Relief from transfer duty for small business restructures in Queensland

The Queensland Government has introduced an administrative guideline which will allow owners of small business entities to incorporate their business structure and transfer the assets without incurring transfer duty.

Public Ruling DA000.16.1 (ruling) released at the end of 2020 will override any previous positions of the Commissioner of State Revenue in Queensland.

The ruling is a significant benefit to business owners in Queensland and welcomed by the various business lobby groups and organisations.

Who is eligible?

The exemption is only available to eligible small business entities if they carry on a business in or from a place in Queensland and consists wholly or partly of making supplies to Queensland customers.

To be eligible the restructure must be the transfer of small business property from a sole trader, partnership, or discretionary trust structure only to a company structure.

The company must be a new company or one that is ‘dormant’.

Small business property includes real property, motor vehicles and plant and equipment. Assets such as residential property and other passive assets will not be able to access the exemption. Even if part of a residential property is used for business purposes, the transfer of the property will be subject to transfer duty.

The exemption is available to 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 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.

Are there partial exemptions?

If the company ownership structure does not “mirror” the ownership of the existing business, only a partial duty exemption is available.

Examples of how the partial exemptions are calculated can be found at Queensland Treasury website.

Asset vehicle registration duty exemption

Where the small business property transferred includes a vehicle, then the vehicle registration duty will not be imposed on an application to transfer the vehicle.

What is the dutiable value?

The Duties Act 2001 (Act) considers the dutiable value of an asset to be the asset’s unencumbered market value.

The Office of State Revenue (OSR) may accept the book value as being the dutiable value. I would think the onus would be on the transferor to have supporting evidence should a challenge arise from the OSR.

We also note that the Ruling makes no mention of the effect of applying the exemption and subsequently selling the company.

The exemption could be used by business owners prior to the sale of a business to minimise transfer duty. Regard to the general anti-avoidance provisions would, however, be required for such a transaction.

How to make a claim?

The OSR will require:

• a letter setting out ownership levels both pre- and post-restructure
• a copy of the latest full year financial statements
• agreements or transfer documents
• a completed dutiable transaction statement (Form D2.2)
• If applicable, completed vehicle registration transfer applications (F3520) to claim the vehicle registration duty exemption.

What happens when there is investment in the company by a third-party post-restructure?

The ruling does not give consideration as to what occurs if a third party acquires an interest in the new company after the restructure is completed.

There are no post-association requirements as there are for corporate reconstruction relief in Chapter 10 Division 5 of the Act where the Commissioner can make a reassessment.

It is possible that such third-party investment could be made free from duty (assuming that the transferee company is not a ‘landholder’ for the purposes of the Duties Act).

It is important to remember a general anti-avoidance provision allows the Commissioner to assess an amount of duty, negating any duty benefit arising from an artificial, blatant or contrived scheme. 

It will be interesting to see if the OSR will reconsider this aspect going forward.

Definitions for the purpose of the ruling

A beneficiary, of a discretionary trust, is a taker in default of an appointment by the trustee, other than a last taker in default of appointment that is a person decided under the Succession Act 1981 or a charitable institution.

Dormant, for an unlisted corporation for a period, means the corporation has not, in the period:

• had any assets or liabilities; or
• been party to an agreement or a beneficiary or trustee of a trust; or
• issued or sold any shares or rights relating to shares.

Dutiable value is defined in the Act. However, for the purposes of determining the dutiable value of small business property in the way provided for under the Act, the Commissioner may take the property’s book value as evidence of its unencumbered value.

A small business entity is an individual, partnership or discretionary trust that directly holds small business property and carries on a business that:

• is conducted on or from a place in Queensland, or the conduct of which consists wholly or partly of supplying land, money, credit or goods or any interest in them, or providing any service, to Queensland customers; and
• has an annual turnover of not more than $5 million.

Note: A reference to a partnership or discretionary trust that carries on a business or holds property is a reference to the carrying on of the business or holding of the property by the partners of the partnership or the trustee of the discretionary trust.

Small business property means dutiable property that is actively used by a small business entity to carry on the small business entity’s business.

Note: To remove doubt, any property that is not directly used in the conduct of the small business is not small business property. This includes but is not limited to a home that is used for residential purposes (even if part of the home is used to conduct the business) or passive investments.

How can we help?

At FC Lawyers we have extensive experience in assisting small business with their needs for over 25 years.

Call or contact our team today to discuss your business needs or any of your legal needs.