptions that can apply to small businesses.
The new regulations are intended to assist businesses which did not carefully consider the correct structure for their business and did not seek appropriate professional advice. Previously, if this occurred and the business wanted to change structures, there would likely be CGT payable. The new regulations now offer the small business relief from CGT and defer the capital gain until the sale in the new structure.
These new regulations only apply to small business (i.e. turnover less than $2 million) and only apply in certain circumstances. The main things that must be proven is that the restructuring is for a genuine restructure purpose (i.e. not occurring for the predominant reason of tax avoidance or minimisation) and must result in no change in the ultimate economic ownership of the business. This has yet to be tested but the ruling does give examples of legitimate circumstances such as the need to entice external investors and asset protection.
Due to the uncertainty of the application of these tests, there is also a safe harbour provision built into the legislation. If the ownership of the business does not change for 3 years after the restructure, the rollover is granted even if the business cannot prove the change was for a genuine restructure purpose.
If you are a small business and unsure whether you are operating in the correct structure, now is the time to come and see Elysium for advice.