Australia: Separating business and personal property, and the application of the CGT roll-overs

Business owners who undertake arrangements to separate their business and personal assets may be able to avail themselves of CGT roll-overs to disregard or defer the capital gains tax that would otherwise arise. Previously, CGT relief was available if the business owner transferred their business assets to a company. Under the recently introduced small business restructure roll-over, however, business owners can now transfer their business assets to a trust without paying CGT, provided the business has an aggregate annual turnover of less than $2 million.

Importance of separating business and personal property

It is prudent to keep business and personal assets separate for a range of different reasons, including for asset protection and tax mitigation purposes. If business assets are held in your name, it is more likely that personal assets (including assets owned jointly) may be used to recover debts belonging to your business if you are unable to repay them. On the other hand, holding business assets in a separate entity can reduce the exposure of your personal assets to creditors' claims. If you are unsure whether your assets are adequately protected, consider our Asset Protection Checklist at this link http://pointonpartners.com.au/asset-protection-general-checklist/.

There are also many tax advantages of keeping business and personal assets apart. Business owners, for instance, can benefit from the lower tax rates applying to different asset holding structures such as companies or trusts, and tax incentives and concessions may be available including the Research & Development tax offset and Early Stage Innovation Company investor tax incentives, which are only available to companies.

On the other hand, the 50% CGT discount for assets owned for more than one year is only available if the assets are not held in a company. If such assets are not used as part of the business, the CGT small business concessions will not apply either. There may also be adverse tax consequences if personal use assets are held by a company. Division 7A of the Income Tax Assessment Act 1997 (ITAA97), for instance, can operate to treat the provision of assets of a private company to a shareholder (or an associate) for personal use or enjoyment as a receipt of income for tax purposes. These assets would normally not be subject to tax.

Finally, it is more difficult to work out an individual's tax return if business and personal assets are mixed. This may lead to wrangles with the tax office if it is later determined that a person has not been correctly reporting their tax obligations. There are therefore good reasons for keeping personal assets and the assets of a business separate.

How to separate business and personal property

The most effective method for separating business assets from personal assets is by setting up an entity such as a company or a trust. The assets of the business are then transferred to that entity. The entity has a separate legal identity to the owner of the business and therefore creates a buffer between the assets of the business and the personal assets of the owner. Whilst the process of setting up and maintaining a company may involve increased administrative and compliance costs, the benefits may be considerable later down the track.

Application of the CGT roll-over provisions

Individuals who undertake arrangements to separate their business and personal assets would ordinarily face adverse CGT consequences. However, there are a number of CGT roll-over provisions that may be available to allow business owners to defer or disregard the amount of CGT arising.

One example is the recently introduced small business restructure roll-over under Div 328-G of the ITAA97. Under this roll-over, if a person transfers business assets to a company, trust or partnership, they may be able to disregard any capital gains or losses that would otherwise arise as a consequence of the transaction. The pre-CGT status of any assets is also preserved.

Be aware, however, that certain conditions must be satisfied before it can be determined that the roll-over applies, including the requirement that the business has an aggregate annual turnover of less than $2 million. If the business has an aggregate annual turnover of more than $2 million, the business owner may instead elect to apply the Div 122-A roll-over, which provides CGT relief where CGT assets of a business are transferred to a company.

To illustrate the application of these roll-overs, assume a person runs a business as a sole trader. They decide to incorporate the business to take advantage of the 30% tax rate applying to companies and to shrink the pool of assets that may be exposed to creditors' claims. Accordingly, they dispose of all the business assets to a company and then become the sole shareholder of the company. The business owner may elect to apply the roll-over in Div 328-G or Div 122-A so that they do not have to pay capital gains tax on the transfer of assets to the company.

Usefully, legal and other costs relating to the transfer of assets and company incorporation may be deductible.

It is important to note that other taxes such as stamp duty and GST may apply where assets are transferred, even though the business owner is both the transferor and the owner of the transferee. The "sale of a going concern" GST exemption may be available; however, the business owner's intention to apply the exemption must be stated in a written agreement prior to the transaction.

If your business does not meet the criteria under the above restructuring roll-over provisions, there may be other CGT concessions available that Pointon Partners can discuss with you.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jonathan B Slade
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions