Private ruling: Small business restructure
Date of advice: 23 March 2026
Published: 18 May 2026
Ruling period: 1 July XXXX to 30 June XXXX

Ruling: Q1: Are the roll-over relief requirements in Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997) satisfied in relation to the proposed transfers of Land 1 and Land 2 from Trust 1 to Trust 2? | A1: Yes. The proposed transfers of the assets above will qualify for relief under subdivision 328-G of the ITAA 1997 - they meet the requirements in section 328-430, including that each proposed transaction is part of a genuine restructure of an ongoing business that does not have the effect of changing the ultimate economic ownership of transferred assets in a material way.

Relevant facts and circumstances: Three Siblings, Sibling1, Sibling 2 and Sibling 3 have been carrying on a family business via the Family Trust since XXXX, and its related entities, i.e. Trust 1, Trust 2, Trust 3, Trust 4 and Trust 5 (the Group). Sibling 1, Sibling 2 and Sibling 3 jointly control the Group. All management and financial decisions are made jointly. All land, equipment and stock are controlled jointly and equally. Company A is the trustee for the Family Trust Sibling 1, Sibling 2 and Sibling 3 own equal shares, 1 each, in Company A. Sibling 1, Sibling 2 and Sibling 3 are the only directors of Company A. Company A was appointed as the Trustee on XXXX. Company was incorporated on XXXX. Sibling 1, Sibling 2 and Sibling 3 have held the only shares in Company A since XXXX. The Family Trust trust deed - salient terms Beneficiaries are defined pursuant to Clause X as follows: BENEFICIARIES X.THE Beneficiaries of this Trust shall comprise: X .X Primary Beneficiaries Primary Beneficiaries who shall mean and include the person or persons named and described or defined as such in the Schedule; and X.X Beneficiaries Beneficiaries who shall mean and include: X.X.X the Primary Beneficiary or the Primary Beneficiaries (as the case may be); X.X.X any and all of the members of the classes of Beneficiaries specified in the Schedule; and X.X.X any other persons who from time to time are under the provisions of this Deed deemed to be included as Beneficiaries of this Trust; Exclusion of Beneficiaries and classes of Beneficiaries X.X.X.X The Settler or any person claiming under or in right of the Settler; X.X.X.X.the Appointer; and X.X.X.X the Trustee; are excluded from being a Beneficiary unless (except in the case of the Settler) they are Primary Beneficiaries or are otherwise specifically included in the Schedule... The Schedule in turn, relevantly, defines Primary Beneficiaries to mean Sibling 1, Sibling 2 and Sibling 3, and the further classes of beneficiaries include, amongst other things: Clause X also provides that the Trustee may make exclusions or additions to the beneficiaries of the trust with the consent of the Appointer. Sibling 1, Sibling 2 and Sibling 3 are the Appointers pursuant to the Schedule - since XXXX. The Trustee has wide general, ancillary and specific powers, including the power to generally deal with Trust Fund pursuant to Clause X. However, the Trustee requires the consent of the Appointer to make an exclusion or inclusion of beneficiaries, distribution of capital, appoint trustees, appoint and transfer the whole or any part of the trust fund to another trust and make amendments - unless the Appointer declares such consider is not required pursuant to clauses X and X. The turnover of the Family Trust for the X financial year was $X Sibling 1, Sibling 2 and Sibling 3 received a combined 99% of distributions made by the Family Trust for the income year ended 0 June XXX. The distribution history of the Family Trust for the income years ending 30 June XXXX to 30 June XXXX: Land 1 and Land 2 Company B as trustee for Trust 1 holds Land 1 and Land 2. Sibling 1, Sibling 2 and Sibling 3 own equal shares, 4 each, in Company B. Sibling 1, Sibling 2 and Sibling 3 are the only directors of Company B. Company B became the trustee of Trust 1 on XXXX. Sibling 1, Sibling 2 and Sibling 3 have owned all shares in Company B equally since its formation on XXXX. Trust 1 trust deed - salient terms Beneficiaries are defined pursuant to Clause X as follows: BENEFICIARIES X. THE Beneficiaries of this Trust shall comprise: X.X Primary Beneficiaries Primary Beneficiaries who shall mean and include the person or persons named and described or defined as such in the Schedule; and X.X General Beneficiaries General Beneficiaries who shall mean and include: X.X.X the Primary Beneficiary or the Primary Beneficiaries (as the case may be); X.X.X the parents, grandparents, brothers, sisters, spouses, widows, widowers, children and grandchildren of the Primary Beneficiaries and the spouses, widows, widowers, children and grandchildren of such parents, grandparents, brothers and sisters, spouses, children and grandchildren; X.X.X any person living in a bona fide domestic relationship with a General Beneficiary whether or not that person is legally married to that General Beneficiary; X.X.X the administrator appointed under the legislation of any state or territory of Australia in respect of the estate of a General Beneficiary who suffers intellectual impairment, mental illness, brain damage, physical disability or senility; X.X.X any corporation wherever incorporated or resident any share in which is beneficially owned or held by any General Beneficiary or by the trustee of any trust or settlement under which any General Beneficiary is a beneficiary or has any interest whether absolute or contingent and whether liable to be defeated by the exercise of any power of appointment or revocation or to be diminished by the increase of the class to which he belongs whether or not any such corporation is in existence at the date of this Deed; X.X.X the trustee of any trust or settlement under which any General Beneficiary is a beneficiary or has any interest in its capacity as trustee of any such trust or settlement whether or not any such trust or settlement is in existence at the date of this Deed AND for the purposes of this paragraph where any such trust is a unit trust a General Beneficiary shall be deemed to have an interest in that unit trust where any of the units in that unit trust are held by the trustee of any trust or settlement under which that General Beneficiary is a beneficiary or has any interest or expectancy whatsoever; X.X.X the executors