The current climate is a challenging one. If you are fortunate enough to have been able to hold onto your business during this period, you may very well have started to think of how it can be changed to better adapt to unforeseen hurdles.
These hurdles may be better improving the asset protection currently afforded by the structure, locking in key employees or taking on an investor. The commercial drivers may be different depending on the business, but the legal, tax and duty issues are very similar.
If a restructure was previously considered and put to one side because of too high values or turnover meaning an inability to access the small business CGT concessions, the current climate might be an opportune time to revisit those concessions.
Triggering a gain - Small business CGT concessions
As an oversimplification, these concessions can be available where turnover is less than $2m or maximum net asset value is no more than $6m and the assets being transferred are used in or ready for use in carrying on the business.
Why they are popular is that they allow a capital gain of up $2m to be sheltered for a sole practitioner and up to $4m for a ‘mum and dad’ business provided certain conditions met.
You of course still must consider whether stamp duty is payable, which is state dependent and can be costly when it does apply as it is the same rate as a property conveyance when it does apply. Another issue can be trading stock which is not covered by the small business CGT concessions.
Not triggering a gain – Rollovers
There is a myriad of rollovers available that allow business assets and interests in companies and trusts that own them to be restructured without triggering a capital gain. Again, stamp duty must still be considered as well as trading stock.
Those issues aside, these rollovers otherwise allow a relatively smooth transition from a tax perspective when dealing with business assets or interests in companies and trusts that own them.
Is there a difference?
Whether you use small business CGT concessions or a rollover is not always dictated by tax. An issue with most (but not all) of the rollovers is that they are skewed in favour of moving to a company. That is fine as companies are becoming increasingly popular given the ever reductions in the rate of company tax. But they are not for everyone.
One rollover, focused, on small business, allows a move to a broader range of entities but also has comparatively more conditions required to be met. That trouble may be worth it if your restructure is being hindered as a consequence of trading stock; it is the only rollover that provides relief for trading stock and has become popular for agricultural businesses looking to restructure.
On the other hand, triggering a capital gain, frees you up to move to a broader range of entities but without the same conditions required to be met as the small business rollover. There are of course conditions required to be met to gain access to the small business concessions but they may appear relatively straight forward in comparison to those required by the small business rollover.
In considering a restructure there are of course considerations other than tax and duty. For many, a change to ABNs, trading accounts, contracts etc can become too burdensome to deal with even where the transaction can be done without tax or duty.
Though in the current climate what may have once been too burdensome may very well be more desirable.