Private ruling: Small business roll-over relief
Date of advice: 1 May 2026
Published: 13 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the proposed transfer of business assets from Company A qualify for roll-over relief under Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA97)? | A1: Yes.

Relevant facts and circumstances: Company A was registered in a specified year. Company A has been continuously owned by person A and person B. Person A is the sole director and founder of Company A. Person A and person B each hold 1 ordinary share in Company A. The current issued shares are owned both legally and beneficially by person A and person B. Company A conducts a professional service business, providing a range of property related services. Company A has grown steadily over the years and has a number of key personnel. Turnover from the provision of services in the year ended 30 June 20xx was less than $10 million. Company A is considered to be a Small Business Entity (SBE) for the purposes of ITAA 1997. Company A has accumulated other assets and liabilities that are unrelated to the business. Consideration was given to how to continue the growth experienced by the business. Its future growth will be dependent upon having the right team in place, particularly at the senior level. A key strategy will be to offer relevant key employees equity parcels in the business over time as a means of both providing a direct interest in the business and in providing incentives to assist in the business' growth. Unrelated assets and liabilities will be unattractive for new equity participants to buy into and for existing shareholders, unacceptable to bring external equity into assets that in reality belong to them. It is proposed that a new company (Company B) will be created to hold ownership of the business and associated active assets. Company B will be owned equally by person A and person B. Both companies will have the same individual ultimate economic ownership. Company A, after the proposed new company is created, will hold legacy assets and liabilities. The arrangement is to facilitate growth and incentivise key personnel. The transferred assets will continue to be used in the business. All of the assets and liabilities of the business will be transferred. This includes cash, tenancy bonds, trade debtors, property, plant and equipment. Two related party loans will not be transferred and will remain in place and subject to Division 7A complying loan agreements. Person A and person B will continue in the business for years. There will be continuity in services provision, sales and customers. There will be no break in the supply of goods and services to customers of the business. Key employees will continue to be employed in the business. Both the transferor and each transferee are residents of Australia. Both the transferor and transferee will choose to apply the roll-over. Company B's shares will be owned legally and beneficially by person A and person B and will only comprise ordinary shares. The 20xx turnover of Company A and any affiliates or connected entities is less than $10 million.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 328-430 | Income Tax Assessment Act 1997 section 328-445 | Income Tax Assessment Act 1997 section 40-340

Reasons for decision: Summary: Under section 328-430 of the Income Tax Assessment Act 1997 (ITAA 1997) the conditions are listed for when a small business roll-over (SBRR) is available. The first condition in paragraph 328-430(1)(a) is that the transaction is, or is part of, a genuine restructure of an ongoing business. Whether a transaction is, or is part of, a genuine restructure is a question of fact that is determined having regard to all of the surrounding circumstances. Law Companion Ruling LCR 2016/3 : Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matters (LCR 2016/3) explains the meaning of the term 'genuine restructure of an ongoing business' in Subdivision 328-G of the ITAA 1997. As per paragraph 6 of LCR 2016/3, a genuine restructure is one that could reasonably be expected to deliver benefits to small business owners in respect of their efficient conduct of the business. Paragraph 7 of LCR 2016/3 lists some features that indicate a transaction is, or is part of, 'a genuine restructure of an ongoing business'. These features include: • It is a bona fide commercial arrangement undertaken in a real and honest sense to: - Facilitate growth, innovation and diversification - Adapt to changed conditions, or - Reduce administrative burdens, compliance costs and/or cash flows • It is authentically restructuring the way in which the business is conducted as opposed to a 'divestment' or preliminary step to facilitate the economic realisation of assets. • The economic ownership of the business and its restructured assets is maintained. • The small business owners continue to operate the business through a different legal structure. For example, there is: - Continued use of the transferred assets as active assets of the business - Continuity of employment of key personnel, and - Continuity of production, supplies, sales or services. • It results in a structure likely to have been adopted had the small business owners obtained appropriate professional advice when setting up the business. Company A proposes the restructure in order to facilitate the continued growth of the business. Having identified that its growth is dependent upon having the right team, particular at the senior level, in place, Company A will offer equity parcels to key employees. Over the years the business has acquired other assets unrelated to Company A. The business sees this as an unattractive situation for both new and existing equity participants. Therefore, a new company holding only the assets and liabilities of the business is the proposed solution. There is commercial advantage to restructuring Company A. Restructuring provides a means of overcoming a key barrier in order to support the future growth of the business. There will also be a continued use of the transferred assets, employment of key personnel and in service provision, sales and customers. The present owners will continue in the business for many years to come. Further on, LCR 2016/3 provides Example 2 of when there is a genuine restructure of an ongoing business with an issuance of shares to