Private ruling: Capital gains tax
Date of advice: 29 May 2026
Published: 17 August 2026
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you eligible for the small business restructure rollover in Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997) for the transfer of assets from a structure currently operating as a partnership of individuals to a partnership of non-fixed trusts? | A1: No. You are not eligible for the small business restructure rollover because the transferred assets will not be property of the non-fixed trusts either before or after the transfer, and consequently the alternative ultimate economic ownership test is failed.

Relevant facts and circumstances: Individual A and Individual B are in partnership and operate a business. This partnership of individuals (Partnership 1) was established in 20XX. It is comprised of 2 individuals and hasn't changed since inception. Partnership 1 operates a business providing clinical and disability support services to various patients. These services are provided both by the business owners, but the majority of the principal work is delivered by qualified contractors. The business commenced operations in 20XX and while their use of contractors was initially small, the number of contractors has increased significantly, and current annual turnover is $X. After receiving legal advice, they were advised to use an incorporated entity to achieve asset protection and reduce their personal risk in operating their business, as well as providing a more commercial appearance to increase the growth of the business. Partnership 1 would like to cease operating their business through a partnership of individuals. The new structure would be a partnership of discretionary trusts (Partnership 2). Individual A would be the sole director of the trustee company and the appointor of their discretionary Trust A. Individual B would be the sole director of the trustee company and the appointor of their discretionary Trust B. The primary beneficiaries of discretionary Trust A will be Individual A and their spouse and children. The primary beneficiaries of discretionary Trust B will be Individual B and their spouse and children. In the first financial year, both discretionary trusts will make a Family Trust Election with Individual A being the specified individual of discretionary Trust A, and Individual B being the specified individual of discretionary Trust B. The aggregated turnover of Partnership 1 is less than $10 million for the 2025 income year. Based on current trajectory, the current turnover of the business and affiliates will not exceed $10 million in the 2026 income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 328-G | Income Tax Assessment Act 1997 subsection 960-100(1)

Reasons for decision: Summary: Section 328-430 of the ITAA 1997 provides that a rollover 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. The roll-over of a depreciating asset transferred in the restructuring of a small business is addressed in item 8 of the table in subsection 40-340(1). Subsection 960-100(1) of the ITAA 1997 provides that 'entity' is defined to include partnerships. | Detailed Reasoning - Ultimate economic ownership: The term 'ultimate economic ownership' is not defined in the income tax provisions. Paragraphs 1.29 and 1.30 of the Explanatory Memorandum (EM) to the Tax Laws Amendment (Small Business Restructure Roll-over) Act 2016 explains that the ultimate economic owners of an asset are individuals who, directly or indirectly, beneficially own an asset. As the ultimate economic owners can only be individuals, a look through approach applies where a company, partnership or trust owns the asset. The EM recognises partnerships as an asset-owning entity. Paragraph 1.30 of the EM notes that 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. Example 1.6 also contemplates a transaction involving partnerships: Jack and Jill are husband and wife and are the only shareholders in Pail Co... They now wish to run the hauling operation directly as partners. ... Using the small business restructure roll-over, Pail Co can transfer all of the business assets to Jack and Jill as assets of the Jack and Jill partnership. The partnership is also a small business entity for the income year. Paragraph 1.30 and Example 1.6 of the EM demonstrate that where SBRR transactions involve partnerships, the assets being transferred will be assets of the partnership itself, separate to the partners for income tax and SBRR purposes, while the partners would be the ultimate economic owners. Section 328-440 of the ITAA 1997 provides an alternative ultimate economic ownership test for transactions involving non-fixed trusts. 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. A beneficiary has a fixed entitlement to either income or capital of a trust where, under the trust deed, the beneficiary has a vested and indefeasible interest in a share of the income or capital of the trust. As discussed in Practical Compliance Guideline PCG 2016/16 Fixed entitlements and fixed trusts at paragraph 14, the mere object of a discretionary trust does not have a vested interest in, and therefore does not have a fixed entitlement to, either the income or capital of the trust. It is not possible to determine an individual's share of ultimate economic ownership of the assets of a non-fixed trust, as any individual's share depends on a future event, being the exercise of the trustee's discretion. | Detailed Reasoning - Law Companion Ruling 2016/3: Law Companion Ruling LCR 2016/3 Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matters (LCR 2016/3) provides clarification and examples about how ultimate economic ownership is tested. Example 3 of LCR 2016/3 does not involve non-fixed trusts and therefore does not require contemplation of the alternative test, which is necessarily applied in cases involving non-fixed trusts. In Example 3, ultimate economic ownership is clearly ascertained by knowing the partners' interests pre-transfer and knowing the ultimate economic ownership of the company and its assets post-transfer. The ultimate economic ownership test is satisfied, and the alternative ultimate economic ownership test doesn't apply. Example 12 at paragraphs 103 to 111 of LCR 2016/3 discusses the application of the alternative ultimate economic test. This example contemplates the transfer of business assets from a partnership to a new company. This example demonstrates that, per paragraph 328-440(a), the transferred assets must be property of the non-fixed trust either before or after the transfer. The alternative test is therefore failed in this example. | Detailed Reasoning - Application to your circumstances: In your circumstances, before the transfer, the assets are held by a partnership of 2 individuals, whose respective proportionate ownership of the partnership's assets can be ascertained. After the transfer, the assets will be held by a partnership of 2 non-fixed trusts. It is not possible to determine an individual's share of ultimate economic ownership of the assets of a non-fixed trust, as any individual's share depends on a future event, being the exercise of the trustee's discretion. The proposed new non-fixed trusts will have various potential objects (being the 2 individuals, plus their spouses and children). Given the expansion in scope of potential beneficiaries, it cannot be said that proportionate economic ownership would be maintained, because potential ultimate economic ownership could materially change. Proportionate interests can be ascertained with a partnership of individuals, but not with non-fixed trusts. The alternative ultimate economic ownership test in section 328-440 of the ITAA 1997 attempts to overcome this problem, however the alternative test does not contemplate situations where the assets are held by a partnership of non-fixed trusts. The provisions within Subdivision 328-G refer to an 'entity' which is defined in subsection 960-100(1) of the ITAA 1997 to include partnerships. In your circumstances, the proposed transaction is between a partnership of individuals and a partnership of non-fixed trusts. Neither the transferor nor transferee are non-fixed trusts; they are both partnerships. The partnership of trusts is a distinct entity from the trusts themselves. Example 12 of LCR 2016/3 is comparable to your circumstances. Notwithstanding that in this example only the transferor was a partnership, the same principle applies in your circumstances whereby the alternative ultimate economic ownership test must be applied, however the assets will not be held by a non-fixed trust before or after the transfer. In your circumstances, the ultimate economic ownership test cannot be satisfied because it cannot be ascertained if ultimate economic ownership would be maintained, and in proportion. Therefore, the alternative ultimate economic ownership test must be relied upon. However, this test cannot be satisfied either, because the assets would be the partnership's assets, not assets of the trusts themselves. The trust's assets would be their respective interests in the partnership, despite the tracing required to determine the ultimate economic ownership of the assets. The alternative ultimate economic ownership test is failed and accordingly the small business restructure rollover is unavailable.