Business Restructures

Businesses are restructured for sensible reasons: to separate valuable assets from trading risk, to admit or remove an owner, to prepare for a sale or a succession, or because the structure chosen fifteen years ago no longer fits.

The obstacle is rarely the commercial logic. It is the cost of getting from the current structure to the intended one.

Three questions, not one

Income tax and capital gains

Moving assets between entities is generally a disposal, and a disposal generally crystallises a gain. Various rollovers exist to defer that consequence for genuine restructures, each with its own eligibility conditions about who owns what, what is transferred, and what happens afterwards. Whether one is available, and whether the conditions can be met and maintained, is the first question.

State duty

This is the one that most often decides the matter, and it is a separate question with separate legislation. A federal rollover has no effect on transfer duty, landholder duty or foreign purchaser surcharges. Where the business holds land, or holds interests in entities that hold land, the duty exposure can exceed the tax being deferred. Concessions exist in some circumstances and have their own conditions.

Everything else

Restructures also touch matters that have nothing to do with revenue: bank facilities and their consent requirements, leases and whether they can be assigned, licences and registrations, employee entitlements, supplier and customer contracts with change of control clauses, and personal guarantees that may need to be renegotiated.

The question is not whether the restructure can be done. It is whether the benefit is worth the duty, the tax and the disruption of doing it.

How we approach it

• Establish what is actually owned by whom, which frequently differs from what everyone believes.
• Confirm the governing documents permit the steps proposed, including the trust deed and the company constitution.
• Model the federal and the state position separately, and say which constrains the outcome.
• Set out the alternatives, including doing nothing, and what each costs.
• Document the steps in the right order, because sequence affects both tax and duty.

We generally do this alongside the client's accountant, who holds the historical numbers that determine what is available.

This page is general information. It is not legal or tax advice, and your circumstances will change the answer.