The eligible form of restructure is the transfer of assets from a sole trader, partnership, or discretionary trust structure to a company structure. To be eligible for the exemption as a:
- sole trader, the individual owner must be a shareholder of the company.
- partnership, all partners must be shareholders of the company.
- discretionary trust, all beneficiaries must be shareholders of the company.
The exemption is only available for the eligible small business entity if it carries on a business conducted on or from a place in Queensland which consists wholly or partly of making supplies to Queensland customers.
The exemption is not available if the assets:
- are transferred from an entity with business assets valued at more than $10 million
- are transferred from an entity with annual turnover of more than $5 million
- include residential property
- are being transferred to a company that has traded before, or
- are being transferred out of a company or unit trust structure.
The exemption is only available if it is applied for in the approved form. It cannot be self-assessed. There are many, complex conditions for qualification. As the concession is an administrative arrangement rather than a legislated exemption it follows that strict adherence to the Commissioner of State Revenue’s published guidelines is essential.
Discretionary Trust structures
The eligibility for discretionary trusts to take advantage of the concession is broader than it might first appear. The type of beneficiary who needs to become a shareholder of the company is restricted to a taker in default and not all general beneficiaries. Unfortunately, this does not align with key income tax roll-overs where an asset is transferred by a trust to a wholly owned company and the trust remains the shareholder of the company.
If the company ownership structure does not “mirror” the ownership of the existing business, only a partial duty exemption is available.
As an example, consider an eligible transaction whereby two partners, A and B, hold partnership interests of 50% each. They transfer the partnership’s small business property to a company where their share interests are 80% and 20% respectively.
For A, transfer duty will not be imposed on 50% of the dutiable value of the small business property because A’s partnership interest immediately before the transfer was 50%. For B, duty will not be imposed on 20% of the dutiable value of the small business property because B’s share interest in the company immediately after the transfer was 20%. Thus, the exemption will apply to 70% of the dutiable value and transfer duty will apply to the remaining 30%.
Vehicle Registration Duty Exemption
Where the small business property transferred includes a vehicle, then vehicle registration duty will not be imposed on an application to transfer the vehicle.
Planning Small Business Restructures
Transfer duty is just one of many issues that need to be considered in small business structures. Capital gains tax, land tax, income tax, R&D incentives and even GST grouping are some of the many other relevant tax issues. Just as many non-tax issues may be relevant and need to be identified and understood.
Mazars can assist Queensland small business owners who wish to explore this welcome duty exemption and plan their optimal future business structure.
If you would like more information about this exemption, please contact your usual Mazars advisor or alternatively our indirect tax specialist Stephen Baxter or one of our tax team on the details below:
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