Broadly, the new rollover relief applies where a small business entity (SBE) transfers an active asset to another SBE as part of a ‘genuine business restructure’, and is a welcome addition to facilitate restructuring for small business owners. This optional rollover relief will apply to transfers occurring on or after 1 July 2016.
Draft Law Companion Guideline LCG 2016/D3 sets out the meaning of a genuine restructure of an ongoing business. The LCG contains several examples to illustrate when the rollover may apply, however, the Commissioner’s initial view is that a genuine restructure is one that 'could be reasonably expected to deliver benefits to small business owners in respect of their efficient conduct of the business going forward'.
As such, the rollover will not apply to SBE owners looking to wind down or exit their business. Rather, rollover relief should apply where there is a bona fide restructuring arrangement. One would expect that an examination of how the business is operated, the continuity of key personnel, production, supplies and services will be considered as key factors that would need to be weighed up when deciding if a genuine restructure was undertaken.
Interestingly, the Commissioner acknowledges that tax considerations are factors that can be taken into account under a genuine small business restructure. Caution is still required as this position is not without limits. Contrived or artificial transactions would still be considered high risk particularly given the Commissioner’s ability to exercise his discretion to disallow a tax outcome under the general anti avoidance provisions.
You should consider whether the new rollover relief could potentially apply to your circumstances. These provisions should also be considered as part of your regular due diligence enquiries when acquiring a SBE.