and/or trustees of the will of any General Beneficiary in their capacity as executors and/or trustees of any such will whether or not any such will has been made at the date of this Deed; X.X.X any person having legal custody of any of the General Beneficiaries; X.X.X any person related by blood or marriage to any of the Primary Beneficiaries; X.X.X any person employed or previously employed by the Trustee, any of the General Beneficiaries or any corporation that is nominated in writing by the Trustee to be an associated corporation; X.X.X the parents, grandparents, brothers, sisters, spouses, widows, widowers, children and grandchildren of any person who is a General Beneficiary pursuant to paragraph 4.2.10 and the spouses, widows, widowers, children and grandchildren of such parents, grandparents, brothers, sisters, spouses, children and grandchildren; X.X.X the trustee of any charitable trust and any person, officer or governing body of an association in their capacity as such, of any society, authority, institution, church, religious order or person or entity which at the time a distribution of income or capital of this Trust is to be made is exempt from income tax under the provisions of the Act or, if at such time a gift of money thereto is deductible against assessable income of the donor by virtue of the Act; X.X.X any club or unincorporated association; X.X.X any person corporation or body conducting a school or like educational institution at which any of the General Beneficiaries may from time to time attend; X.X.X any person firm corporation or organisation carrying on the profession or business of a surgeon, physician, general practitioner or other medical practitioner, nurse, chiropractor, physiotherapist, masseur, pharmacist, hospital or nursing home or as a supplier or provider of medical nursing or therapeutic care or services who may treat or attend to in the course of any such profession or business or supply or provide any goods or services in the course of any such profession or business to any of the General Beneficiaries from time to time; X.X.X any person or corporation wherever resident or incorporated which the Trustee (other than the original Trustee) with the consent of the Appointer may from time to time nominate; and X.X.X such additional members of the class of General Beneficiaries as are specified in the Schedule; PROVIDED HOWEVER that the following persons namely: X.X.X the Appointer; and X.X.X the Trustee; are excluded from the class of General Beneficiaries unless they are Primary Beneficiaries or are otherwise specifically included in the Schedule... The Schedule in turn, relevantly, defines Primary Beneficiaries to mean Sibling 1, Sibling 2 and Sibling 3. Clauses X and X also provide that the Trustee may make exclusions to the beneficiaries of the trust in consultation with the Appointer. Sibling 1, Sibling 2 and Sibling 3 are the Appointers pursuant to the Schedule. The Trustee has wide general, ancillary and specific powers, including the power to generally deal with Trust Fund pursuant to Clause X. However, the Trustee requires the consent of the Appointer to make an exclusion or inclusion of beneficiaries, distribution of capital, appoint trustees, appoint and transfer the whole or any part of the trust fund to another trust and make amendments - unless the Appointer declares such consider is not required pursuant to Clauses X and X. Trust 1 is not a small business entity. Land 1 and Land 2 have at all times been used within the business carried on by the Family Trust. No rental income is derived from Land 1 and Land 2. There is no use of the land for private purposes. It is proposed that Land 1 and Land 2 will be transferred from Trust 1 to Trust 2 during the income year ending 30 June XXXX. Sibling 1, Sibling 2 and Sibling 3 are the trustees of Trust 2 - they have been the Trustees since its establishment in XXXX. Land Trust 2 trust deed - salient terms Beneficiaries are defined pursuant to Clause X as follows: Beneficiary means any of the General Beneficiaries. General Beneficiary and General Beneficiaries (as the case may be) means and includes: (i) the A Class Capital Beneficiaries; and (ii) the B Class Capital Beneficiaries; (iii) any persons, corporations, entities or trusts nominated in writing by the Trustee with the written consent of the Guardian, provided however that the following persons are excluded from being or becoming General Beneficiaries unless specifically named in the Schedule: (iv) the Settler; (v) any child of the Settler; (vi) any person claiming through the Settler; and (vii) any: (A) corporation in which any of the persons in paragraphs (iv), (v), or (vi) has an actual or contingent beneficial interest; (B) trustee of any trust or settlement (in its capacity as trustee of such trust or settlement and in its own right) in which any of the persons in paragraphs (iv), (v), or (vi) has an actual or contingent beneficial interest, for so long as such interest continues. A Class Capital Beneficiaries means: (i) [Sibling 1, Sibling 2, Sibling 3] ...; (ii) The children, grandchildren and great grandchildren of the persons listed in paragraph (i); (iii) The parents of the persons listed in paragraph (i); (iv) The brothers and sisters of the persons listed in paragraph (i); and (v) The spouses and partners of the persons listed in paragraphs (ii), (iii), and (iv). B Class Capital Beneficiaries means: (i) Any A Class Capital Beneficiaries; (ii) Any widow or widower of any A Class Capital Beneficiary; (iii) Any partnership in which any A Class Beneficiary is a partner; (vi) Any corporation in which any of the shares are owned by a person who is an A Class Capital Beneficiary; (vii) The trustees of any trust or settlement under which any person who is an A Class Capital Beneficiary has any interest whether absolute or contingent and whether liable to be defeated by the exercise of any power of appointment or revocation or to be diminished by the increase of the class to which such person belongs; (viii) The trustees of any charitable trust, and any person, officer or governing body of any association in their capacity as such, or any society, authority, institution church, religious order or person or entity which at the time a distribution of income or capital of the Trust is to be made is exempt from income under the provisions of the Income Tax Assessment Act 1936 or Income Tax