Private ruling: CGT - small business concessions
Date of advice: 24 October 2025
Published: 15 December 2025
Ruling period: Year ending 30 June 20XY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the proposed transfer of shares in Business 1 from Person A to a new entity HoldCo 1 satisfy the application of Small Business Restructure Rollover Provisions under Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will the proposed transfer of assets held by Services Trust to a new entity AssetCo 1 be part of a genuine restructure of an ongoing business for the purpose of paragraph 328-430(1)(a) of the ITAA 1997? | A2: No.

Relevant facts and circumstances: Current structure Person A is the sole director and shareholder of Company (Business 1). Business 1 operates a specialised business in an industry requiring certification. Business 1 owns business assets, goodwill and holds the certification required to operate the business. The business commenced in the 20XX income year. Person A and Person B are spouses. Corporate Trustee (CorpTrustee) is the trustee for the Services Trust (Services Trust). Persons A and B are directors of CorpTrustee. Person B is the sole shareholder. Services Trust is a family trust. Its family trust election commenced DD MM 20XX and named Person A as the specified individual. Services Trust owns other critical business assets which are hired to Business 1. Services Trust was established to hold these critical assets used by Business 1 in its business for asset protection purposes. Services Trust hires these critical assets to Business 1 on an arm's length basis. The owners/operators get reimbursed by dividends from Business 1 and distributions from Services Trust. The only contractors engaged for the business are for maintenance of the critical business assets held by Services Trust. The key personnel of the business are Person A who is the CEO, and two other individuals. Proposed restructure A new holding company, HoldCo (HoldCo 1) will be incorporated. Person A will be the sole director. The sole shareholder will be Services Trust. A second new company, AssetCo (AssetCo 1), will be incorporated. Person A will be the sole director. The sole shareholder will be HoldCo 1. Person A's shares in Business 1 will be transferred to HoldCo 1. Assets held by Services Trust will be transferred to AssetCo 1. As a result, HoldCo 1 will own 100% of Business 1 and AssetCo 1. Hire charge will be paid by Business 1 to AssetCo 1. Your reasons for restructure The business has grown at a rapid rate and now requires funding to acquire additional assets. The business wishes to raise this funding through capital raising from new investors to purchase additional assets to facilitate the expansion and the growth of the business. The new structure will then allow for new investors to take up shares in HoldCo 1. The business wishes to establish an employee share scheme (ESP). All key personnel noted above will become ESP participants. It is envisaged that as the business grows, new employees will be taken on. The primary aim of the ESP is to retain and motivate key and senior employees of Business 1, who are highly experienced in their industry, to build the business in an industry sector that experiences high level of staff turnover. The business is impeded by difficulties in obtaining suitably qualified and experienced senior staff to provide high levels of relevant training required in advanced training environments. It is the intention of the ESP that participants of the ESP gain direct ownership of all assets of the business operations through the proposed holding company. You contend that the proposed restructure allows for: • All shareholders including Person A (through Service Trust), ESP shareholders and investors required to assist with the growth of the business to have a direct equity interest in all assets of the new structure. • Entities within the structure and shareholders with the asset protection required for a risky business. • Flexibility for the admission of further ESP participants or investors. • Control of the business to be retained by Person A.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-340 | Income Tax Assessment Act 1997 section 152-10(1A) | Income Tax Assessment Act 1997 paragraph 328-430(1)(a) | Income Tax Assessment Act 1997 Subdivision 328-G Question 1 | Will the proposed transfer of shares in Business 1 from Person A to a new entity HoldCo 1 satisfy the application of Small Business Restructure Rollover Provisions under Subdivision 328-G of the ITAA 1997? | Summary | The proposed transfer of shares cannot satisfy the active asset requirement as set out in paragraph 328-430(1)(d) of the ITAA 1997. Therefore, the small business restructure rollover relief is not available in these circumstances.

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless stated otherwise. The rollover under Subdivision 328-G is designed to facilitate flexibility for owners of small business entities to restructure their business, and the way their business assets are held, while disregarding the tax gains and losses that would otherwise arise. Subsection 328-430(1) 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 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 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 - Active asset: Paragraph 328-430(1)(d) sets the requirement that the asset to be transferred 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 Subsection 152-10(1A) states that 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. Law Companion Ruling 2016/3 Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matters (LCR 2016/3) sets out the following example: Example 11: Active assets Facts 97. XX provides accommodation services for young travellers in an inner-State A suburb. they operate the business through a company, Company A, of which they are the sole director and shareholder. 98. XX decides to reorganise the ownership interest in their business by interposing a non-fixed trust between themself and the company. On 1 August 20YY, XX transfers all of their shares to the Trustee of a newly-settled discretionary trust, where they are one of the beneficiaries. The family trust election is made with themself as the primary individual. 99. Company A is a 'small business entity' for the 20YY income year. XX is not a small business entity but is connected with Company A. | Detailed Reasoning - Relevant considerations: 100. Company A is not a party to the transfer. The shares are not active assets of a small business entity. 