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Edited version of your written advice
Authorisation Number: 1051490154232
Date of advice: 12 March 2019
Subject: Income tax – small business restructure roll-over
Question 1
Does the proposed transfer of land from individual taxpayers to the new discretionary trusts qualify for relief under subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
The proposed transfer of land from the individual taxpayers to the new discretionary trusts qualifies for relief under subdivision 328-G of the ITAA 1997 as it is considered that the relevant conditions have been satisfied. The Commissioner confirms that the proposed transferred is a genuine restructure of an ongoing business and that the ultimate economic ownership of the assets does not change.
Question 2
Does a portion of the land retain its pre CGT status post transfer under subdivision 328-G of the ITAA 1997?
Answer
Yes.
For the purposes of applying subsection 328-455(1) to the asset as a CGT asset (other than a revenue asset) that is a pre-CGT asset, the transferee’s are taken to have acquired the assets before 20 September 1985. Therefore after the restructure the pre-CGT share of the land was acquired before 20 September 1985 will maintain its pre-CGT status.
Further information on the small business restructure rollover can be found by searching 'QC 48586' on ato.gov.au
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You do not carry on a business.
You own land as tenants in common under the following titles (collectively referred to as the land) A, B and C.
A was transferred to you as tenants in common following the death of your parent on X October 19XX.
The executors of the will held the land on trust until you attained the age of 21.
Your remaining parent was granted a life tenancy until you attained the age of 21.
The life tenancy was relinquished on X XXXX 19XX.
B and C were originally owned by your parents as tenants in common.
You are connected to the trading trust.
Upon the passing of your parent on the X XXXX 19XX, 50% of each title was transferred to you as tenants in common.
The remaining 50% of the land was transferred from your remaining parent on X XXXX 19XX to you as tenants in common by way of a deed of family arrangement.
As a result, 50% of each of these two titles is classified as a pre CGT asset and the other half a post CGT asset.
The land has been used in a primary production business since the date of purchase.
Since X July 19XX the primary production business has operated through a discretionary trust (the trading trust).
The original appointor of the trading trust was your parent.
The trust deed was updated in 20XX to replace them with you as appointors.
The directors and shareholders of the trustee company are you equally.
The business carried on by the trading trust is solely for the benefit of yourselves and your respective families.
You and your family are beneficiaries of the trading trust.
The trading trust is financially dependent on the land and you are financially dependent on the trading trust. You act in concert to ensure that the trading trust is run in such a way as to meet your financial requirements.
There is no formal lease in place in respect to the use of the land owned as tenants in common with the trading trust due to the close intertwined relationship between the land holders and the trading trust.
The aggregated turnover for the trading trust is expected to be under $10 million for the current and foreseeable future financial year.
The land owned by you will be transferred to a discretionary trust.
The appointors of the new discretionary trust will be you.
The discretionary trust is established to hold the land will have a family trust election in place with XYZ as the test individual.
You and your respective families will be beneficiaries of the discretionary trust.
All entities party to the restructure are Australian Residents for tax purposes.
The land will continue to be used by the trading trust in the carrying on of its business activities.
The purpose of applying the restructure rollover is to provide further asset protection by separating the ownership of assets from you.
The restructure also enable’s additional options with financiers to be negotiated over longer terms to assist in growth of the operations.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 108-5(1)
Income Tax Assessment Act 1997 section 152-10
Income Tax Assessment Act 1997 section 152-40
Income Tax Assessment Act 1997 subdivision 328-G
Income Tax Assessment Act 1997 section 328-125
Income Tax Assessment Act 1997 section 328-430
Income Tax Assessment Act 1997 section 328-440
Income Tax Assessment Act 1997 section 328-455