Private ruling: Small business restructure rollover
Date of advice: 10 December 2025
Published: 2 February 2026
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the proposed transfer of the Property from P1 to a new discretionary trust qualify for relief under subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: 1. P1 does not carry on business individually. 2. P1 owns the Property. The Property was acquired following the death of F1 and F2 3. The Property has been used in a business since the time of acquisition. 4. The business has operated through a discretionary trust (the Trust). 5. P1 is the 'public face' of the Trust's business, and the Trust operates in accordance with P1's wishes. 6. P1 is the appointor of the Trust. 7. The Trust has a corporate trustee. 8. The directors and shareholders of the trustee company for the Trust are P1 and P2. 9. The business carried on by the Trust is solely for the benefit of P1 and their family. 10. P1 and their family are beneficiaries of the Trust. 11. P2 is an affiliate of P1 for the purposes of section 328-125 of the ITAA 1997. 12. The Trust will be a small business entity as per the meaning in section 328-110 of ITAA 1997 in the 20XX and 20XX financial years. Proposed restructure 13. The Property will be transferred to a new discretionary trust with a corporate trustee (the New Trust). 14. The New Trust will have a family trust election in place in accordance with section 272-80 of schedule 2F to the Income Tax Assessment Act 1936 , with P1 as the specified individual. 15. P1 will be the appointor of the New Trust. 16. The proposed primary beneficiary of the New Trust will be P1. 17. The directors of the corporate trustee for the New Trust are P1 and P2. 18. The shareholders of the corporate trustee are P1 and P2. 19. P1's family will be beneficiaries of the New Trust 20. All entities party to the restructure are Australian Residents for tax purposes. 21. The Property will continue to be used by the Trust in the carrying on of its business activities. 22. The purpose of applying the restructure rollover is to: • provide further asset protection by separating the ownership of assets from P1 who is integral to the Trust; • enable additional options with financiers to be negotiated over longer terms to assist in growth of the operations; and • the ownership of the Property will reflect current holding structures utilised by the family. 23. Both P1 and the New Trust will choose to apply the roll-over in relation to the assets transferred under the transactions.

Relevant legislative provisions: Section 272-75 of Schedule 2F of the Income Tax Assessment Act 1936 | Section 272-80 of Schedule 2F of the Income Tax Assessment Act 1936 | Section 272-90 of Schedule 2F of the Income Tax Assessment Act 1936 | Section 272-95 in Schedule 2F of the Income Tax Assessment Act 1936 | Section 108-5 of the Income Tax Assessment Act 1997 | Section 152-10 of the Income Tax Assessment Act 1997 | Section 152-35 of the Income Tax Assessment Act 1997 | Section 152-40 of the Income Tax Assessment Act 1997 | Section 328-110 of the Income Tax Assessment Act 1997 | Section 328-125 of the Income Tax Assessment Act 1997 | Section 328-140 of the Income Tax Assessment Act 1997 | Subdivision 328-G of the Income Tax Assessment Act 1997 Section 328-430 of the Income Tax Assessment Act 1997 | Section 328-440 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997) allows flexibility for owners of small business entities to restructure their businesses, and the way their business assets are held, while disregarding tax gains and losses that would otherwise arise. Subsection 328-430(1) of the ITAA 1997 states: A roll-over under this Subdivision is available in relation to an asset that, under a transaction, an entity (the transferor) transfers to one or more other entities (transferees) if: (a) the transaction is, or is a part of, a genuine restructure of an ongoing business; and (b) 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; and (c) the transaction does not have the effect of materially changing: (i) which individual has, or 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; and (d) 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 (e) the transferor and each transferee meet the residency requirement in section 328-445 for an entity; and (f) the transferor and each transferee choose to apply a roll-over under this Subdivision in relation to the assets transferred under the transaction. All conditions need to be satisfied for the roll-over to be applied. Genuine restructure - paragraph 328-430(1)(a) of the ITAA 1997 Law Companion Ruling LCR 2016/3 Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matters (LCR 2016/3) sets out the Commissioner's view on whether a transaction is, or is 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 of the circumstances surrounding the restructure (paragraph 5 of LCR 2016/3). Paragraph 7 of LCR 2016/3 states that 'the following features indicate that a transaction is, or is part of, a 'genuine restructure of an ongoing business': • 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'. Paragraph 10 states that '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 an 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. LCR 2016/3 provides that