101. XX and the Trustee are parties to the transfer and connected with Company A. However, the transferred shares are not active assets used, or held ready for use, by Company A in the course of carrying on its business, nor are they inherently connected with that business. | Detailed Reasoning - Conclusion: 102. Consequently, the SBRR is not available and XX would need to consider the capital gains tax position from the disposal of their shares. | Detailed Reasoning - Application to your circumstances: You (Person A) propose to transfer the shares you hold in your company Business 1 to a new company, HoldCo 1. Business 1 is not a party to the transfer and the shares in Business 1 are not active assets of a small business entity. To meet the conditions of the restructure roll-over, the transferred shares must satisfy subsection 152-10(1A) in accordance with subparagraph 328-430(1)(d)(ii). The shares in Business 1 are not active assets used, or held ready for use, by Business 1 in the course of carrying on its business. Further, the shares are not inherently connected with that business. Business 1 is not a party to the proposed transaction and therefore the relevant provision is not capable of applying to them directly. It is noted that you and HoldCo 1 are parties to the transfer and connected with Business 1, therefore subparagraph 328-430(1)(b)(iii) is satisfied. The proposed transfer of shares held by Person A in Business 1 to HoldCo 1 cannot satisfy subsection 152-10(1A) and consequently subparagraph 328-430(1)(d)(ii). Therefore, you are not entitled to apply the small business restructure rollover. This conclusion is supported by Example 11 from LCR 2016/3. | Detailed Reasoning - Question 2: Will the proposed transfer of assets held by Services Trust to a new entity AssetCo 1 be part of a genuine restructure of an ongoing business for the purpose of paragraph 328-430(1)(a) of the ITAA 1997? | Summary: We do not consider the transfer of assets to be a genuine restructure of an ongoing business, therefore the small business restructure roll-over is not available in these circumstances. | Detailed Reasoning - Detailed reasoning: As detailed in Question 1, the rollover under Subdivision 328-G is designed to facilitate flexibility for owners of small business entities to restructure their business, and the way their business assets are held, while disregarding the tax gains and losses that would otherwise arise. Subsection 328-430(1) 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 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 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. Transaction is, or is part of, a genuine restructure of an ongoing business - paragraph 328-430(1)(a) The Explanatory Memorandum to the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 (the EM) explains that the object of the SBRR is to make it easier for small business owners to change the legal structure of their business (paragraphs 1.1 and 1.2). It discusses that the most appropriate structure for a small business may change over time, or the initial structure adopted may later be found to be inappropriate, and that restructuring may help a business to: • continue to develop and grow • avoid unnecessary compliance costs • enhance business efficiency • move to a more efficient structure for tax purposes, or • adapt to changing conditions (paragraph 1.6). The first requirement for the SBRR, in paragraph 328-430(1)(a), is that the transfer of the asset is, or is a part of, a genuine restructure of an ongoing business. The phrase 'genuine restructure of an ongoing business' is not defined in the legislation, however, the EM assists with interpreting what is meant by the term for the purpose of paragraph 328-430(1)(a) of the ITAA 1997. Further, the Commissioner's view regarding the meaning of the term is provided in LCR 2016/3. Paragraph 5 of LCR 2016/3 discusses that whether a restructure is or is part of a 'genuine restructure of an ongoing business', as contemplated by the legislation, is a question of fact that is determined having regard to all of the facts and circumstances surrounding the restructure. As discussed in paragraph 7 of LCR 2016/3 and paragraph 1.22 of the EM, the following features would 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. Although tax considerations are factors that can be taken into account under a genuine restructure, this is not without limits as stated in paragraphs 8 and 9 of LCR 2016/3. A 'genuine restructure' is not contrived or unduly tax driven in the sense that it achieves a tax outcome that does not reflect the economic reality or creates an outcome that would, but for the SBRR, ordinarily attract other integrity measures in the law. For example, a restructure that is significantly directed at eliminating tax liability, would indicate the restructure was not a 'genuine restructure of an ongoing business'. Paragraph 10 of LCR 2016 outlines other factors which tend to indicate that a restructure is not a 'genuine restructure of an ongoing business': • 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. | Detailed Reasoning - Application to your circumstances: You (Person A) have proposed to transfer the assets held by Services Trust, used by Business 1 in its business, to a new company. You state that the proposed restructure allows for: • capital raising from new investors to purchase additional assets to facilitate the expansion and growth of the business • establishing an ESP to retain and motivate current and future employees of Business 1, with flexibility for the admission of further ESP participants or investors • all investors including Person A to have direct equity interests in all assets of the new structure via HoldCo 1 • asset protection for group entities and investors in a risky business You state that the current structure of a company and discretionary trust does not facilitate the entry of new investors, due to Services Trust owning the plant and equipment including critical business assets. | Detailed Reasoning - Raising capital: The business will continue to operate through the company, so its retained earnings will be maintained in the company and are available to be reinvested into the business. Raising capital is not prevented by the absence of a separate holding company. | Detailed Reasoning - ESP and incentives to employees: Your circumstances can be distinguished from Example 2 at paragraphs 24 to 29 in LCR 2016/3, whereby the business was being operated through a family trust, and there was no way to incentivise the employees within that business structure. In this example, a restructure to a different entity structure was required. In your circumstances, your business is already operated through a company structure, in which you can issue new shares to employees. | Detailed Reasoning - Asset protection: Your circumstances can be distinguished from Example 1 at paragraphs 17 to 23 of LCR 2016/3, which considers asset protection. In this example, the business operator's restructure was in response to an emerging business need that occurred because of the expansion of their activities. The catalyst for restructuring in the example is the business commencing riskier operations. The transaction allows the business operations to be separated from the individual's personal assets, as they were operating as a sole trader and then moved to a company structure. Business 1's business has been operating since the 20XX income year. The assets used by Business 1 to conduct its business are already held by a separate entity, your family trust, and are leased to Business 1. Based on the information provided, the restructure does not appear to be in response to business needs, a change in activities, or any other specific happening in relation to a current business risk. | Detailed Reasoning - Conclusion: The Commissioner does not accept your contention that the proposed restructure is a genuine restructure of an ongoing business that is expected to deliver benefits to the business owners in respect to their efficient conduct of the business by providing greater asset protection. The facts and circumstances provided do not provide clear understanding of the commercial rational of the on-going business but rather being an initial step in a broader reorganisation of your affairs. As the Commissioner is of the opinion the 'genuine' restructure condition as not been met the remaining conditions have not been considered and the rollover under section 328-430 of the ITAA 1997 will not be available.