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Edited version of private advice
Authorisation Number: 1051592678288
Date of advice: 10 October 2019
Ruling
Subject: CGT - SBC - Small business restructure rollover
Question
Will you meet the requirements to apply the Small Business Restructure Rollover under Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997) for the proposed restructure from a Discretionary Family Trust to a Unit Trust?
Answer
Yes.
You are a small business entity, the ultimate economic ownership of the asset will be maintained and the assets are active assets of the business. Both the family trust and the unit trust are residents for Australian tax purposes and will choose to apply the roll-over. The restructure is authentic in the way it changes to operation of the business going forward while maintaining continuity of use of assets and of key personnel. Accordingly, this is a genuine restructure of an ongoing business (refer Law Companion Ruling LCR 2016/3, example 2).
As you meet the requirements under Subdivision 328-G of the ITAA 1997 you are entitled to apply the Small Business Restructure Rollover.
This ruling applies for the following period:
Year ending 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
IG Trust is a discretionary family trust (family trust).
B and C are shareholders and directors of the corporate trustee of the family trust. They are also the primary beneficiaries of the family trust.
B and C carry on a business through the family trust, which is a small business entity.
Proposed restructure
Transfer the business assets from the family trust to a Unit Trust (unit trust), with the family trust holding all the units in the newly established unit trust.
A family trust election will be made for the family trust specifying B as the primary test individual.
The use of the assets will remain consistent due to no change in the business operations.
Both the family trust and the unit trust will choose to apply the rollover relief under paragraph 328-430(1)(f) of the ITAA 1997.
Both the family trust and the unit are residents for Australian tax purposes.
There is no intention to change the existing staff; however additional staff may be required due to future business growth.
Within the first three years after the restructure, you intend to offer a key employee (who is not a member of the 'family group') the opportunity to acquire X% of the units in the unit trust as an incentive for their ongoing involvement in the business and enable future business growth.
The key employee has worked in the business for more than X years and provides a key skillset that will contribute to future growth of the business.
There is no intention to offer any further units in the unit trust for sale within the next X years.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 328-G
Income Tax Assessment Act 1997 section 328-430
Income Tax Assessment Act 1997 section 328-435
Income Tax Assessment Act 1997 section 328-440
Income Tax Assessment Act 1997 section 328-445