Facts
Company C is wholly owned by Individual I.
It is proposed to restructure the shareholding so that Company C is wholly owned by Trust T, that is, a share transfer.
Question
Are the shares active assets for the purposes of the Small Business Restructure Rollover (SBRR)?
Answer
Generally, No.
Tax Tip
For the SBRR (contained in subdivision 328-G ITAA 1997), company shares can only be an active asset if the shareholder is a small business entity. For the vast majority of clients, the shareholder is a passive investor holding shares in a company and does not trade in their own right and, therefore, is not a small business entity. The result is that the shares are not an active asset.
The active asset requirement for shares under the SBRR provisions are different to the active asset requirement for shares under the CGT Small Business Concessions (contained in subdivision 152 ITAA 1997). Although the SBRR provisions rely upon the same concepts as those found under the CGT Small Business Concessions, the restricting requirement for shares under the SBRR provisions (contained in section 328-430(d)(ii)) is that section 152-10(1A) must be satisfied. This requires that Company C must use, or hold ready for use, the shares in carrying out Company C’s business. However, Company C does not because Company C can not use its own shares to carrying out its business. Company C’s shares are the structure that forms the company and not an asset it uses.
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