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Latest Tax Bite

Restructures of small businesses roll-over – Some limitations

The restructures of small businesses roll-over contained in Subdivision 328-G has applied since 1 July 2016.
 
Since then, some of the limitations of the roll-over have become apparent.  Here we consider two such limitations in relation to relatively straightforward restructures.
 
The first limitation relates to the ultimate economic ownership test, and the second limitation relates to the active asset test.
 
In relation to the ultimate economic ownership test limitation, consider the example of business assets being transferred from Company A to a new company, Company B, that is 100% owned by a new family discretionary trust controlled by the shareholders of Company A.
 
In such a situation, the ultimate economic ownership test (contained in paragraph 328-430(1)(c)) would not be satisfied as Company B would not be eligible for the ultimate economic ownership concession for discretionary trusts (contained in section 328-440) as the new family discretionary trust would not be acquiring the business assets directly itself, rather, these would be acquired by its subsidiary Company B.
 
In relation to the active asset test limitation, consider the example of an individual transferring shares in a trading company to a new family discretionary trust controlled by the individual.
 
In such a situation, the active asset test (contained in paragraph 328-430(1)(d)) would not be satisfied as the shares in the trading company would not be an asset that is used, or held ready for use, in the course of carrying on a business conducted by an affiliate / connected entity of either the individual or the new family discretionary trust (as required by subparagraph 328-430(1)(d)(ii)).

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