It’s easy to seek change only when change seeks you. Yet we are all aware that acting purely out of necessity can allow opportunities to go begging. For example, while you might be secure and comfortable with your current business structure, are you missing out on accessing small business tax offsets and incentives?

The Australian Tax Office makes restructure all the more viable with its tax roll-over incentive.

Restructuring can be daunting

But it is an investment of time and effort – and most of all, planning. The reason why a small business restructure can be daunting is because you may not be sure of the potential benefits. You may well wonder if it’s worth the bother.

In Australia at this present moment, it is. A change in the status of your entity structure could position you in such a way that you can reduce risk, manage taxes more efficiently, plan solidly for future growth, or access the aforementioned small business tax offsets and incentives. For instance, the threshold for small businesses has increased to $10 million effective from 1 July 2016. This means that companies that may have previously have been restricted from accessing the small business tax offset and other incentives can now take advantage through a restructure.

In particular, the tax office allows small businesses to transfer active assets from one entity to other entities without incurring an income tax liability, as long as ultimate ownership of these entities remains the same. Company, trust, partnership, or sole-trader – a roll-over allows a business that is run as one kind of entity to transfer some or all of its assets to another kind without CGT and other tax implications.

Restructuring to reduce risk

Making such a change in your entity structure as a small business can not only allow you to access the small business tax offset and incentives, but also reduces risk. Have you properly evaluated the tax risks in your industry? Some industries are exposed to the risks of doing business more than others. By holding your assets in a separate vehicle, such as an entity or trust, you will be able to reduce the risk of such threats by carefully proportioning and arranging your assets across a smart entity structure. In the end, this is just wise planning. You put in the effort today to manage an entity change in order to prevent more entrenched and intractable headaches in the future, while also benefiting financially through the restructure roll-over.

Restructuring for growth

But it is not all about holding up a financial umbrella to the potential rainy days ahead. Restructuring can be a strategy for growth. The roll-over is an effective means of both saving tax and not being tied down to the philosophy of ‘it’s worked for me in the past, so it will always work.’

Many businesses begin with the most economical entity structure. You want to start your business on a strong footing but you know that in the fledgling days, you have limited assets, limited finances, and limited horizons for immediate growth. But what happens once your enterprise is more established? It’s time to revaluate your entity structure. Maintaining it in its original form simply because it has worked so far may actually inhibit your growth. For example, starting off with the most straightforward entity structure as a sole trader or choosing a partnership that has allows you to benefit from the support of another party may no longer be in your best interests as your business develops and turns a profit. Changing your entity structure may not only allow you to access small business tax offsets and incentives such as the tax roll-over, but may also pre-empt and pre-plan for profit growth. It could be the next step in your businesses transforming from a fresh enterprise to a surging and established firm.

How do I plan a restructure?

The benefits of the tax roll-over apply to small businesses – so, any business with an aggregated turnover less than $10 million. Apart from the ability to reduce risk, plan for growth, and of course save tax on active assets that are CGT assets, trading stock, revenue assets or depreciating assets, a restructure can give you peace of mind. It can help you stop and take stock of your business structure and be assured you have chosen the right one for your current situation and medium- to long-term future.

This means it’s important to contact an expert. Your business advisor or tax accountants can evaluate your current structure, assess options for the roll-over and accessing other small business tax offsets and incentives, and help set up a profitable and tax-efficient restructure.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.

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