Small Business Restructure Rollover and Stamp Duties

I have discussed this rollover before so if you have no idea what I am talking about have a look at these links first.

The rollover is very broad, applying to CGT assets, revenue assets, trading stock and depreciable assets. But it does not cover all the taxes that may be rolled over under these restructures.

Clearly this does not cover State and Territory taxes, like stamp duty.

So does this mean that any restructure that we do is still going to cost us a whole lot of tax.

Remember, that stamp duty can be large. In NSW the current rate is $8,990 plus $4.50 for every $100, that the value exceeds $300,000. So restructure an inexpensive business premise of say $600,000 to a better entity (say out of a company and into a discretionary trust) then you end up with stamp duty of $22,490.

Ouch. But can we avoid this tax?

In NSW, as duty on the transfer of business assets or a declaration of trust over ‘business assets’ (other than land) will be abolished from 1 July 2016 you could consider keeping the land and buildings in the current structure and moving the “business” out of the current structure to another entity. Of course this would mean the land and buildings still sit in the old structure, which if it is a company may mean no access to the CGT concession and no income splitting on the earnings from the land and buildings….

At this point we need to ask ourselves is the future access to possibly the CGT concessions on the land and buildings and income splitting from the income of the land and buildings worth paying $22,490 of stamp duty today (using the $600,000 example above)? Get a spreadsheet out and do the maths!

But perhaps there is another way to avoid the stamp duty all together.

In most jurisdictions there are “corporate restructure” relief rules in the respective Duties Act. And if we were happen to forgo the income splitting benefits that we get from rolling assets into a discretionary trust, then we might be able to avoid the stamp duty on the sale of the property from the Company to a trust.

If the trust that we roll the land and building to was a unit trust, not a discretionary trust, then all the units in the unit trust have to be owned by the same underlying economic owners. This would be the case if the company from which we intend to roll the assets out of owns all of the units in the unit trust.

In NSW, section 273B of the Duties Act 1997 states:

Duty under this Act is not chargeable on a transaction if the Chief Commissioner is satisfied, on application by a party to the transaction, that:

(a) the transaction is a corporate reconstruction transaction, and

(b) the transaction, or the series of transactions of which the transaction is a part, is undertaken for the purpose of either or both of the following:

(i) changing the structure of a corporate group,

(ii) changing the holding of assets within a corporate group, and

(c) the transaction, or the series of transactions of which the transaction is a part:

(i) is not undertaken for a purpose of avoiding or reducing duty under this Act on another transaction, and

(ii) is not undertaken for the sole or dominant purpose of avoiding or reducing a liability for tax, other than duty under this Act, under a law of an Australian jurisdiction.

Note, that to get this you need to apply first to the Commissioner in each state or territory and there are different processes and timeframes for this approval in different jurisdictions.

Also note that while the term “corporate” is used in the definition about, a unit trust that is wholly owned by a company can be a part of a “corporate group” in the NSW Duties Act.

So would the Commissioner of Taxation in NSW agreed that rolling the land and buildings from a company to a unit trust where the units are all owned by the company is an exempt “corporate reconstruction” under Part 1 of Chapter 11 of the Duties Act 1997 (NSW)?

There is only one way to find out. Ask him. And if he says yes you can now use the small business restructure rollover without paying any taxes at all and get the land and building that are in a company into a trust that can access the 50% discount (as long as the trust holds the land and buildings for 12 months).

Choice (as my New Zealand friends say)!

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
This entry was posted in Income Tax, Legislation, Planning Idea, Planning Stuff. Bookmark the permalink.

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