TAX Alert: $10 million turnover threshold for Small Business Restructure Roll-over

Sep 7 2016

Publications

The business turnover threshold for access to the Small Business Restructure Roll-over (SBRR) has increased from $2 million to $10 million, with effect from 1 July 2016.

Small Business Restructure Roll-over

The SBRR is a new roll-over introduced in relation to CGT events happening on or after 1 July 2016.  The SBRR permits a “genuine restructure” of a small business to be undertaken without triggering any tax liabilities.

To qualify for the SBRR, the restructure must involve a “small business entity”.  This is currently defined to mean a taxpayer who carries on a business with a turnover of less than $2 million.  For the purpose of calculating turnover, the businesses of certain related parties of the taxpayer may need to be included.

Turnover threshhold

In the 2016-2017 federal budget, the government announced that the small business turnover threshold would be increased from $2 million to $10 million from 1 July 2016.  However, it was also announced that this change would not affect eligibility for the “small business” CGT concessions, in relation to which the $2 million turnover threshold would be retained.

This lead to uncertainty as to whether the turnover threshold for the SBRR would increase to $10 million.  After all, the SBRR is a CGT concession in relation to “small business”.  However, unlike the small business concessions set out in Division 152 ITAA97, the SBRR is contained in a different part of the tax act, namely Subdivision 328-G.

This question has now been resolved.  On 1 September 2016 the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (Bill) was introduced into the parliament.  In its current form, the Bill increases the turnover threshhold for the SBRR to $10 million with effect from 1 July 2016.

Taxpayers who wish to utilise the SBRR, but who will need to rely on the increased turnover threshold, should wait until the Bill passes into law before implementing any restructure.  This is due to the risk of the Bill being amended before it is finalised.

New restructuring opportunities

The SBRR provides significant opportunities for taxpayers who are dissatisfied with their existing business structure to rearrange their affairs without thereby triggering tax liabilities.  Previously the SBRR was somewhat limited in its potential application, due to the $2 million turnover threshhold.  With this threshold set to increase to $10 million, the opportunity to restructure under the SBRR will become available to significantly more businesses.

A unique aspect of the SBRR is that it permits a tax-neutral restructure of a business from a company to some other structure.  This is distinct from the existing CGT roll-overs, which have been available when restructuring to, but never from, a company.

Restructures that are now possible under the SBRR include (amongst others):

  • from a company to a discretionary trust;
  • from a company to a unit trust;
  • from a company to a partnership.

Unlike most other CGT roll-overs, the SBRR also provides relief from tax liabilities otherwise triggered upon the disposal of trading stock under a restructure.

The transaction must be a “genuine restructure” to qualify for SBRR relief, which is to say that a restructure in anticipation of the business being sold would generally not qualify.  However, a “safe harbour” is available so that, where there is no material change to the arrangements for 3 years from the restructure, the “genuine restructure” requirement is deemed to have been met.  With that said, the Commissioner of Taxation has indicated that a tax benefit arising from a SBRR restructure is not immune to the application of the general taxation anti-avoidance provisions under Part IVA ITAA36, therefore caution should be exercised.

Please contact our tax team if you would like any advice on any of the issues discussed above.

Written by:
Jeffrey Chang | Partner | +61 3 8080 3574 | jchang@tglaw.com.au