In the May budget the government promised a new rollover for small businesses that allowed them to change their structure without (federal) tax effects.
The Treasury has released a draft of this rollover and it is amazing.
Listen to this… You can roll small business assets into a new structure if ultimate economic ownership of the assets do not change and for discretionary trusts…
“every individual who, just before or just after the transfer took effect, had ultimate economic ownership of the asset was a member of the family group of that family trust.”
So from 1 July 2016 you will be able to change a small business structure to a discretionary trust if the individual owners of the old structure, looking through the structure, are covered by a family trust election over the new discretionary trust.
This rollover will cover depreciable assets, trading stock, CGT assets and othe revenue assets. It does this by deeming the new entity to have purchased the assets from the current structure at its tax value (cost base, written down value…) rather than market value.
This is only draft legislation At the moment but if this gets up we will be able to change small business structures to a discretionary trust after the business has proven itself to be successful WITHOUT crystalising any capital gains tax! Of course the discretionary trust will have the same cost base for the assets as the previous structure did.
This would mean you could transfer to other structures if you wanted to (other than super funds).
Want an example:
Victoria and Chris are husband and wife and are the only shareholders in Puppy Co the premises, a vehicle, cash, accounts receivable, and goodwill. Victoria and Chris wish to transfer the premises from Puppy Co to a recently settled discretionary trust, the Fluffy Trust, which will lease the premises to Puppy Co. Victoria and Chris, and their family members, are the only objects of the Fluffy Trust, which has made a family trust election. Puppy Co is a small business entity that satisfies the maximum net asset value test, and the premises are an asset of the business carried on by Puppy Co. The Fluffy Trust is not a small business entity in the income year, but it is connected with Puppy Co, and the premises satisfy the test in subsection 152-10(1A). For the purpose of the roll-over, there has not been a change in the ultimate economic ownership of the premises by the transfer of the asset from Puppy Co to the Fluffy Trust. Therefore, assuming that the other requirements are also met, the roll-over would be available in respect of the transfer. The premises are a CGT asset of Puppy Co, which it acquired on 1 July 2002 for $300,000. The current market value of the premises is $600,000. Under the roll-over, Puppy Co is taken to have disposed of the premises for the roll-over cost, and the Fluffy Trust is taken to have acquired the premises for the roll-over cost. This is the amount necessary so that Puppy Co makes neither a capital gain nor a capital loss from the transfer of the premises. Therefore the roll-over cost is $300,000. Following the transfer of the premises from Puppy Co to the Fluffy Trust, the value of Puppy Co has been reduced by the market value of the premises, namely $600,000. The cost base of each of Victoria and Chris’s shares in Puppy Co is reduced by $6,000 to reflect the transfer of value from the trust.