employees. In the example, there is a discretionary family trust with three individuals who carry on a business with several highly skilled, long stranding and trusted employees. The active assets within the trust are transferred to another company owned by the same individuals. The company then issues share to those essential employees with vesting conditions attached to provide incentives for their ongoing involvement in the business. Relevant considerations that showed the transaction to be a 'genuine restructure of an ongoing business'' include: • Commercial advantage in restructuring to be able to provide incentives to essential employees. • Enhance business performance and enable the business to adapt to changed conditions in order to increase productivity and profit. • No additional tax advantages to existing shareholders, nor access to the worth of the shares. This example has similar facts to this case in that the transaction is undertaken to incentivise essential employees in order to grow the business. It changes the operation of the business to achieve benefits to its ongoing efficient conduct while maintaining continuity of use of the assets and of key personnel. The requirements of a 'genuine restructure' for purposes of paragraph 328-430(1)(a) are met in respect to the proposed transaction. There are additional conditions that are required under section 328-430 for the SBRR rollover to be available. Paragraph 328-430(1)(b) states that each party to the transfer is an entity to which any one or more of the following applies: i. It is a small business entity for the income year during which the transfer occurred. ii. It has an affiliate that is a small business entity for that income year. iii. It is connected with an entity that is a small business entity for that income year. iv. It is a partner in a partnership that is a small business entity for that income year. The meaning of small business entity comes under section 328-110 of the ITAA 1997. You are a small business entity for an income year if you carry on a business in the current year and either you carried on a business in the previous year and your aggregated turnover for the previous year was less than $10 million or your aggregated turnover for the current year is likely to be less than $10 million. Company A is a small business entity as it carries on a business and its turnover for the previous year was less than $10 million. Further on, the Company B would also be a small business entity once they receive the business (a small business entity). Therefore, subparagraph 328-430(1)(b)(i) will be satisfied. Paragraph 328.430(1)(c) requires that the transaction does not have the effect of materially changing: i. Which individual has, which individuals have, the ultimate economic ownership of the asset, and ii. If there is more than one such individual - each such individual's share of that ultimate economic ownership. The current issued shares are between person A and person B (1 ordinary share each). This is to be maintained in the Company B. Therefore, the ultimate economic ownership of the assets is not materially affected. This satisfies paragraph 328-430(1)(c). Paragraph 328-430(1)(d) states that the asset is a CGT asset (other than a depreciating asset) that is, at the time the transfer takes effect: i. If subparagraph (b)(i) applies - an active asset; or ii. If subparagraph (b)(ii) or (iii) applies - an active asset in relation to which subsection 152-10(1A) is satisfied in that income year, or would be satisfied in that income year if paragraph 152-10 (1AA)(b) were disregarded or iii. If subparagraph (b)(iv) applies - an active asset and an interest in an asset of the partnership referred to in that subparagraph; and Company A will be transferring CGT assets (including depreciating assets) to Company B. As subparagraph (b)(i) applies, the non-depreciating assets will have to be active. Further to this, subsection 40-340(1) of the ITAA 1997 provides guidance to depreciating assets. Item 8 refers to the transfer of assets under a small business restructure roll-over. The condition to this is whether a roll-over under Subdivision 328-G would be available if the asset were not a deprecating asset. Therefore, all assets to be transferred will need to be active. Under section 152-40 of the ITAA 1997 an asset will be active if it is owned by you and is used, or held ready for use, in the course of carrying on a business. If the asset is an intangible asset, it will be active where you own it and it is inherently connected with a business that is carried on by you. The property, plant and equipment are connected with the business that Company A carries on and will be active for the purpose of Subdivision 328-G. The tenancy bond will be an active asset as it is an intangible asset that is inherently connected with the business that Company A carries on. In accordance with withdrawn ATO Interpretative Decision ATO ID 2002/1003W Income tax capital gain tax - small business concessions - active assets - trade debtors ) and the Advanced guide to capital gains tax concessions for small business 2013-14, trade debtors will be an active asset. Cash will not be an active asset for the purpose of subdivision 328-G ITAA 1997 because it is not a CGT asset under section 108-5 of the ITAA 1997. Paragraph 328-430(1)(e) requires that both the transferor and each transferee meet the residency requirement in section 328-445 for an entity. The residency requirement is satisfied for an entity under section 328-445 if the entity is an Australian resident provided that the entity is an individual or a company. Both the transferor and each transferee are residents of Australia. This satisfies paragraph 328-430(1)(e). The final condition is that both the transferor and each transferee will choose to apply a roll-over under this subdivision in relation to the assets transferred under the transaction as per paragraph 328-430(1)(f). Both the transferor and each transferee choose to apply the roll-over; thus, the final condition is satisfied. Company A is not an exempt entity, nor a complying superannuation entity and as such the exception under section 328-430(2) will not apply. As a result, Company A will be eligible to apply the SBRR under Subdivision 328-G of the ITAA 1997.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar