Private ruling: Small business restructure rollover
Date of advice: 13 January 2026
Published: 9 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to apply the small business restructure rollover relief under Subdivision 328-G of the Income Tax Assessment Act 1997 (ITAA 1997) to the proposed transaction? | A1: Yes.

Relevant facts and circumstances: The trust (you) operates a business. You are a small business entity. The business was initially set up in a trust structure with the intention of growing significantly and hiring employees. This has not eventuated and the only person that conducts work for the business is individual A. There was an issue in the 20XX year where the registration of the corporate trustee lapsed. This was due to individual A moving home and not receiving the payment renewal notices in the mail. Individual A is concerned that the current structure is complicated and expensive to maintain. You have a debt with the ATO which will be repaid in full. You own a van with equipment used to conduct the repaid activities, a mobile phone and tablet. You intend to transfer these assets to individual A. Individual A will operate the business as a sole trader. Individual A will be a small business entity after the transfer. You have prepared and will submit a family trust election with Individual A as the specified individual. Individual A is the only beneficiary of the trust. You and Individual A are Australian residents.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-10 | Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 section 152-40 | Income Tax Assessment Act 1936 section 272-80 | Income Tax Assessment Act 1936 section 272-90 | Income Tax Assessment Act 1936 section 272-95 | Income Tax Assessment Act 1997 Subdivision 328-G | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 328-125 | Income Tax Assessment Act 1997 section 328-430

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. Genuine restructure Paragraph 328-430(1)(a) required 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 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 businesses. 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 and 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. Entity requirement Paragraph 328-430(1)(b) requires each party to the transfer to be either a small business entity or one of the following passive entities: • An "affiliate" of a small business entity. • An entity that is "connected with" a small business entity; or • A partner in a partnership that is a small business entity. In all cases, the entity that is the small business entity must be a small business entity for the income year in which the transfer occurs. The transferee can be newly created entity. A small business entity is an entity that meets the requirements of Subdivision 328-C. The small business entity test in section 328-110(1) contains 2 requirements: 1. The carrying on of a business in the relevant income year; and 2. An "aggregated turnover" of less than $10 million. Neither the transferor nor the transferee can be an exempt entity or a complying superannuation entity (subparagraph 328-430(1)(c)(i)). Ultimate economic ownership Subparagraph 328-430(1)(c)(i) requires the transfer must not have the effect of "materially changing" the ultimate economic ownership of the transferred assets. Where there is more than one ultimate economic owner, each individual share of that ultimate economic ownership must not be materially changed (subparagraph 328-430(1)(c)(ii)). Where the transferee is to a discretionary trust the 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 (section 328-440): • The asset is part of a non-fixed family trust either before and/or after the transaction. • All individuals who had the ultimate economic ownership of the asset before the transfer were members of the family group relating to the trust. • All individuals who have the ultimate economic ownership of the asset after the transfer are members of the same family group. The trustee of the trust must make the family trust election that the trust is a family trust at all times after the beginning of a specified income year (section 272-80(1)) of the ITAA 1936). The election must also specify an individual as the individual whose family group is taken into account in relation to the election (section 272-80(3)) of the ITAA 1936). Asset being transferred is an active asset Paragraph 328-430(1)(d) requires that at the time the transfer takes effect the asset is a CGT asset that is an active asset. Where the 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 section 152-10(1A). Section 152-10(1A) allows a passively held asset owned by the taxpayer and used in a business carried on by an affiliate or entity connected with the taxpayer to qualify for the Division 152 small business concessions even if the taxpayer does not carry on a business. The CGT asset must satisfy the active asset in order to satisfy the basic conditions. The active asset test will be met if (section 152-35 of the ITAA 1997): • you have owned the CGT asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period from wen you acquired it to the time of the CGT event or the cessation of the business; or • you have owned the CGT asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years during the period specified in section 152-35(2) of the ITAA 1997. A CGT asset is an active asset at a time if, at that time the asset is used, or held ready for use, in the course of carrying on a business that is carried on whether by your or your affiliate or another entity that is connected with you (subsection 152-40(1) of the ITAA 1997). Residency Paragraph 328-430(1)(e) requires each party to the transfer meet the residency requirement in section 328-445 of the ITAA 1997 for an entity. The residency requirement for a discretionary trust is that a trustee of the trust is an Australian resident or that the central management and control of the trust is in Australia. Transferor and transferee choose roll-over Paragraph 328-430(2) requires each party to the transfer choose to apply a roll-over under Subdivision 328-G in relation to the assets transferred under the transaction. | Detailed Reasoning - Application to your circumstances: In this case, the Commissioner accepts the proposed transaction is the genuine restructure of an ongoing business. The current structure is complex and expensive to maintain. After the proposed transaction, the business will continue to operate via a more appropriate structure for the size and scale of the activities conducted. Each party to the transfer is a small business entity in the relevant year. Further, the alternate economic ownership test will be satisfied as all individuals who had ultimate economic ownership both before and after the transfer were members of the same family group. The assets being transferred are active assets, used in the course of carrying on the business for the entire ownership period. Lastly, the parties to the transfer are Australian residents. You are able to elect to apply the small business restructure roll-over relief under Subdivision 328-G of the ITAA 1997 in relation to the proposed transfer.

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 .