The new Small Business Restructure Roll-over (SBRR) introduced in Subdivision 328-G now allows for the transfer of 'active assets' (like business assets) to a cloned discretionary trust without facing capital gains tax (CGT), starting from July 1, 2016. This is part of a genuine restructure for small businesses. The SBRR also means no income tax consequences for transferring trading stock, depreciating assets, and revenue assets.
To apply SBRR, each discretionary trust generally needs to make a family trust election, nominating the same test individual, and the beneficiaries of these trusts must be members of that individual's family group.
When the trust cloning exception was removed, a limited roll-over was introduced in Subdivision 126-G of the ITAA 1997 for transferring CGT assets between fixed trusts with the same beneficiaries and interests in each trust. This roll-over applies to CGT events from November 1, 2008, onwards.
The roll-over ensures CGT doesn't hinder the restructuring of such trusts while ensuring that any future changes to how beneficiaries benefit from these trusts have appropriate tax consequences.
Specifically, Subdivision 126-G offers an optional CGT roll-over that defers any capital gain or loss on the transfer of CGT assets between trusts if:
- A 'fixed trust' is created over the transferred CGT assets; or
- A 'fixed trust' transfers a CGT asset to another 'fixed trust'.
If an asset is transferred to an existing trust, it must be an 'empty trust' with no CGT assets except small amounts of cash or debt or rights under an arrangement that only facilitate asset transfers.
This roll-over replaces the former trust cloning exception but only applies to transfers between eligible fixed trusts. There are special rules for multiple asset transfers under Subdivision 126-G, but they're not covered in this summary.
If you have any questions, feel free to contact Tax Ideas Accountants & Advisers at +61 2 83181545. You can also book an appointment through our live calendar.
