Private ruling: Small business restructure rollover
Date of advice: 11 July 2025
Published: 8 September 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the small business restructure roll-over available in accordance with section 328-430 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the proposed transaction? | A1: Yes.

Relevant facts and circumstances: Background Person A and Person B are spouses. Both individuals are Australian residents for tax purposes. Person A and Person B acquired the Property on X March 20XX. The property has an approximate land area of X hectares. Person A and Person B are equal partners in the Partnership established in January 20XX. Partnership activities The Partnership has conducted the following activities since January 20XX: • xxx production ('xxx production') • Landscape and gardening services • Rental and holiday letting accommodation ('accommodation') The xxx production activity involves the maintenance of xxx. The free-range nature of the activity requires large areas of land to allow the xxx to roam and forage freely. The property has been used in the xxx production activity since April 20XX. The landscaping and gardening activity requires area to store equipment and materials that are used to provide the service to clients. The property has been used in the landscape and gardening activity since September 20XX. There are four dwellings on the property that are used by the Partnership to derive rental income. Free-range xxx restructure The xxx production activities and associated assets will be transferred to a discretionary trust ('the Trust'). The Trust will have a corporate trustee company. The company will be established with 2 ordinary shares. Person A and Person B will hold 1 ordinary share each. Person B will be the sole director of the trustee company. Person A and Person B will be joint appointors of the Trust. The restructure will occur in the year ending 30 June 20XX. The Trust will continue to carry on the xxx production activities once established. The Trust estimated turnover for the year ending 30 June 20XX is approximately $X million. Landscape and gardening restructure The landscape and gardening activities and associated business assets will be transferred to a company. The company was incorporated with X ordinary shares. Person A and Person B each own X ordinary shares. Person A is the sole director of the company. The company was established on XX December 20XX. The company commenced trading activities on X July 20XX. Proposed property transaction The Property will be transferred to a discretionary trust ('the X Trust'). The X Trust will be established with a corporate trustee company. The trustee company will be established in the year ending 30 June 20XX. The trustee company will be established with X ordinary shares. Person A and Person B will be the directors of the trustee company and hold X ordinary share each. Person A and Person B will be joint appointers of the X Trust. The X Trust will make a family trust election in the year ending 30 June 20XX. Person A will be nominated as the specified individual. The definition of "beneficiary" in the deed for the Property Trust will be: • Person A; and • Any person or entity who is a member of Person A's family group. Reason for proposed transaction The Partnership activities have grown faster than was anticipated. Person A and Person B own the Property and operate the activities in their personal names in the Partnership. This presents an asset protection risk. There is a risk that a claim against one activity will impact on the other activities as they are all operated by the same partnership. Separate legal entities would be more appropriate structure for the operation of the activities and ownership of the assets. Person A and Person B intention is to separate the ownership of the Property from the operation of the activities to ensure that the Property is shielded to the maximum extent possible against any claims made. Different entities will provide a more efficient structure for the retention of working capital and the repayment of debts. Future use of property The Trust will continue to operate the free-range xxx activities from the Property. The company will continue to operate the landscape and gardening activities from the Property. The Property will continue to be used to generate income from rental and holiday letting.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-10. | Income Tax Assessment Act 1997 section 152-35. | Income Tax Assessment Act 1997 section 152-40. | Income Tax Assessment Act 1936 section 272-80. | Income Tax Assessment Act 1936 section 272-90. | Income Tax Assessment Act 1936 section 272-95. | Income Tax Assessment Act 1997 section 328-110. | Income Tax Assessment Act 1997 section 328-125. | Income Tax Assessment Act 1997 section 328-430.