a restructure undertaken for asset protection purposes is a transaction that is, or is part of, a genuine restructure of an ongoing business (paragraphs 17 to 23). The primary driver for the proposed restructure is to separate the ownership of the Property from P1 who is the 'public face' of the business. Separation of the Property from P1 will give additional protection to the core business asset of the Trust. The restructure will also give additional options with financiers in terms of what is available. Other relevant considerations are: • Following the restructure, the Property will continue to be used in the business of the Trust. • The change in ownership will reflect the current holding structures utilised by the family. The Transfer of the Property from P1 to the New Trust is considered to be, or be part of, a genuine restructure of an ongoing business. The requirement of paragraph 328-430(1)(a) of the ITAA 1997 is satisfied. Small Business Entity - paragraph 328-430(1)(b) of the ITAA 1997 Relevantly, subparagraph 328-430(1)(b)(iii) of the ITAA 1997 will require each entity to the transfer to be an entity that is connected with an entity that is a small business entity for that income year. The parties to the transfer are P1 and the New Trust. Subsection 328-125(1) of the ITAA 1997 provides that 'an entity is connected with another entity if: (a) either entity controls the other entity in a way described in this section; or (b) both entities are controlled in a way described in this section by the same third party'. Relevantly, subsection 328-125(3) of the ITAA 1997 provides when an entity has direct control of a discretionary trust: An entity (the first entity) controls a discretionary trust if a trustee of the trust acts, or could be reasonably be expected to act, in accordance with the directions or wishes of the first entity, its affiliates, or the first entity together with its affiliates The Trust is a small business entity for the purposes of section 328-110 of the ITAA 1997 in the 2026 income year. P1 is the appointor of the Trust, and is a shareholder and director of the corporate trustee of the Trust with P2, who is an affiliate of P1. As P1 and P2 are the directors and shareholders of the corporate trustee of the Trust, the trustee acts, or could be reasonably expected to act, in accordance with the directions or wishes of P1 and their affiliate (P2). The Trust is controlled by P1 for the purposes of subsection 328-125(1) of the ITAA 1997. As such, P1 is connected with the Trust (a small business entity in the 2026 income year). P1 is also the appointor of the New Trust, and is a shareholder and director of the corporate trustee of the New Trust with P2, who is an affiliate of P1. As P1 and P2 are the directors and shareholders of the corporate trustee of the New Trust, the trustee acts, or could be reasonably expected to act, in accordance with the directions or wishes of P1 and their affiliate (P2). The New Trust will be controlled by P1 for the purposes of subsection 328-125(1) of the ITAA 1997. Both the Trust and the New Trust are controlled by P1. As such the New Trust is connected with the Trust (a small business entity in the 2026 income year). The requirement of paragraph 328-430(1)(b) of the ITAA 1997 is satisfied. Ultimate economic ownership - paragraph 328-430(1)(c) of the ITAA 1997 The transaction must not have the effect of materially changing the ultimate economic owner of an asset. In this case the ultimate economic owner is P1, and the asset will be transferred to a discretionary trust (the New Trust). Under ordinary legal concepts, a beneficiary of a discretionary trust is not entitled to the income or capital of the trust until the trustee exercises their discretion to distribute income or to make an appointment of capital. As such, beneficiaries of a discretionary trust cannot have ultimate economic ownership of the assets held by the trust. To address this issue, section 328-440 of the ITAA 1997 contains an alternative ultimate economic ownership test for discretionary trusts for the purposes of paragraph 328-430(1)(c) of the ITAA 1997. Section 328-440 of the ITAA 1997 states that For the purposes of paragraph 328-430(1)(c), a 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: (a) either or both of the following applies: (i) just before the transaction took effect, the asset was included in the property of a non-fixed trust that was a family trust; (ii) just after the transaction takes effect, the asset is included in the property of a non-fixed trust that is a family trust; and (b) every individual who, just before the transfer took effect, had the ultimate economic ownership of the asset was a member of the family group (within the meaning of Schedule 2F to the Income Tax Assessment Act 1936 ) relating to the trust or trusts referred to in paragraph (a); and (c) every individual who, just after the transfer takes effect, has the ultimate economic ownership of the asset is a member of that family group. Section 272-75 of Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936) states that 'a trust is a family trust at any time when a family trust election... in respect of the trust is in force'. Subsection 272-80(1) of Schedule 2F of the ITAA 1936 provides that a trustee may make an election that the trust is a family trust at all times after the beginning of a specified income year. Subsection 272-80(3) of Schedule 2F of the ITAA 1936 states that 'the election must also specify an individual as the individual whose family group is to be taken into account in relation to the election...'