Transfer duty on small business restructure

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No-one wants to spend more than they have to in setting up a small business. Some startup owners just want to stay as a sole trader rather than looking at a company or trust structure. Maybe they don’t want to spend the money in setting up a business structure, or they want to minimise ongoing compliance costs. Maybe they have weighed up business risks such as a lack of asset protection for sole traders, the lack of potential recipients of income, and the higher initial tax rate for individuals compared to companies. 

Later, as the business grows, it becomes obvious that the business should really be in a company or trust structure. The owner goes to their lawyer and gets the news that transfer duty (formerly called stamp duty) is usually payable if they want to change from a sole trader to another structure. 

That is, until now. The state government has recently relaxed the transfer duty rules in some cases. This makes it cheaper for an owner to change structure.

The new rule is that small business owners who restructure their business on or after 7 September 2020 by transferring assets from a sole trader, partnership or discretionary trust structure to a company structure may be eligible for either a full or partial duty exemption on the transfer.

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 doesn’t apply if assets:

  • are being transferred from an entity with business assets more than $10 million
  • are being 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
  • are being transferred between companies
  • are being transferred out of a company structure.

Full or partial exemption

A full exemption applies if ownership levels both before and after restructure remain the same.

A partial exemption may apply if the existing owners retain ownership but change ownership levels or introduce new owners.

Any business owner should get legal advice before setting up in business even if they think that a sole trader structure is best for them. Legal advice should also be sought for a proposed change of business structure.

The FC Lawyers team can help with a business restructure or ownership legal issues. Contact our team today to discuss.

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