Private ruling: Small business restructure roll-over
Date of advice: 26 September 2025
Published: 17 November 2025
Ruling period: Year ending 30 June 2026
Date scheme commenced: 1 July 2025

Ruling: Q1: Is the small business restructure roll‐over relief available to you in accordance with Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA1997) in relation to the proposed transaction? | A1: No

Relevant facts and circumstances: Background and current structure Person A, Person B, Person C and Person D are Tenants in common in the property. Person A and Person B have combined shares of XX/XX in the property as joint tenants. Person C and Person D have X/XX shares each in the property. Company A as Trustee for Trust A, controlled by Person A and Person B has carried on business activities on the land since the land was purchased. Person C and Person D are involved in the day-to-day management and strategic management of the farm. Person C and Person D are actively managing the farm and there are plans to transfer control of the operating entity from their parents (Person A and Person B) to them in due course. Trust A owns and maintains all assets required to run the business operations. Person A and Person B own 50% of the ordinary shares each in Company A. Person A and Person B are the primary beneficiaries of the trust. Person C and Person D are discretionary beneficiaries covered by the trust deed: Proposed Transaction and New Structure Person C and Person D propose to transfer each of their X/XX shares in the land to a new discretionary trust - Trust B. Person C owns 100% of the ordinary shares in Company B as Trustee for Trust B. The Trust Deed provides that Person C, Person D, and Person E are capital beneficiaries of the trust. Person D was appointed as capital beneficiary by deed of appointment. The transfer will be made for no consideration. There is no expectation of a sale for the foreseeable future. Trust B will make a family trust election in accordance with Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) by nominating Person A as the test individual. Reasons for Proposed Restructure The proposed transaction is intended to facilitate growth by allowing Person C and Person D to control land assets in a manner that protects their own interests while they continue to jointly run the business operation into the future. The restructure is aimed at improving the management and long-term viability of the business operations. It is envisaged that Person C and Person D will become directors of Company A in the short term and take over responsibility for the Trust's considerable debt, much of which was incurred when purchasing the land. At some future time, the debt might be split between Person C and Person D. If each one controls some land, they can use it to back their share of the debt. This setup also gives them the option to grow their assets on their own or together. If further growth prospects arise for one or both, they will be able to leverage off those assets either individually or together. The restructure will help support future growth while separating legal ownership. By dividing the land assets, each individual will be able to operate independently, which provides flexibility in the event of changes in personal circumstances, loss of capacity, or death. The use of land trust structure will also provide asset protection benefits and would simplifies the family's affairs in conjunction with other plans.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 328-G Income Tax Assessment Act 1997 Section 328-430 Income Tax Assessment Act 1997 Subsection 328-430(1) | Income Tax Assessment Act 1997 Paragraph 328-430(1)(a) Does Part 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.