Assessment Act 1997 , as amended or, if at such time the recipient is endorsed as a deductible gift recipient under the relevant law. Additional Income Beneficiary means any person or persons so described in Item 8 of the Schedule and such person or persons shall be treated as a General Beneficiary for the purposes of clauses 1.1(I), 3, 4 and 5.1(b), but shall not by reason only of being included as an Additional Income Beneficiary be treated as a General Beneficiary for any other purpose. [The Schedule does not list any Additional Income Beneficiary.] Foreign Beneficiary and Foreign Beneficiaries (as the case may be) means and includes: (i) a foreign natural person; (ii) a foreign corporation; or (iii) a foreign trust (each as defined at section 3(1) of the Duties Act 2000 (Vic)) excluding any foreign natural person, foreign corporation or foreign trust which has obtained an exemption pursuant to section 3E of the Duties Act 2000 (Vic). Sibling 1, Sibling 2 and Sibling 3 are the Appointers pursuant to the Schedule. The Trustee has wide general and specific powers, amongst other things, the Trustee has all of the powers over and in respect of the Trust Fund and the assets of the Trust Fund as it might have if it was a natural person and if it was the absolute and beneficial owner of the Trust Fund and the assets of the Trust Fund pursuant to Clause X. As there is no person described in the Schedule as the Guardian, the Trustee may exercise the powers which would otherwise be subject to the consent of the Guardian, in its absolute discretion and without the consent of any other person pursuant to Clause X. The Trustee's power to alter the trust deed is subject to certain limitations, including restrictions with respect to certain land, pursuant to Clause X. Trust 2 is a passive land holding entity only - it is not a small business entity. Prior to the transfer Trust 1 will make a family trust election (FTE). The Trustee of Trust 2 will make an FTE at the relevant time to nominate the same specified (test) individual to ensure the requirements of 'family trust' are met. Prior to and after the proposed transfer the specified individual's ultimate economic ownership will be maintained. The intention is that Sibling 3, as the youngest of the three Siblings, will be the test individual The directors of Company B as trustees for Trust 1 and the trustees of Trust 2 will prepare an SBRR minute to elect to apply the SBRR provisions upon transfer. There is no intention for any part of Land 1 and Land 2 to be transferred or sold to another party within three years of the proposed transfer. Land 1 and Land 2 will continue to be used in the operations of the existing business. Other relevant matters regarding the proposed transfers of Land 1 and Land 2 (collectively, described as the Proposed Restructure) All parties to the proposed transactions are Australian tax residents (collectively, the Taxpayers). None of the Taxpayers are an exempt entity, nor an Australian superannuation fund. The reason for the proposed restructure The Taxpayers have advised the proposed transfers of Land 1 and Land 2 (collectively, the Proposed Restructure) are intended to facilitate growth of the family's business operations, allowing Sibling 1, Sibling 2 and Sibling 3 to efficiently and effectively control the expansion across the various sites - the transfer Land 1 and Land 2 is intended to facilitate growth through effective management of multiple business sites. The proposed transfer of Land 1 and Land 2 will assist in the diversification of the business landholding structure to allow efficient management of various land and business operations through better management of the land sites. As a multi-generational family business, ensuring the structure of the business operations are setup to support multiple families working within the overall business is critical to its long-term success and ability to continue to future generations. A key reason for the Proposed Restructure is to allow the business to continue with future generations being responsible for their own business operations within the overall business. This allows for economies of scale, ensuring the long-term sustainability and continuity of the family business. The Proposed Restructure aligns separate land units into distinct land holding entities which will facilitate long-term: • The ability to calculate and report profit via different business sites within the overall Group. • The ability to have distinct management structures within the separate business units • Critically, align and assign bank debt to the various trusts in line with proportion of land ownership. • The ability to share resources across multiple families including highly valuable machinery improving business profitability and cash-flow. The Proposed Restructure supports the ongoing growth of the overall business and ensures that management and ownership structures are suited to the scale and complexity of the Group's operations. The Taxpayers have advised that the Proposed Restructure is not being undertaken with the view to implement a current succession plan or inter-generational wealth transfer. There is no intention to wind down after the Proposed Restructure. The family business presently carried by Sibling 1, Sibling 2 and Sibling 3 (through Family Trust - and the associated entities) will continue to operate after the proposed transfers of Land 1 and Land 2. Sibling 1, Sibling 2 and Sibling 3 do not have any current intentions of resigning from any business entities or transferring control of business assets. It is intended that the same parties will maintain control, and the assets (including land) will continue to be used as they currently are within the greater family structure. There is no expectation or intention to change the business operations, ownership or control. There are no foreseeable plans for Sibling 1, Sibling 2 and Sibling 3 to retire from the business or to transfer control or ownership of any entity or land. Sibling 1, Sibling 2 and Sibling 3 will continue to remain actively involved within the business - the primary purpose of the Proposed Restructure is not to immediately hand over control to future generations. It is acknowledged however that for the business to continue on to the next generation, that at some point in the future, this will need to occur. No wealth will be extracted from the business as a result of the roll-overs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 152-10(1A) | Income Tax Assessment Act 1997 Section 152-10(1AA) | Income Tax Assessment Act 1997 Section 328-130 | Income Tax Assessment Act 1997 Section 328-125 | Income Tax Assessment Act 1997 Section 328-130 | Income Tax Assessment Act 1997 Subdivision 328-G | Income Tax Assessment Act 1997 Section 328-430 | Income Tax Assessment Act 1997 Paragraph 328-430(1)(a) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(b) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(c) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(d) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(e) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(f) | Income Tax Assessment Act 1997 Section 328-440

