New small business restructure duty exemption for Queensland18 December 2020 Authored by: Jodie Robinson | Topics: Trusts, Tax and revenue
Eligible small business owners may now be able to get a full or partial transfer duty and vehicle registration duty exemption in Queensland when they restructure their small business.
Until recently, sole traders, partnerships and discretionary trusts who had business assets in Queensland were often unable to restructure their business due to the prohibitive transfer duty costs. Under a new administrative arrangement contained in Public Ruling DA000.16.1 issued by the Commissioner of State Revenue, these business owners may be eligible for the new small business restructure duty exemption.
The small business restructure exemption applies to a transfer:
- of small business property with a dutiable value of not more than $10million
- from a small business entity
- to a newly registered unlisted corporation or an unlisted corporation that has been dormant since its registration (see further below in relation to who the shareholders can be).
What is small business property?
Small business property is dutiable property (goodwill, plant and equipment, stock etc.) that is actively used by a small business entity to carry on the small business entity’s business. A home that is used for residential purposes (even if part of the home is used to conduct the business) is not small business property.
What is an eligible small business entity?
Each of the following entities may be eligible for the exemption:
- an individual
- a partnership
- a discretionary trust.
To be a small business entity for duty purposes, the entity must directly hold small business property and carry on a business that:
- has an annual turnover of not more than $5 million; and
- is conducted on or from a place in Queensland (or is a business that supplies land, money, credit or goods or provides a service to Queensland customers).
What’s the catch?
The exemption will only apply to the extent that the shares in the transferee company are held by the following required shareholders:
The required shareholders do not have to be the only shareholders in the company. A partial duty exemption is available if there are other shareholders. A partial duty exemption is also available if the shares are held in different proportions to the ownership interests before the transfer.
The duty exemption will apply to the lower of:
- the individual’s interest, partner’s interest or default beneficiary’s interest in the small business property before the transfer; and
- the individual’s interest, partner’s interest or default beneficiary’s interest in the value of the transferee company’s property on winding up (expressed as a percentage).
Further detail is needed on some aspects of the administrative arrangement. There is currently no certainty as to:
- what year the $5 million turnover requirement relates to
- if the exemption is intended to apply to a partnership of trusts that restructures and, if so, who do the shareholders of the company need to be?
Like any duty exemption, it is important to check that all the boxes are ticked before carrying out a restructure and relying on the exemption. Unlike the corporate reconstruction exemption, there does not appear to be any ability to seek a ruling on the application of the exemption before carrying out the restructure.
Please contact a member of our private client team if you would like more information on the small business restructure duty exemption.
Linda Tapiolas and Jodie Robinson will be presenting the workshop Is it time to restructure your clients’ business assets? at the Annual Adviser Conference, to be held on 25 and 26 March 2021 live at Sofitel Brisbane Central and virtually through our event platform. Register here.