Edited version of private advice

Authorisation Number: 1052338391089

Date of advice: 10 December 2024

Ruling

Subject: CGT - small business restructure rollover

Question 1

Does the proposed transfer of land from Company A to Person B and Person C, individually, qualify for relief under subdivision 328-G of the

Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes. Based on the information provided all the requirements in subdivision paragraph 328-430(1) of the ITAA 1997 will be satisfied. We consider that the proposed restructure is a genuine restructure of an ongoing business as outlined in LCR 2016/3 Small Business Restructure Roll-over genuine restructure of an ongoing business and related matters. Therefore, the restructure will qualify for the rollover relief under subdivision 328-G of the ITAA 1997.

Question 2

Does the land retain its pre-CGT status post transfer under subdivision 328-G of the ITAA 1997?

Answer 2

Yes. As per section 328-460 of the ITAA 1997 the land transferred under the roll-over will retain its pre-CGT status for Person B and Person C.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person B and Person C carry on a business as a partnership, under the name of Partnership D, being 50% each, for over XX years.

The business is run on a property located at and address that you provided to us.

Company A was incorporated pre-CGT.

At the time of purchase the land was owned by Company A and Person E, with a 50% share each in the land which was purchased pre-CGT.

The land has been used in the business operations since purchase.

You provided us with the post-CGT shareholdings of Company A.

Person E passed away in a specified year. You provided us with the shareholdings of Company A at this point.

Your sibling sold their A class shares in Company A to Person B and Person C on a specified date.

Person E's B class shares in Company A were transferred to Person B and Person C.

Person E's 50% ownership in the parcel of the land was transferred to Person B and Person C as per the will on a specified date.

Person B and Person C sold one of their lots on a specified date. The lot was sold to reduce their debt that they had incurred due to adverse seasonal conditionals and low sales during COVID-19.

The proceeds from the sale of the lot were used to pay off (or allocated to pay off) loans with Bank G and Bank H. You provided us with the total of the loans.

You provided us with an estimate of the value of your remaining land.

Partnership business

The partnership was known as Partnership I trading as Entity J until a specified date, when Person F retired from the partnership. The partnership is now known as Partnership D.

The partnership carries on business activities on the land.

The business carried on by the partnership is solely for the benefit of Person B and Person C.

Person B and Person C do not have a spouse or children. Person B and Person C will leave their assets to the surviving partner of the partnership. The assets of the last surviving partner will pass down to their sibling's children.

The partnership depends financially on the land. Person B and Person C are financially dependent on the partnership business. They act jointly so that the partnership is run to allow them to meet their financial requirements.

There is no formal lease to allow the partnership use of the land. This is due to the close relationship between Company A and the partnership.

The partnership aggregated turnover will be under $10 million for the relevant financial year and future financial years.

Restructure

The intention is for the land to be transferred from Company A to Person B and Person C individually.

All entities involved in the restructure are Australian residents for tax purposes.

After the restructure the land will continue to be used by the partnership in the carrying on of their business activities.

The reasoning for transferring the land from Company A to Person B and Person C are as follows:

•                     Operating under a company structure means that banks have been hesitant to lend based on the structure.

•                     Delays due to the structure as tasks take longer due to additional documentation to prepare and additional reviews to be completed by the bank's inhouse legal team.

•                     A company creates unnecessary compliance costs, which has significantly increased due to the needing complex legal and accounting advice. Costs that would be saved are:

­        Ongoing annual ASIC fees, company management/administration fees and annual accounting fees.

­        Additional bank charges and legal fees whenever finance is obtained.

­        Liquidator fees if Company A is wound up.

•                     The current structure is not fit for purpose, for example:

­        It is too complex for an ongoing small business partnership operation.

­        Had the partnership commenced trading today:

•                     Person B would not have chosen for Company A to hold the land jointly with themselves and Person C.

•                     Person B would not have been advised to trade and acquire land under the same structure.

­        A separate legal entity does not guarantee asset protection.

•                     Person B and Person C would like to move to a more efficient structure, as the current structure has caused Person B significant stress and anxiety.

Person B is proposing to change the structure now for the following reasons:

•                     the land has been transferred from the Estate of Person E to Person B and Person C,

•                     Person F has retired from the partnership,

•                     your sibling has sold their A class shares, and

•                     All liabilities to Bank G have been repaid and their mortgages have been removed from the land titles.

No loans have been obtained under Company A, however Company A's half share in several titles has been used as security for loans you have obtained.

After the repayment of loans from the proceeds from the sale of the lot, the partnership has one loan with Bank G. You provided us with the amount of the loan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 328-G

Income Tax Assessment Act 1997 section 328-430

Income Tax Assessment Act 1997 paragraph 328-430(1)(a)

Income Tax Assessment Act 1997 paragraph 328-430(1)(b)

Income Tax Assessment Act 1997 paragraph 328-430(1)(c)

Income Tax Assessment Act 1997 paragraph 328-430(1)(d)

Income Tax Assessment Act 1997 paragraph 328-430(1)(e)

Income Tax Assessment Act 1997 paragraph 328-430(1)(f)

Income Tax Assessment Act 1997 section 328-460