Reasons for decision: Summary: The proposed transfers of assets (i.e. Land 1 and Land 2) will meet the roll-over relief requirements. | Detailed Reasoning - Subdivision 328-G of the ITAA 1997: Broadly, Subdivision 328-G of the ITAA 1997 provides optional roll-over relief in relation to gains and losses arising from the transfer of active assets that are CGT assets, depreciating assets, trading stock or revenue assets between entities. The six conditions which must be met, for the gains or losses that would otherwise arise as a result of the transfer to be disregarded, are set out in subsection 328-430(1) of the ITAA 1997: 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 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. | Detailed Reasoning - Requirement 1 - genuine restructure: Whether a transaction is or is part of a 'genuine restructure of an ongoing business' for the purposes of paragraph 328-430(1)(a) of the ITAA 1997 is a question of fact that is determined having regard to all of the circumstances surrounding the restructure. The provision contemplates that each transaction need only be part of a genuine restructure - that the transfer is a genuine restructure or each transfer forms part of a genuine restructure. It is evident from the Explanatory Memorandum to the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 (EM) that section 328-430 of the ITAA 1997 is intended to provide for family succession and family business restructure. As part of that genuine restructure, assets held by the family must continue to be held by the family. The EM explains factors that would indicate a genuine restructure: 1.22 Examples of factors that would indicate a genuine restructure include: • it is a bona fide commercial arrangement undertaken to enhance business efficiency; • the business continues to operate following the transfer, through a different entity structure but under the same ultimate economic ownership; • the transferred assets continue to be used in the business; • the restructure results in a restructure likely to have been adopted had the business owners obtained appropriate professional advice when setting up the business; • the restructure is not artificial or unduly tax driven; and • it is not a divestment or preliminary step to facilitate the economic realisation of assets.' Law Companion Ruling LCR 2016/3 sets out the Commissioner's views on the meaning of 'genuine restructure of an ongoing business' for the purposes of Subdivision 328-G of the ITAA 1997. Paragraph 6 of LCR 2016/3 explains that a 'genuine restructure of an ongoing business' is one that could be reasonably expected to deliver benefits to small business owners in respect of their efficient conduct of the business going forward. It is a composite phrase emphasising that the rollover is not available to small business owners who are restructuring in the course of winding down or realising their ownership interests. Paragraph 7 of LCR 2016/3 confirms the features that indicate that a transaction is, or is part of, a 'genuine restructure of an ongoing business' are: • It is a bona fide commercial arrangement undertaken in a real and honest sense to: o facilitate growth, innovation and diversification o adapt to changed conditions, or o 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: o continued use of the transferred assets as active assets of the business o continuity of employment of key personnel, and o 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. Factors that tend to indicate that a restructure is not a genuine restructure of an ongoing business are listed in Paragraph 10 of LCR 2016/3 and include: • where the restructure is a preliminary step to facilitate the economic realisation of assets; • 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; • there are other tax outcomes that do not reflect economic reality. Section 328-435 of the ITAA 1997 provides a safe harbour rule for the genuine restructure: For the purposes of paragraph 328-430(1)(a) (but without limiting that paragraph), a transaction is, or is a part of, a genuine restructure of an ongoing *business if, in the 3 year period after the transaction takes effect: a) there is no change in ultimate economic ownership of any of the significant assets of the business (other than *trading stock) that were transferred under the transaction; and b) those significant assets continue to be *active assets; and c) there is no significant or material use of those significant assets for private purposes. | Detailed Reasoning - Requirement 2 - parties to the transaction: Relevantly, paragraph 328-430(1)(b) of the ITAA 1997 requires that each party to the transaction is a small business entity, an affiliate of a small business entity or connected with a small business entity. However, subsection 328-430(2) of the ITAA 1997 provides that a roll-over under Subdivision 328-G of the ITAA 1997 is not available if the transferor, or any transferee, is either an exempt entity or a complying superannuation entity. Small business entity As defined in section 995-1 of the ITAA 1997, a small business entity has the meaning given in Subdivision 328-C of the ITAA 1997. Broadly, section 328-110 of the ITAA 1997 requires that to qualify as a small business entity, the entity must: • be carrying on a business; and • satisfy any 1 of 3 tests based on turnover: o the entity carried on a business in the income year (the previous year) before the current year and the entity's *aggregated turnover for the previous year was less than $10 million* (subparagraph 328-110(1)(b)(i)); o the entity's aggregated turnover for the current year is likely to be less than $10 million* provided the turnover when the business was carried on in both of the 2 previous years was not $10 million* or more (subparagraph 328-110(1)(b)(ii) and subsection 328-110(3)); or o the aggregated turnover of the entity for the current year (worked out as at the end of that year) is less than $10 million* (subsection 328-110(4)). Pursuant to subsection 328-110(5) of the ITAA 1997 an entity is a small business entity if: (5) ... you carried on a *business in an income year if: (a) in that year you were winding up a business you previously carried on; and (b) you were a *small business entity for the income year in which you stopped carrying on that business. Affiliates As defined in section 995-1 of the ITAA 1997, affiliates has the meaning given by section 328-130 of the ITAA 1997. Affiliate is defined in subsection 328-130(1) of the ITAA 1997 as an individual or company that acts, or could reasonably be expected to act, in accordance with the entity's directions or wishes, or in concert with the taxpayer, in relation to the business affairs of that individual or company. An individual or company is not automatically an affiliate merely because of the legal nature of a business relationship: subsection 328-130(2) of the ITAA 1997. For example, a company and its directors are not affiliates by reason only of the nature of the business relationship they share. Connected with As defined in section 995-1 of the ITAA 1997, the phrase 'connected with' has the meaning given by section 328-125 of the ITAA 1997, and this definition is affected by the operation of section 152-78 of the ITAA 1997 (which relates to the nomination of the controllers of a discretionary trust). Under subsection 328-125(1) of the ITAA 1997, an entity is connected with another entity if: • either entity controls the other entity, or • both entities are controlled by the same third entity in a manner described in the section. Broadly, an entity is taken to indirectly control a third entity where: • the entity directly controls a second entity (the interposed entity); and • the interposed entity controls (whether directly or indirectly) the third entity. In other words, if Entity A controls Entity B and Entity B controls Entity C, then Entity A is also taken to control Entity C. The tests to determine control are applied in respect of each entity. The direct control rules in subsections 328-125(2) to 328-125(6) of the ITAA 1997 apply to determine whether the first entity controls the interposed entity. Either the direct or indirect control rules can apply to determine whether the interposed entity controls the third entity. Section 328-125 of the ITAA 1997 sets out the various ways an entity is taken to control another entity. Subsection 328-125(2) sets out the direct control of an entity other than a discretionary trust: • except if the other entity is a discretionary trust, Entity A controls Entity B if Entity A, its affiliates, or Entity A together with its affiliates own, or have the right to acquire the ownership of, interests in Entity B that carry between them the right to receive at least 40% (the control percentage) of any income or capital distribution by Entity B (general control test) pursuant to paragraph 328-125(2)(a); or • Entity A also controls Entity B that is a company if Entity A, its affiliates, or Entity A together with its affiliates own, or have the right to acquire the ownership of, equity interests in the company that carry between them the right to exercise, or control the exercise of, at least 40% of the voting power in the company (voting control test) pursuant to paragraph 328-125(2)(b). The control tests in this context focus on legal ownership, rather than beneficial ownership. The provisions apply to interests held by trusts, life insurance companies and superannuation funds in the same way as to other entities. Influence over trustee Whether an entity acts in accordance with the directions or wishes of an entity and/or its affiliates depends on the particular facts and circumstances. Re Gutteridge and Commissioner of Taxation 2013 ATC 10-347 sets out the principles that are relevant to determining whether a person or entity exercised effective control over the trustee of a discretionary trust for the purposes of subsection 328-125(3) of the ITAA 1997: • treating another person's instructions or wishes as a sufficient reason so to act, rather than making personal decisions where those wishes or instructions are merely a factor considered, meets the test of being accustomed so to act; • it is not necessary that the behaviour be universal, at least some decisions, one or more important decisions, would be enough, some or all decision making is the focus; • decisions made in pursuit of one's own business goals even, if consistent with the wishes of another party, do not necessarily render the decision maker accustomed to acting in accordance with the other party's wishes. The other party may have superior bargaining power; • while not significantly different, acting in accordance with a person's wishes covers a wider field than acting in accordance with a person's instructions, and • it is necessary to undertake a critical assessment of the way in which the trustee is managed. Decision Impact Statement Gutteridge and Commissioner of Taxation explains that the Commissioner does not accept that the reasonable expectation test can be substituted with 'an accustomed to act' test in all cases: However, while the circumstances in this case allow for a finding that a person could reasonably be expected to act in a certain way because they were 'accustomed to act' in that way, the Commissioner does not accept that the 'reasonable expectation' test in subsection 328-125(3) of the ITAA 1997 can be substituted with an 'accustomed to act' test in all cases. It depends, as the AAT said at paragraph 21, on an examination of all the circumstances of a case. For example, if there is no history at all of a trustee having acted on the directions of another, there may nonetheless be an expectation (reasonably founded) that they would act on the directions of a particular person, were such directions to be given. | Detailed Reasoning - Requirement 3 - ultimate economic ownership of the asset: For the roll-over relief to be available, the restructure must not materially change which individual has, or which individuals have, the ultimate economic ownership