. Subsection 272-90(1) of Schedule 2F of the ITAA 1936 states that 'this section states whether a person is a member of the family group of the individual (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'. Subsection 272-90(2) of Schedule 2F of the ITAA 1936 states that 'a member of the primary individual's family... is a member of the primary individual's family group in relation to the conferral or distribution'. Subsection 272-95(1) in Schedule 2F of the ITAA 1936 states that 'the family of an individual (the test individual) consists of the test individual and all of the following (if applicable): (a) any parent, grandparent, brother or sister of the test individual or the test individual's spouse; (b) any nephew, niece or child of the test individual or the test individual's spouse; (c) any lineal descendant of a nephew, niece or child referred to in paragraph (b); (d) the spouse of the test individual or of anyone who is a member of the test individual's family because of paragraphs (a), (b) and (c). The New Trust will have a family trust election in place with P1 as the specified individual. Just after the transfer takes effect, New Trust will be a non-fixed family trust. Just before the transaction takes effect, P1 (the test individual) was a member of the family group. Just after the transfer takes effect the beneficiaries of the New Trust (who will have the ultimate economic ownership of the Property) will be members of P1's family group. The requirements of section 328-440 of the ITAA 1997, and paragraph 328-430(1)(c) of the ITAA 1997 are satisfied. Active asset - paragraph 328-430(1)(d) of the ITAA 1997 Relevantly, subparagraph 328-430(1)(d)(ii) of the ITAA 1997 requires the asset to be a CGT asset (other than a depreciating asset) that is, at the time the transfer takes effect: • 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. Subsection 108-5(1) of the ITAA 1997 provides that a CGT asset is any kind of property or a legal or equitable right that is not property. Subsection 152-40(1) of the ITAA 1997 relevantly states that 'a CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you ...'. Subsection 152-10(1A) of the ITAA 1997 states: The conditions in this subsection are satisfied in relation to the CGT asset in the income year if: (a) your affiliate, or an entity that is connected with you, is a CGT small business entity for the income year; and (b) you do not carry on a business in the income year (other than in partnership); and (c) if you carry on a business in partnership - the CGT asset is not an interest in an asset of the partnership; and (d) in any case - the CGT small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or(iii) or paragraph 152-40(1)(b)) in relation to the CGT asset. Relevantly, subsection 152-35(1) of the ITAA 1997 states that 'a CGT asset satisfies the active asset test if: (a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least of the period specified in subsection (2) ...'. Subsection 152-35(2) of the ITAA 1997 relevantly states that 'the period: (a) begins when you acquired the asset; and (b) ends at the earlier of: (i) the CGT event ...'. The Property is a CGT asset that has been used or held ready for use in the business of the Trust (a connected entity of P1) since it was acquired. P1 does not carry on business individually. The Trust will be a small business entity in the 2026 income year. The requirements of subsection 152-10(1A) of the ITAA 1997, and paragraph 328-430(1)(d) of the ITAA 1997 are satisfied. Residency - paragraph 328-430(1)(e) of the ITAA 1997 Section 328-445 of the ITAA 1997 relevantly states that 'for the purposes of paragraph 328-130(e), the residency requirement for an entity is that: (a) if the entity is an individual or company, the entity is an Australian resident (b) if the entity is a trust - it is a resident trust for CGT purposes...'. Subsection 995-1(1) of the ITAA 1997 provides that a trust (that is not a unit trust) is a resident for CGT purposes for an income year if the trustee is an Australian resident or the central management and control of the trust is in Australia. P1 is an Australian resident in the 2026 income year. The trustee of New Trust is a corporate trustee. Subsection 6(1) of the ITAA 1936 provides that a company which is incorporated in Australia is a resident of Australia. The requirements of section 328-445 of the ITAA 1997, and paragraph 328-430(1)(e) of the ITAA 1997 are satisfied. Choose to apply a roll-over - paragraph 328-430(1)(f) of the ITAA 1997 Both P1 and the New Trust will choose to apply the roll-over under subdivision 328-G of the ITAA 1997 in relation to the Property. The requirement of paragraph 328-430(1)(e) of the ITAA 1997 is satisfied. | Detailed Reasoning - Conclusion: The requirements in subsection 328-430(1) of the ITAA 1997 are satisfied. Therefore, the proposed transfer of the Property from P1 to the New Trust qualifies for the roll-over under subdivision 328-G of the ITAA 1997.