The Queensland Government has released administrative guidelines for the removal of duty for eligible small business restructures in Public Ruling DA000.16.1. This will allow business operators to incorporate their business structure and transfer the assets without incurring transfer duty.
The ability to transfer business assets and receive the exemption is contingent on several factors including:
- business assets must be transferred from sole proprietors, partnerships or discretionary trusts (but not unit trusts) to a company. It should be noted that:
- for the full exemption to apply, shareholders of the new structure must have been the sole proprietor, partner or trust beneficiary; and
- the company must be newly incorporated or a dormant company.
- business annual turnover must be $5 million or less.
- the dutiable value of Qld assets must be $10 million or less.
Small Business Entity
As stated in the Ruling, a small business entity is an individual, partnership or discretionary trust that:
- holds small business property (i.e. dutiable property actively used by a small business entity to carry on that entity’s business); and
- carries on a business that:
- conducted on or from a place in Qld; 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 Qld customers.
The exemption will only apply to active business assets including 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.
Only Transfers to a Company
The exemption only applies to transfers to a newly incorporated company or an existing dormant company.
To be considered a dormant company the entity must not have any assets or liabilities, be party to any agreement, be a beneficiary or trustee of a trust or have issued or sold any shares. For companies that have been dormant for a long period time, it may be significantly easier to incorporate a new company to transfer the business assets into.
The Duties Act 2001 considers the dutiable value of an asset to be the asset’s unencumbered market value. For the purposes of determining the dutiable value of business assets to access the exemption, the Office of State Revenue (“OSR”) may accept the book value as being the dutiable value. This will save time and money when determining the dutiable value of property in order to expedite the transfer process. We would expect, however, that the onus would be on the transferor to have supporting evidence should a challenge arise from the OSR.
If there is any change in ownership levels when incorporating a business and transferring business assets between entities, transfer duty will apply to the extent that ownership levels change. If a sole trader transfers their business assets into a company where they own 90% of the shares, with the remaining 10% being held by another entity, transfer duty will be imposed on 10% of the dutiable value of the business assets.
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.
Application for Exemption
Application must be made to the Office of State Revenue if the for transfer duty exemption to apply using Form D2.2.
It is a welcome announcement given that the imposition of Qld transfer duty on the transfer of business assets has often been a significant impediment to small business restructures where the small business capital gains tax (“CGT”) concessions or other CGT rollovers can be utilised to limit or eliminate the CGT and income tax implications on undertaking restructures.