of the business assets (paragraph 328-430(1)(c) of the ITAA 1997). Ultimate economic ownership of an asset can only be held by natural persons. Therefore, where a company, partnership or trust owns an asset it will be the natural person owners of the interests in these interposed entities that will ultimately benefit economically from that asset. Underlying economic ownership is not defined - section 328-440 of the ITAA 1997 merely provides the manner in which this requirement may be satisfied by the transfer of assets to discretionary trusts. Section 328-440 of the ITAA 1997 contains an alternative ultimate economic ownership test specifically for discretionary trusts, which applies 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. The EM explains the application of the underlying ownership test as it relates to discretionary trusts: | Detailed Reasoning - Discretionary trusts: The roll-over is restricted to circumstances where there has been no material change in the ultimate economic ownership of assets as a result of the transfer of the assets. Identifying those individuals who will benefit economically from the assets of a company, partnership or fixed trust is relatively straight forward, although the ultimate economic ownership of an asset will be a question of fact to be ascertained based on the circumstances of the particular case. In some cases, non-fixed (discretionary) trusts may be able to meet the requirements for ultimate economic ownership on their facts. For example, a trust may be non-fixed for the purposes of the income tax law but, because there is no practical change in which individuals economically benefit from the assets before and after the roll-over, there will not have been a change in ultimate economic ownership on the facts. However in other cases the nature of a non-fixed trust may mean that it is not possible to determine proportionate ultimate economic ownership of the assets of the trust. Therefore if a non-fixed trust seeking to use the roll-over (either as transferor or transferee) is a family trust, they may instead meet an alternative ultimate economic ownership test. This is intended to provide additional flexibility to small family businesses carried on through non-fixed trusts by allowing them to meet the requirement to maintain proportionate ultimate economic ownership of the assets if the ultimate economic ownership of those assets remains within the family. To meet this alternative test, every individual who had ultimate economic ownership of the transferred asset before the transfer, and every individual who has ultimate economic ownership of the transferred asset after the transfer, must be members of the family group relating to the family trust. [Schedule 1, item 1, section 328-440] Chris and Victoria are husband and wife and are the only shareholders in Puppy Co, with each owning one share with a cost base of $2 per share. Puppy Co has successfully carried on a puppy training school and has acquired significant assets including puppy boarding facilities, a vehicle, and goodwill. Victoria and Chris wish to transfer the puppy boarding premises from Puppy Co to a recently settled discretionary trust, the Fluffy Trust, which will lease the premises to Puppy Co. The family trust election is made nominating Victoria as the primary individual controlling the trust. Victoria and Chris are members of Victoria's family group. For the purpose of the roll-over, there will not be a change in the ultimate economic ownership of the premises as a result of the transfer of the asset from Puppy Co to the Fluffy Trust. Therefore, assuming that the other requirements are also met, the roll-over would be available in respect of the transfer. First requirement- transferred asset is included in property of family trust Paragraph 328-440(a) of the ITAA 1997 requires that you only need to satisfy subparagraph 328-440 (a)(i) or 328-440 (a)(ii) and not both - just before or after the transaction takes effect, the asset is included in the property of the family trust. Second requirement - original ultimate economic owners are members of family group Paragraph 328-440(b) of the ITAA 1997 requires only individuals having ultimate economic interest in the asset were beneficiaries of the relevant trust - every individual who, just before the transfer takes effect, had underlying economic ownership of the asset is a member of the family group of the family trust. Third requirement - new ultimate economic owners are members of family group Paragraph 328-440(c) of the ITAA 1997 requires every individual who has ultimate economic ownership after the transfer to be a member of the family group. Broadly, the alternative test is satisfied where: • the individuals who had an underlying economic ownership of the asset just before the transfer are the same as, or a subset of, those individuals who have underlying economic ownership of the family trust asset just after the transfer, and • each of those individuals (both before and after the transfer) is also a member of the family group. This means that where an asset is transferred for Trust 1 to Trust 2, not all individuals from Trust 1 need have an entitlement in Trust 2: provided any individuals who can benefit from Trust 2 were beneficiaries of Trust 1. | Detailed Reasoning - Requirement 4 - the asset is a CGT asset that is an active asset: Subparagraph 328-430(1)(d) of the ITAA 1997 requires that the asset transferred must be a CGT asset (other than a depreciating asset) that is an active asset at the time of the transfer takes. A CGT asset is defined under section 108-5 of the ITAA 1997 to include land. As defined in section 995-1 of the ITAA 1997, active asset has the meaning given by section 152-40 of the ITAA 1997. The meaning of an active asset is provided in section 152-40, which for tangible assets is: (1) 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; ... Relevantly, where a 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 the requirements of subsection 152-10(1A) of the ITAA 1997, which allows a passively held asset to qualify for the small business concessions under Division 152 of the ITAA 1997 (Broadly, the provision relates to circumstances where a taxpayer who owns a CGT asset (and does not carry on a business other than as a partner in partnership) that is used in a business by the taxpayer's affiliate or an entity connected with the taxpayer is able