Capital Gain Tax text with Australian money dollar background

What Small Business Qualifies for the CGT Rollover Relief?

The Australian government has passed a law allowing small businesses to amend their legal structure without making them liable for capital gains tax (CGT).

According to Small Business and Assistant Treasurer Kelly O’Dwyer, small businesses that discover that their current legal structure no longer suits them don’t have to be stuck with it. With this legislation, they can restructure without incurring an instant CGT liability.

The law is intended to be enforced beginning 1 July 2016, and affects:

  • Handovers of depreciating assets, provided the balancing adjustment event as a result of the handover happens on or after 1 July.
  • Handover of trading stock or revenue assets, provided the handover occurs subsequent to 1 July; and
  • Handover of CGT assets, provided the CGT event from this handover is subsequent to the same date.

This relief can be claimed should a small business hand over an active asset to another small business unit as part of a “real” business restructure without affecting the asset’s economic ownership.

Gains and losses resulting from the handover of active assets that are CGT assets, depreciating assets, trading stock or revenue assets between business organisations will be covered by the CGT rollover relief.

To meet the requirements of the rollover relief, the handover of the asset or assets should be part of a “real” restructure of an existing business, versus “unethically tax-motivated strategies.”

The “genuineness” of the restructure will be determined using facts and situations. Some of the pertinent aspects are:

  • Whether it is an authentic commercial plan executed to improve the efficiency of the business;
  • Whether the re-assigned assets remain in the business; and
  • Whether or not it is an initial move to, as the legislation words it, “facilitate the economic realisation of assets.”

All parties to the handover should do either of the following to be eligible for the rollover:

  • A small business organisation with a turnover of $2 million or below for the income year when the transfer happens
  • An organisation that has an affiliate that is a small business unit for that income year
    “linked” to an organisation that is a small business unit for that income year, or
  • A partner in a partnership that is a small business unit for that income year

If you need tax advice or guidance, contact PJS Accountants. We offer expertise in managing your tax affairs with a complete range of compliance, corporate and individual tax services. Our clients include large companies, SMEs, family businesses and individuals. Putting nothing to chance! Talk to one of our team members now!