Restructuring to Minimise Tax and Protect your Home
Small businesses with an annual turnover of less than $2 million will be able to change their legal structure without attracting a capital gain tax (CGT) liability. CGT roll-over relief is currently available for individuals who incorporate. This measure will be available from 1 July 2015.
The Government is also reducing the tax rate for more than 90 per cent of incorporated businesses with annual a turnover of less than $2 million. The company tax rate for these businesses will be reducing from 30 per cent to 28.5 per cent. This equates to a tax saving of 1.5%.
In other words, if you decide to restructure from a sole trader to a company you will be able to minimise tax and protect your home and assets.
To explain, here is an example.
Mr Smith is a handy man who is working as a sole trader. He has an annual turnover of $100,000 and is currently taxed at 37%. To take advantage of the federal budget, Mr Smith decides to convert his business to a company as he knows that he will be able to claim Capital Gains Tax rollover relief when he changes his legal structure. This also means that he will now be taxed at 28.5% instead of 37%.
Also, if he changes his mind and decides to move his current structure to a family trust, he will be able to protect his assets. This is because the beneficiaries’ personal finances are not put at risk by the business, since the business assets are legally owned by the trustee and not by the beneficiaries.
Overall, this measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.
Our concern is the government has not provided details on how the roll-over relief of ‘revenue assets’ such as depreciating assets and trading stock. Existing roll-overs may be able to be utilized in certain circumstances. Further, Transfer (Stamp) Duty still applies in most States to the transfer of a business, so there will still be impediments to changes in structures.
Please note that this is general advice. If you have further enquiries about changing the structure of your business please schedule an appointment with us to ensure that you have the correct advice for your specific circumstance.
About Lan Nguyen
Lan is the Founder and Chief Strategist at Success Accounting Group, Melbourne based CA firm. In a matter of short 8 years she has built up a reputable Chartered accounting firm with 3 offices and a team of 6 professional accountants and support team members. Her mission is to provide Innovative and Strategic Financial advice to help her customers make smarter financial decisions today for a brighter future.
Success Accounting Group is for established business owners who would like help to grow a sustained business. As a business owner you understand what drives your business success with our accounting team taking care of the rest.
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Success Accounting Group Pty Ltd
Oakleigh, VIC, 3166
