I currently operate my plumbing business as a sole trader. As business is booming I want to move my business into a trust so I can distribute profits to my family. I’ve heard there are no capital gains tax consequences if I transfer my business into a trust, is this right?
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As you are no doubt finding out, changing a business structure can be complicated and can have various tax implications.
Normally, when moving assets from one legal owner to another, there is a taxable capital gain. At the moment, concessions that allow you to essentially ignore capital gains (known as roll-over relief) only apply where a sole trader, trust or partnership transfers into a company. It doesn’t apply when moving into a trust.
The good news is that the Government announced in the Federal Budget that they will change the rules to allow small businesses - being businesses with turnover of less than $2 million and net assets of less than $6 million – to access rollover relief in a wider range of restructures.
The way these new rules are likely to work is that the transferor of the asset (being you when transferring your business) will be taken to receive an amount equal to the value of the assets being transferred. This means there is no capital gain (or loss).
The purchaser will then be taken to have acquired the asset for its tax value.
These rules are still in draft form, and will likely only apply from July 1, 2016 if passed.
You may wish to wish to wait till then or alternatively transfer your business into a structure, like a company, where rollover relief is already available.
You may also be eligible for the small business capital gains tax concessions, meaning that you can transfer your business into your family trust now with minimal tax consequences.
However, these concessions can be complex, and using them now may affect your ability to use them in the future.
Changing business structures can be challenging and so I recommend you seek advice from a professional accountant or tax specialist.
If you would like more information or have another tax question e-mail me at tax.albury@crowehorwath.com.au. Crowe Horwath Pty Ltd ABN 84 006 466 351
This information is general in nature and readers should seek specialist advice before making any financial decisions.
