On 25 September 2020, the Queensland Office of State Revenue released a Public Duties Ruling (DA000.16.2 Administrative arrangement—duty exemptions for eligible small business restructures) which provided an administrative exemption for eligible transactions entered on and from 7 September 2020, relating to a transfer or agreement for transfer of small business property to an unlisted corporation from any of:
an individual, where the individual is a shareholder of the corporation.
one or more members of a partnership, where all the partners of the partnership are shareholders of the corporation.
the trustee of a discretionary trust, where all the beneficiaries of the trust are shareholders.
While welcome for some taxpayers, the Ruling provided no relief for trustees of discretionary trusts who wanted to combine this exemption with a CGT rollover under subdivision 122-A of the Income Tax Assessment Act 1997.
Incredibly, the Ruling created the circumstance where a duty exemption would apply but not an exemption from income tax. The exact opposite of the situation immediately prior to the Ruling where the taxpayer could obtain rollover relief but had to pay transfer duty. In effect, the taxpayer needed to choose between the lesser of two evils.
An expansion of the administrative arrangement has been approved. This administrative exemption will now apply to eligible transactions entered into on and from 28 June 2021 where there is a transfer or agreement for transfer of small business property from the trustee of a discretionary trust to an unlisted corporation of which the trustee is the sole shareholder. This mirrors the broad intent of subdivision 122-A and will allow many business owners wanting to move away from a discretionary trust structure to do so without tax or transfer duty.
Naturally, there are a number of prerequisites under both the Income Tax Assessment Act 1997 and DA000.16.2 that need to be considered in light of each taxpayer's circumstances.
Even though this administrative practice is not law, it is a huge step in the right direction. With the company rate reducing to 25% and Division 7A compliance always a bugbear, this is a welcome addition to the restructure toolkit.
If you have clients operating their businesses in a discretionary trust who are wanting to change to a company, there is no better time to contact us.
If you'd like a copy of the Ruling, please contact us.