The roll-over of the business run by a family discretionary trust

Q: Our client runs their business through a family discretionary trust and wants to switch to a company or unit trust to bring in new business partners. Are there any provisions for rolling over the business from a discretionary trust to a unit trust?

A: There's a small business restructure roll-over relief that might help, introduced in 2016. It allows a business to move to another trust or company. But there's a snag in using this for a family discretionary trust in these circumstances. Here's what's needed:

• Both the current owner and the new owner of the business must be small businesses and Australian residents.
• Both must agree to the roll-over.
• The roll-over won't work if it involves a transfer to or from certain types of entities.
• The asset being rolled over must pass certain tests related to small business capital gains tax.
• The roll-over must be part of a genuine restructuring of an existing business.
• There can't be a big change in who ultimately owns the assets.

If the family trust meets the small business criteria, it could roll over into a unit trust that's also a small business. But to meet the "no big change in ownership" rule, the family trust would need to become a family trust officially and the unit trust would need to have beneficiaries in the same family group. This could be tricky if new business partners aren't part of the family.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.