For small businesses, there’s never been a better time to review the effectiveness of your business structure.
In the last Federal Budget, the government announced new measures to allow small businesses to change their legal structure without incurring a capital gains tax liability. Draft legislation was released in November, and the new measures are proposed to commence from 1 July 2016. In basic terms, a small business is one that has annual turnover of less than $2m, or net assets of less than $6m.
The new rollover recognises that the most appropriate structure for a small business may change over time. A new business might choose a legal structure that unnecessarily exposes them to personal liability, puts their assets at risk, is unnecessarily complex, or creates tax issues.
Restructuring your business can result in significant capital gains tax (CGT). CGT relief is currently available in certain circumstances, for example where assets are transferred by a sole trader to a company. The proposed new rules will broaden the CGT relief to other structures. It also extends the relief to transfer of trading stock and depreciating assets.
Depending on your circumstances, the existing Small Business CGT Concessions may provide other options for restructure, and should be considered in any review.
It takes time to implement a change in business structure. With the new CGT commencing in less than 6 months, now is the time to review your options to be ready for implementation by 1 July 2016. The benefits can be substantial.
If you feel you might benefit from these new rules, contact your client manager.