Queensland transfer duty exemption for small business restructures
Tax Law - 26 Oct 2020
The Queensland Commissioner of State Revenue (Commissioner) has released a public ruling exempting certain small business entities from transfer duty in Queensland for particular small business restructures.
The Queensland Office of State Revenue (OSR) imposes transfer duty on most types of property including Queensland business assets.
The exemption is an administrative practice, rather than being included in the Duties Act 2001 (Qld) (Act) itself. As a result, it is not clear whether the OSR will include further requirements in the future in respect of the exemption. In particular, the ruling is silent on whether the annual turnover test is an aggregated or standalone test, and this may be revised in the future.
The exemption is a welcome change in the administration of the Act, however, Queensland transfer duty remains one of the most wide-ranging in Australia, and as an economically inefficient tax that directly impacts on the restructuring of Queensland businesses, it remains long overdue for wholesale review and overhaul.
The general requirements to claim the exemption are as follows:
- The transferor must be an individual, partnership or trust whose annual turnover does not exceed $5 million (small business entity).
- The transferor must also carry on their business in Queensland or provide their goods and/or services to Queensland customers.
- The dutiable value of the property being transferred must not be more than $10 million.
- The transferee must be a newly registered unlisted company or dormant company.
- The transferor must be a shareholder in the transferee.
Application of the exemption
The exemption will apply to the lesser of the entity’s ownership in the property immediately before it was transferred or the entity’s share ownership percentage immediately after the transfer. This means that some entities may only be eligible for a partial exemption. The transferee must apply to the OSR for the exemption.
The following example from the ruling demonstrates this in practice, and also provides an opportunity for tailoring a restructuring event to deliver the maximum benefits for our clients.
An individual wishes to restructure their business into a company for commercial reasons, including asset protection, the ability to take on investors and the ability to claim the Research and Development Tax Incentive. The individual has an investor that wishes to invest in the company for a 50% shareholding. The individual transfers all their business assets into the newly registered company, in which it holds a 50% interest. The individual will only be eligible for a partial transfer duty exemption of 50%.
Under the ABA-developed alternative structure, the individual would transfer their business assets into the newly registered company while retaining 100% ownership. This would facilitate complete exemption as opposed to 50%, with the investor then able to invest in the company.
Small businesses that are wishing to restructure into a corporate structure should take advantage of this exemption whilst it is available. The potential advantages of restructuring into a company include:
- Eligibility to claim the Research and Development Tax Incentive;
- Eligibility to offer Employee Share Option Plans to employees;
- To increase asset protection; or
- To act as an attractive investment vehicle.
Co-written by Ally Evans.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.