Reasons for decision: Summary: Subdivision 328-G of the ITAA 1997 allows for the tax-neutral consequences for a small business that restructures the ownership of the assets of the business without changing their ultimate economic ownership. Subsection 328-430(1) of the ITAA 1997 outlines the conditions to be met for the roll-over relief to be available: a) The transfer of the asset is, or is part of, a genuine restructure of an ongoing business; and b) Each party to the transfer is either a small business entity, or affiliate of or connected with a small business entity, or a partner in a partnership that is a small business entity, for that income year in which the transfer occurred; and c) There is no material change in the ultimate economic ownership of the transferred asset; and d) The asset being transferred is an active asset of the relevant small business entity at the time of the transfer; and e) Both the transferor and each transferee are residents of Australia: and f) Both the transferor and each transferee choose to apply the roll-over. All conditions need to be met for the roll-over to be applied. | Detailed Reasoning - Genuine Restructure: Paragraph 328-430(1)(a) of the ITAA 1997 required that the transaction is, or part of, a genuine restructure of an ongoing business. Whether a transaction is or is part of a 'genuine restructure of an ongoing business' is a question of fact that is determined having regard to all the circumstances surrounding the restructure. 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 on the term 'genuine restructure of an ongoing businesses. At paragraph 7 of LCR 2016/3 features indicative of a genuine restructure are provided as follows: • 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 flow impediments. • 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. At paragraph 10 factors which tend to indicate that a restructure is not a 'genuine restructure of an ongoing business' include: • Where the restructure is a preliminary step to facilitate the economic realisation of assets or takes place in the course of a winding down to transfer wealth between generations. • Where the restructure effects and extraction of wealth from the assets of the business (including accumulated profits) for personal investment or consumption or otherwise designed for use outside of the business. • Where artificial losses are created or there is a bringing forward of their recognition • The restructure effects a permanent non-recognition of gain or the creation of artificial timing advantages, and/or • There are other tax outcomes that do not reflect economic reality. Example 1 of LCR 2016/3 (paragraph 17 to 23), below, provides an example of a genuine restructure for asset protection purposes. Xx, who is expanding their sole trader bookkeeping business into the riskier operations of financial advice. After being sued by a client for negligent financial advice, Xx has decided they are not prepared to conduct their business on their own account. Xx is transferring assets from the original entity (themself) to quarantine their business from their personal assets. This is a benefit to Xx in terms of their ability to grow the riskier operations and enhance its profits. The restructure is a response to their business needs, facilitates further growth and is not unduly tax driven. The economic ownership of the business is maintained. Accordingly, the 'genuine restructure of an ongoing business' condition is satisfied. | Detailed Reasoning - Entity Requirement: Paragraph 328-430(1)(b) of the ITAA 1997 requires each party to the transfer to be either a small business entity or one of the following passive entities: • An "affiliate" of a small business entity. • An entity that is "connected with" a small business entity; or • A partner in a partnership that is a small business entity. In all cases, the entity that is the small business entity must be a small business entity for the income year in which the transfer occurs. The transferee can be newly created entity. A small business entity is an entity that meets the requirements of subdivision 328-C of the ITAA 1997. The small business entity test in section 328-110(1) of the ITAA 1997 contains 2 requirements: 1. The carrying on of a business in the relevant income year; and 2. An "aggregated turnover" of less than $10 million. Neither the transferor nor the transferee can be an exempt entity or a complying superannuation entity (subparagraph 328-430(1)(c)(i)) of the ITAA 1997). Section 328-125(1) outlines an entity is connected with another entity if both entities are controlled by the same third entity. Where the other entity is a company, you will control it if you, your affiliates, or you together with your affiliates have either (section 328-125(2) of the ITAA 1997): • Shares and other equity interests (or the right to acquire them) in the company that give you and/or your affiliates at least 40% of the voting power in the company; or • Interests (or the right to acquire them) with the right to receive at least 40% of any income or capital the company distributes. Where the other entity is a partnership, you will control it if you, your affiliates, or you together with your affiliates have interests (or a right to acquire them) with right to receive at least 40% of the net income of the partnership (subparagraph 328-125(2)(a)(ii) of the ITAA 1997). | Detailed Reasoning - Ultimate Economic Ownership: Subparagraph 328-430(1)(c)(i) of the ITAA 1997 requires the transfer must not have the effect of "materially changing" the ultimate economic ownership of the transferred assets. Where there is more than one ultimate economic owner, each individual share of that ultimate economic ownership must not be materially changed (subparagraph 328-430(1)(c)(ii) of the ITAA 1997). Where the transferee is to a discretionary trust the transaction does not have the effect of changing the ultimate economic ownership of an asset, or any individual's share of that ultimate economic ownership, if (section 328-440 of the ITAA 1997): The asset is part of a non-fixed family trust either before and/or after the transaction. All individuals who had the ultimate economic ownership of the asset before the transfer were members of the family group relating to the trust. All individuals who have the ultimate economic ownership of the asset after the transfer are members of the same family group. The trustee of the trust must make the family trust election that the trust is a family trust at all times after the beginning of a specified income year (section 272-80(1)) of the ITAA 1936). The election must also specify an individual as the individual whose family group is taken into account in relation to the election (section 272-80(3)) of the ITAA 1936). Section 272-90(1) of the ITAA 1936 states a person is a member of the family group of the primary individual specified in the family trust election in relation to a conferral of a present entitlement to, or a distribution of, income or capital of a company, partnership or trust upon or to the person. A person's family group includes (section 272-95(1) of the ITAA 1936): • the test individual • their direct relatives, such as parents, grandparents, siblings and their spouse's parents, grandparents and siblings. • their extended family such as nieces, nephews and children (including their