Reasons for decision: Detailed Reasoning - Question Summary: 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 in respect to their efficient conduct of the business by providing greater asset protection, as the land is already held in a separate entity to the entity carrying on the business. Moreover, the proposed restructure is not necessary to facilitate growth, innovation and diversification of the ongoing business. As the Commissioner is of the opinion the "genuine restructure of on ongoing business" 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. Detailed reasoning Subdivision 328-G allows for tax-neutral consequences for a small business that restructures the ownership of the assets of the business without changing their ultimate economic ownership. Subsection 328-430(1) outlines the conditions to be met for the roll-over relief to be available: a) The transfer of the asset is, or is part of, a genuine restructure of an ongoing business; and b) Each party to the transfer is either a small business entity, or affiliate of or connected with a small business entity, or a partner in a partnership that is a small business entity; and c) There is no material change in the ultimate economic ownership of the transferred asset; and d) The asset being transferred is an active asset of the relevant small business entity at the time of the transfer; and e) Both the transferor and each transferee are residents of Australia; and f) Both the transferor and each transferee choose to apply the roll-over. All conditions need to be met for the roll-over to be applied. Genuine Restructure Paragraph 328-430(1)(a) requires that the transaction is, or part of, a genuine restructure of an ongoing business. Whether a transaction is or is part of a 'genuine restructure of an ongoing business' is a question of fact that is determined having regard to all of the circumstances surrounding the restructure. Law Companion Ruling LCR 2016/3 Small Business Restructure Roll-over: genuine restructure of an ongoing business and related matters (LCR 2016/3) explains the meaning on the term 'genuine restructure of an ongoing business'. At paragraph 7 of LCR 2016/3 features indicative of a genuine restructure are provided as follows: • It is a bona fide commercial arrangement undertaken in a real and honest sense to - facilitate growth, innovation and diversification - adapt to changed conditions, or - reduce administrative burdens, compliance costs and/or cash flow impediments. • It is authentically restructuring the way in which the business is conducted as opposed to a 'divestment' or preliminary step to facilitate the economic realisation of assets. • The economic ownership of the business and its restructured assets is maintained. • The small business owners continue to operate the business through a different legal structure. For example, there is: - continued use of the transferred assets as active assets of the business - continuity of employment of key personnel, and - continuity of production, supplies, sales or services. • It results in a structure likely to have been adopted had the small business owners obtained appropriate professional advice when setting up the business. At paragraph 10 factors which tend to indicate that a restructure is not a 'genuine restructure of an ongoing business' include: • where the restructure is a preliminary step to facilitate the economic realisation of assets, or takes place in the course of a winding down to transfer wealth between generations • where the restructure effects 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. Example 1 of LCR 2016/3 provides an example of a genuine restructure for asset protection purposes. Example 1 in LCR 2016/3 (paragraph 17 to 23), involves an individual (Mark) who is expanding his sole trader bookkeeping business into the riskier operations of financial advice. After being sued by a client for negligent financial advice, Mark has decided he is not prepared to conduct his business on his own account. Mark is transferring assets from the original entity (himself) to quarantine his business from his personal assets. This is a benefit to Mark in terms of his ability to grow the riskier operations and enhance its profits. The restructure is a response to his business needs, facilitates further growth and is not unduly tax driven. The economic ownership of the business is maintained. Accordingly, the 'genuine restructure of an ongoing business' condition is satisfied Example 6 in LCR 2016/3 (paragraph 53 to 59), provides one example of succession planning. As stated in paragraph 59 where the restructure is undertaken to facilitate an inter-generational transfer of wealth as opposed to a bona fide restructure od an ongoing business the rollover will not be available. Application to circumstances Having regard to all of the facts and circumstances surrounding the proposed restructure and the factors that would indicate that a transaction is, or is part of, a 'genuine restructure of an ongoing business', it is considered that the proposed restructure is not a 'genuine restructure of an ongoing business' as contemplated by the legislation and does not satisfy the requirement in paragraph 328-430(1)(a). Person C and Person D hold a combined X/XX shares in the business property and propose to transfer their portion of legal ownership to the newly formed discretionary trust, Trust B. In the private ruling application, it was advised that the reasons for proposed transfer relate to improving management efficiency and long-term viability of the business operations. The transfer is intended to facilitate growth by allowing Person C and Person D to control land assets in a manner that protects their own interests while they continue to jointly run the business operation into the future. In this case, the business activities on the land have been conducted, via a separate entity, for a significant period of time, and the X/XX shares proposed to be transferred represent a relatively small portion of the overall landholding. These circumstances can be distinguished from Example 1 of LCR 2016/3, which considers asset protection. Person C and Person D have been actively involved in managing the business, which is currently operated through the Trust A controlled by Person A and Person B. 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. Further, in the current structure, the business operations are already conducted by an entity separate to Person C and Person D as landholders. At some future time, there are plans to transfer control of the business operating entity from the parents, Person A and Person B to Person C and Person D. There is also possibility that the debt in the Trust A will be split between Person C and Person D in future. If each one controls some land, they can use it to back their share of the debt. This setup also gives them the option to grow their assets on their own or together. The focus is on restructuring to separate legal ownership. By dividing the land assets, each individual will be able to operate independently, which provides flexibility in the event of changes in personal circumstances, loss of capacity, or death. Person C's and Person D's personal ability to grow the assets and operate independently are their own affairs and not that of the business. Additionally, there are also elements of transfer of wealth between generations in the form of succession planning. This is evidenced by the plans to transfer the control and the debts of the business operating entity from the parents, Person A and Person B to Person C and Person D. There has been no evidence provided of the restructure of the ongoing business being undertaken to facilitate growth, innovation and diversification, adapt to changed conditions, or reduce administrative burdens, compliance costs and/or cash flow impediments. Nor is there any evidence of restructuring the way in which the business is conducted. Further, the proposed restructure introduces additional costs and administrative complexities by adding more entities into the group structure. On the balance of the facts and circumstances, the proposed transfers are more of a generational transfer of control and wealth as opposed to a current business need. As provided in Example 6 of LCR 2016/3 where the transfer of assets is facilitating an inter-generational transfer of wealth as opposed to a bona fide restructure of an ongoing business the rollover will not be available. In the absence of other reasons, "asset protection" is not considered to deliver benefits in respect of, or to enhance, efficiency of the ongoing business. The proposed transfer will not change the type of entity in which the ongoing business is conducted and will not involve any changes to the way the ongoing business is conducted. As such, it is considered that the proposed restructure is not being undertaken to enhance the efficiency of the ongoing business. 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 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 will not be available.