Review of your business structure: A critical factor in the long-term strategy.
When you started the business, you may have decided to set up a business structure, whether it be a company, trust, partnership or trading under your name.
The decision to choose a particular structure would have been based on numerous reasons, to name some possible reasons;
- As advised by an accountant
- Your franchisor needed a particular structure
- Your licensing body required a particular structure (Builder’s licensing body)
- No advice was taken but the structure was set up with limited knowledge etc.
Why the review of the structure is important.
The review is critical due to multiple reasons, remember it’s not just tax considerations.
- Business succession planning
- Tax planning
- Easy administration
- The requirement of licensing body
- Estate planning
- Business succession planning
- Asset protection
- Maintaining the essential employees
- Raising new capital
- Adapt current conditions
When to review?
Earliest time possible is recommended. For example, if you need to bring in a new business partner to your business, best start now and see whether current structure provides that, so when you find a new business partner, you are ready to provide/sell a share of business holding.
Where to begin?
Ask yourself. Do I understand why the current structure is in place? Is it the optimal structure.? If you are not been advised on this front, best speak to your accountant and start the process early.
How to review?
A review should happen in different angles. You need to discuss with your accountant what you need to achieve in your business and personal life.
What options are there for a change of structure?
The government wants small business to thrive so they have introduced many measures including the small business restructure rollover (subdivision 328 – G of Income Tax Assessment Act of 1997). The object of this Subdivision is to facilitate flexibility for owners of small business entities to restructure their businesses and the way their business assets are held while disregarding tax gains and losses that would otherwise arise. Under the Following assets could be restructured.
- CGT assets;
- Depreciating assets;
- Trading stock;
- Revenue assets
Following are the conditions that must be satisfied with the new rollover to apply
- Genuine restructure of an ongoing business:
- Must satisfy the small business requirement; (SBE requirement):
- the transfer must not materially affect the ultimate economic ownership of the asset.
- Assets satisfy the active asset test at the time of the transfer:
- Both transferee and transferor must satisfy the residency requirement: and
- Transferee and transferor choose to apply the new rollover to the assets transferred.
Stamp Duty: Most of the instances no stamp duty applies unless your entity is land. This varies from state to state.
The advisor will walk you through each of the above requirement and will maximize the available provisions in the law to suit your needs.
A typical example of a restructure is a sole trader who decides to re-structure to a trust for asset protection purpose, of course, a by-product is savings of thousands of dollars of tax that he could have paid under the existing structure. Sole trader’s personal assets are secured with new structure because the new structure is separate from his personal assets and business risks are contained within the trust.
Feel free to contact us to discuss your options.
Charitha Wasala CTA CPA