to access the small business CGT concessions.) Subparagraph 328-430(1)(d)(ii) of the ITAA 1997 requires the relevant small business entity (that meets the small business entity turnover test) to carry on a business in relation to the asset. Subparagraph 328-430(1)(d)(ii) of the ITAA 1997 provides that in these circumstances an active asset in relation to which subsection 152-10(1A) of the ITAA 1997 is satisfied in that income year or would be satisfied in that income year if paragraph 152-10(1AA)(b) were disregarded. This has the effect of equating a CGT SBE with an SBE. Consequently, the threshold remains at $10m for the purposes of Subdivision 328-G. | Detailed Reasoning - Requirement 5 - residency: Pursuant to paragraph 328-430(1)() of the ITAA 1997, the transferor and the transferee to the transaction must be resident of Australia as set out under section 328-445. Relevantly, this means that: • for an individual - an individual who is an Australian resident; and • for a trust - a trust that is a resident trust for CGT purposes. Broadly, section 995-1 of the ITAA 1997 defines a resident trust for CGT purposes to mean a discretionary trust or other non-unit trust where the trustee of the trust is an Australian resident or central management and control of the trust is in Australia, and a unit trust where any property of the trust is situated in Australia or the trust carries on a business in Australia, and either its central management and control in Australia or Australian residents hold over 50% of the beneficial interests in the income or property of the trust. | Detailed Reasoning - Requirement 6 - choice: Paragraph 328-430(1)(f) of the ITAA 1997 provides that the transferor and the transferee must choose the roll-over to apply. | Detailed Reasoning - Application in these circumstances: The Proposed Restructure will meet the conditions set out in section 328-430 of the ITAA 1997: • There is a genuine restructure of an ongoing business. Sibling 1, Sibling 2 and Sibling 3 have advised that although they intend to continue to manage the family business and maintain ownership and control of the assets used in carrying on that business, their purpose for the restructure is to foster the ongoing growth of the overall business - to ensure that management and ownership structures are suited to the scale and complexity of the Group's operations, which includes facilitating the efficient management of various land and business operations to take into account the role of family members working within the overall business. The restructure aligns separate land units into distinct land holding entities which will facilitate long-term: • The ability to calculate and report profit via different sites within the overall Group. • The ability to have distinct management structures within the separate business units • Critically, align and assign bank debt to the various trusts in line with proportion of land ownership. • The ability to share resources across multiple families including highly valuable machinery improving business profitability and cash-flow. It is not unreasonable to conclude that the Proposed Restructure is a genuine restructure of an ongoing business. The transfer of assets relates to active assets necessary to continue the business. The other objectives, i.e. succession/estate planning at some point in the future, can be seen at the present time as being mildly ancillary to this purpose. Broadly, there is an absence of the factors that tend to indicate that a restructure is nota genuine restructure of an ongoing business as set out in paragraph 10 of LCR 2016/3 - relevantly: • the Proposed Restructure is not a preliminary step to facilitate the economic realisation of assets; • the Proposed Restructure does not bring into effect 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; • no artificial losses are created or there is a bringing forward of their recognition (the transfer of assets is between passive land holding entities); and • the Proposed Restructure does not bring into effect a permanent non-recognition of gain (the gains will assessable when the properties are disposed of). Under this Proposed Restructure, the Taxpayers are not accessing funds in the most tax effective manner. It is noted that the treatment of future wealth generated from the continued operation of a business would not preclude a proposed restructure being a genuine restructure of an on-going business for the purposes of Subdivision 328-G of the ITAA 1997. A restructure under which a structure that facilitates future succession planning objectives would not of itself mean that a restructure cannot be a genuine restructure of a business. The Commissioner's view, as set out in Example 6 in LCR 2016/3, is that restructuring to facilitate the inter-generational transfer of wealth, is not considered a genuine restructure of an ongoing business. In that example, the Commissioner explains that an individual who disposed of assets within 3 years of the restructure cannot be said to have the expectation of running his business going forward - rather, in those circumstances the restructure was undertaken in the course of winding down and facilitating an inter-generational transfer of wealth. In this case, it remains that the Taxpayers have a genuine intention to carry on the business for the foreseeable future. (It is noted that to the extent that expected circumstances change, if the conditions of the section were satisfied for the three years subsequent to the Proposed Restructure, then the safe harbour rule under section 328-435 of the ITAA 1997 could have application such that a proposed restructure is a 'genuine restructure of an on-going business.) In this case, it cannot be ruled out that the Proposed Restructure provides efficiencies and may facilitate growth. The Taxpayers are merely seeking to achieve a genuine restructure of the family business under the one provision - being section 328-430 of the ITAA 1997. They are achieving no more than the provision expressly intended. As discussed above, it is evident from the EM that section 328-430 of the ITAA 1997 is intended to provide for family succession and family business restructure. That is precisely what the Taxpayers are seeking to achieve. And as part of that genuine restructure, assets held by the family will continue to be held by the family. In this case, each transfer (i.e. transfers of Land 1 