On 9 October 2020, the Queensland Office of State Revenue (OSR) released Public Ruling DA000.16.1 (the Ruling), which introduces an exemption from duty for certain transactions relating to small business restructures.
This new ruling follows the Queensland Treasurer’s earlier announcement on 9 September 2020 regarding the intention to ‘abolish’ transfer duty, to assist Queensland small businesses that wish to restructure for efficiency.
RSM welcomes the announcement of this new exemption, as it will reduce the financial burden for eligible Queensland small businesses that wish to ‘corporatise’ or otherwise reorganise their ownership structures.
Eligibility for exemption
For eligible transactions that involve the transfer of business assets from a small business entity to a newly registered or dormant unlisted company on or after 7 September 2020, a partial or full exemption from transfer duty and vehicle registration duty (if applicable) will be provided.
Broadly, the key requirements to be eligible for the exemption are as follows:
- The ‘small business entity’ transferring the asset is either an individual, partnership or discretionary trust that holds the property as part of its business activities in Queensland.
- The small business entity’s annual turnover must not exceed $5m.
- The dutiable value of property being transferred must not exceed $10m.
- Following the transfer of relevant business assets to the newly registered or dormant unlisted company, the relevant small business entity’s owners (i.e. the individual, all beneficiaries of the discretionary trust, or all partners in the partnership) must be shareholders of the company.
There does not appear to be any pre or post association rules (as commonly seen in the corporate restructure provisions), thereby potentially allowing this exemption to be accessed as part of a pre-sale restructure. The exemption also appears to be a permanent addition to Queensland’s duty laws and not simply a temporary relief measure implemented due to COVID-19.
An application for the exemption must be made in the approved form, together with supporting information as required by the Commissioner (i.e. covering letter setting out details of ownership levels, latest financial statements, transfer documents, etc.) – in other words, the exemption cannot be self-assessed.
Noting that the maximum exempt dutiable value is $10m, this will provide eligible small businesses with duty savings of up to $555,525.
Partial or full exemption
For eligible transactions, the Ruling provides that transfer duty will not be imposed on the dutiable value of the transaction, to the lesser extent of:
- The individual, partners or beneficiaries respective interest(s) in the small business property immediately before it was transferred; and
- The individual, partners or beneficiaries respective interest(s) in the small business property immediately after it was transferred.
For example, an individual that transfers 100% of his or her legal ownership in the small business property to a newly registered or dormant private company, for which the individual is the sole shareholder of, will obtain a full exemption for duty that would otherwise be imposed on the dutiable value of assets transferred.
In contrast, if the individual transfers 100% of his or her ownership in the small business property to a newly registered or dormant company, but only holds an 80% share interest in the company subsequent to the transfer (i.e. another entity is issued with 20% in the company), only a partial exemption will be granted, with transfer duty still being imposed on 20% of the dutiable value of the assets transferred.
There are existing Capital Gains Tax (CGT) rollover concessions that may assist businesses with disregarding income tax that may otherwise be imposed on transactions entered into as part of the ‘corporatisation’ of a business (i.e. CGT rollover relief in Subdivision 122-A and B of the Income Tax Assessment Act 1997).
Whilst the application of these CGT rollovers and the above-mentioned duty exemption appear similar on paper, it is important to note that specific differences behind the specific requirements and consequences of the duty exemption and the CGT rollovers exist. Care should be taken to ensure that both sets of requirements are able to be satisfied with reference to the particular business’ circumstances, to avoid any unintentional tax or duty implications.
Businesses that choose to restructure into a corporate structure will also be able to consider and potentially access other corporate tax measures (i.e. lower corporate tax rates, loss carry back tax offset (following the 2021 Federal Budget announcement), research and development tax incentives, etc.).
HOW CAN RSM HELP?
For more information, please contact your local RSM adviser, who will be able to assist you with:
- Considering your eligibility for the Queensland Small Business Restructure duty exemption, and applying for this exemption with the Queensland OSR.
- Assessing any other associated income tax or GST consequences, including the ability to apply any rollovers or other concessions to your circumstances, as part of a restructure.