spouse's) • future generations of those nieces, nephews and children. • spouses of anyone mentioned above. | Detailed Reasoning - Asset being transferred is an active asset: Paragraph 328-430(1)(d) of the ITAA 1997 requires that at the time the transfer takes effect the asset is a CGT asset that is an active asset. Where the party to the transfer is an affiliate of a small business entity or connected with a small business entity the transferred asset must be an active asset that satisfies section 152-10(1A) of the ITAA 1997. Section 152-10(1A) of the ITAA 1997 allows a passively held asset owned by the taxpayer and used in a business carried on by an affiliate or entity connected with the taxpayer to qualify for the Division 152 small business concessions even if the taxpayer does not carry on a business. The CGT asset must satisfy the active asset in order to satisfy the basic conditions. The active asset test will be met if (section 152-35 of the ITAA 1997): • you have owned the CGT asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period from when you acquired it to the time of the CGT event or the cessation of the business; or • you have owned the CGT asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the period specified in section 152-35(2) of the ITAA 1997. A CGT asset is an active asset at a time if, at that time the asset is used, or held ready for use, in the course of carrying on a business that is carried on whether by your or your affiliate or another entity that is connected with you (subsection 152-40(1) of the ITAA 1997). | Detailed Reasoning - Residency: Paragraph 328-430(1)(e) of the ITAA 1997 requires each party to the transfer meet the residency requirement in section 328-445 of the ITAA 1997 for an entity. The residency requirement for a partnership is that at least on partner is an Australian resident. The residency requirement for a discretionary trust is that a trustee of the trust is an Australian resident or that the central management and control of the trust is in Australia. | Detailed Reasoning - Transferor and transferee choose roll-over: Paragraph 328-430(2) of the ITAA 1997 requires each party to the transfer choose to apply a roll-over under subdivision 328-G of the ITAA 1997 in relation to the assets transferred under the transaction. | Detailed Reasoning - Genuine Restructure: Having regard to all of the facts and circumstances surrounding the proposed restructure and the factors that would indicate that a transaction is, or is part of, a 'genuine restructure of an ongoing business', it is considered that the proposed restructure is a 'genuine restructure of an ongoing business' as contemplated by the legislation and does satisfy the requirement in paragraph 328-430(1)(a) of the ITAA 1997. The Partnership operations will all continue to be carried on after the proposed transaction has been implemented. You have state that the main reason for its implementation is for asset protection to separate any claims made against the activities from the Property. You have also provided that the different entity will provide a more efficient structure for the retention of working capital and the repayment of debts. As per paragraph 7 of LCR 2016/3 these are features that indicate a genuine restructure of an ongoing business is taking place. That is, it is a bona fide commercial arrangement in a structure likely to have been adopted had the owners known the business activities would be successful so quickly when setting up the business. Moreover, it is an authentic restructuring of the way the business is conducted. The business will still be carried on, there will be continued use of the property and continuity of production. There is no indication that the proposed transaction is occurring in the course of winding down to transfer wealth between generations or realising their ownership interests. It is accepted that the proposed transaction is a genuine restructure for the purposes of paragraph 328-430(1)(a) of the ITAA 1997. | Detailed Reasoning - Entity Requirement: Individually, they each have a 50% interest in the Partnership and are therefore directly connected to the Partnership. The Partnership satisfies the small business entity requirements as it operates a business in the year ending 30 June 20XX with an aggregated turnover of less then $10 million. Therefore, Person A and Person B as the transferors satisfy paragraph 328-430(1)(b) as they are partners in a Partnership that is a small business entity. The X Trust will be controlled by Person A and Person B who will individually have a 50% interest in the trustee company and as a result would be reasonable to expect the trustee company to act, in accordance with the direction or wishes of Person A and Person B. The Trust will be controlled by Person A and Person B who will individually have a 50% interest in the trustee company and as a result would be reasonable to expect the trustee company to act, in accordance with the direction or wishes of Person A and Person B. The Trust satisfies the small business entity requirements as it operates a business in the year ending 30 June 20XX with an estimated turnover of less than $10 million. The Trust and the Property Trust are connected entities as both entities are controlled by same third entity, that is Person A and Person B. Therefore, the X Trust as the transferee satisfies paragraph 328-430(1)(b) of the ITAA 1997 as it is connected with a small business entity, the Trust. | Detailed Reasoning - Ultimate Economic Ownership: Person A and Person B each own 50% of the Property and are therefore the ultimate economic owners of the Property prior to the transaction taking effect. The proposed Property Trust will be a non-fixed family trust with a family trust election and will satisfy paragraph 328-440(a)(ii) of the ITAA 1997 as the Property will be the property of the trust after the transaction takes effect. Person A is the specified individual of the Property Trust and Person B as Person A spouse is a member of the family group that relates to the proposed X Trust therefore both before and after the transaction takes effect, they have ultimate economic ownership of the Property satisfying subsections 328-440(b) and (c) of the ITAA 1997. | Detailed Reasoning - Asset being transferred is an active asset: Person A and Person B have carried on an xxx production business in partnership on 50.4% of the Property since acquisition in March 20XX and is therefore an active asset. The Property will still be used for business activities after the proposed transaction occurs. Therefore, at the time of the transfer the Property is an active asset and will satisfy paragraph 328-430(1)(d) of the ITAA 1997. | Detailed Reasoning - Residency: Person A and Person B are Australian residents for tax purposes. The proposed Trust will be an Australian resident, as the corporate trustee will be incorporated in Australia by Person A and Person B and will therefore be an Australian resident. As both transferor and transferee are residents, paragraph 328-430(1)(e) of the ITAA 1997 is satisfied. | Detailed Reasoning - Transferor and transferee choose roll-over: Person A and Person B and the X Trust will elect to apply the small business restructure roll-over relief under subdivision 328-G in relation to the transfer of the Property, satisfying paragraph 328-430(1)(f) of the ITAA 1997.