What is a genuine restructure of an ongoing business? 

August 2016

The ATO has finalised another law companion guideline dealing with the small business restructure roll-over rules.

One of the main conditions that needs to be met in order for the roll-over relief to apply is that transactions to part of a genuine restructure of an ongoing business. This is a question of fact and will depend on the circumstances in each case. 

In very broad terms, the taxpayer is required to demonstrate that the restructure is expected to deliver benefits to the business itself. The ATO notes that restructures undertaken primarily for the following reasons are likely to be treated as a genuine restructure of an ongoing business: 
  • Asset protection;
  • Maintaining key employees; 
  • Raising new capital; 
  • Simplifying the taxpayer's affairs. 

However, if it appears that the restructure is being undertaken for the following reasons then the ATO is likely to conclude that the condition is failed: 

  • The restructure is being done to facilitate the sale of the business or a business asset; The restructure is undertaken to facilitate succession planning strategies; or 
  • The transaction is undertaken to facilitate the extraction of wealth from the business assets. 

The LCG also provides comments on a number of other issues, including the potential application of the general anti-avoidance rules in Part IVA, the application of the active asset requirement and some examples dealing with the requirement that the restructure does not cause a material change in the underlying economic ownership of the relevant assets. 

The ATO confirms that the rules are not intended to apply to the transfer of shares in a company or units in a trust.

For more information about the how to restructure your business, please contact us on 02 9957 4033

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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