CGT roll‑over relief is currently available for individuals who incorporate but all other entity type changes have the potential to trigger a CGT liability. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established. Restructuring into a more appropriate legal structure may help a business to continue to develop and grow, to avoid unnecessary compliance costs resulting from using overly complex structures, or to adapt to current conditions.
This roll-over applies to gains and losses arising from the transfer of active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.
To qualify for the rollover, the key conditions are:
· the transaction is a genuine restructure of an ongoing business as opposed to inappropriately tax-driven schemes. So, the concessions can’t be used for winding down or selling a business;
· each of the parties to the transaction is a small business entity (revenue under $2m) or is related to a small business entity in the year the transaction occurs. The turnover test is subject to some grouping rules;
· the business owners (the people who have ultimate economic ownership of the assets) and their share in those assets don’t materially change;
· the asset being transferred is currently being used in a business carried on by the current owner or certain related parties;
· both the original entity and the entity the business is being transferred into need to be Australian residents;
· the parties involved in the transaction must choose jointly to apply the roll-over; and
· none of the entities involved in the transaction are a superannuation fund or exempt entity.