and Land 2) is a genuine restructure of the family business. The requirement in paragraph 328-430(1)(a) of the ITAA 1997 will be satisfied in relation to the proposed transfers of Land 1 and Land 2. • Each party to the transfer is a small business entity for the income year in which the transfer occurs. As Trust 1, Trust 2, Sibling 1, Sibling 2 and Sibling 3 are not small business entities, the requirements in subparagraph 328-430(1)(b)(ii) of the ITAA 1997 will need to be satisfied. The Family Trust is a small business entity for the purposes of section 328-110 of the ITAA 1997 (it is and will be carrying on a business and its aggregated turnover for the relevant incomes years is and will be less than $10 million). Consequently, Trust 1, Trust 2, Sibling 1, Sibling 2 and Sibling 3 will satisfy the requirements in subparagraph 328-430(1)(b)(ii) of the ITAA 1997 if they can establish that they are an affiliate or an entity connected with the Family Trust In these circumstances, as a trust cannot be an affiliate, Sibling 1, Sibling 2 and Sibling 3 will need to satisfy the control tests in subsections 328-125(3) or (4) of the ITAA 1997 to establish the Family Trust, Trust 1 and Trust 2, is a connected entity to each individual. Subsection 328-125(3) can be satisfied if it can be demonstrated that the trustee acts, or could reasonably be expected to act, in accordance with the directions or wishes of three individuals. Alternatively, the facts required to satisfy subsection 328-125(4) are about distributions to either individual in any of the 4 years before a year of control. Sibling 1, Sibling 2 and Sibling 3 jointly control all the trusts (through their joint control of the corporate trustees or as trustees and appointers of the trusts). Each Sibling is affiliated with the other Sibling in respect of the business conducted through the Family Trust - they are effectively carrying on business in concert with one another via the Family Trust. It follows that that each Sibling controls the Family Trust because the Sibling, together with their siblings, controls the Family Trust under subsection 328-125(3) of the ITAA 1997. No party to the proposed transfers is an exempt entity or a complying superannuation entity. Subparagraph 328-430(1)(b)(iii) of the ITAA 1997 will be satisfied - therefore the requirement in paragraph 328-430(1)(b) will be satisfied in relation to the proposed transfers of Land 1 and Land 2. • The transaction will not have the effect of changing the ultimate economic ownership of transferred assets in a material way. For the Land 1 and Land 2 transfer, the tests will be met for the following reasons: • Subparagraph 328-440 (a) (i) of the ITAA 1997 - the asset was held by Trust 1 (a family trust). • Paragraph 328-440(b) of the ITAA 1997 - only individuals having ultimate economic interest in the asset were beneficiaries of Trust 1. • Paragraph 328-440(c) of the ITAA 1997 - every individual who has ultimate economic ownership after the transfer is a member of the family group (noting that not all individuals from Trust 1 need have an entitlement under Trust 2 and Trust provided any individuals who can benefit from Trust 2 were beneficiaries of Trust 1). • The assets being transferred are active CGT assets and depreciating assets used in carrying on the business. In this case, the Family Trust is a small business entity whose aggregated turnover in the relevant income years are and will be less than $10 million - and so will fall within the definition of a CGT small business entity in subsection 152-10(1AA) of the ITAA 1997. Therefore, the requirement in paragraph 152-10(1A)(a) will be satisfied. As Trust 1, Trust 2, Sibling 1, Sibling 2 and Sibling 3 do not carry on a business, the requirement in paragraph 152-10(1A)(b) of the ITAA 1997 will be satisfied. As Trust 1, Trust 2, Sibling 1, Sibling 2 and Sibling 3 do not carry on a business in partnership, the requirement in paragraph 152-10(1A)(c) of the ITAA 1997 will not be applicable. The Family Trust is the entity referred to in paragraph 152-10(1A)(a) of the ITAA 1997 and it has been and will be carrying on its business using the property (the CGT asset) at the relevant time. Therefore, the requirement in paragraph 152-10(1A)(d) of the ITAA 1997 will be satisfied. Land 1 and Land 2 are active assets in relation to which subsection 152-10(1A) of the ITAA 1997 will be satisfied. Therefore, the requirement in subparagraph 328-430(1)(d)(ii) will be satisfied - therefore the requirement in paragraph 328-430(1)(d) will be satisfied in relation to the proposed transfers of Land 1 and Land 2. • Both the transferor and the transferee of the assets are residents of Australia. Sibling 1, Sibling 2 and Sibling 3 are Australia residents, and the Family Trust, Trust 1 and Trust 2 are resident trusts for CGT purposes. Therefore, the requirement in paragraph 328-430(1)(e) of the ITAA 1997 will be satisfied in relation to the proposed transfers of Land 1 and Land 2. • Both the transferor and the transferee of the assets will choose to apply the roll over. Trust 1 and Trust 2 will choose to apply the rollover in relation to proposed transfer of Land 1 and Land 2. Therefore, the requirement in paragraph 328-430(1)(f) of the ITAA 1997 will be satisfied in relation to the proposed transfers of Land 1 and Land 2. It is not necessary to consider Part IVA of the ITAA 1936 in the Taxpayers' circumstances.

any person cohabiting or living in a bona fide domestic relationship with a Primary Beneficiary or a Beneficiary referred to above; | any corporation wherever incorporated or resident any share in which is beneficially owned or held by any Primary Beneficiary or any Beneficiary referred to above or by the trustee of any trust or settlement under which any Primary Beneficiary or any Beneficiary referred to above; | the trustee of any trust or settlement under which any Primary Beneficiary or any Beneficiary referred above is a beneficiary or has any interest in its capacity as trustee of any such trust or settlement whether or not any such trust or settlement is in existence at the date of trust deed | any person related by blood or marriage to any Primary Beneficiary or any Beneficiary referred to above; | any person or corporation wherever resident or incorporated which the Trustee with the consent of the Appointer may from time to time nominate. | 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 .