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Jack9(Initiate)Initiate
20 Apr 2021

Hi there, we have a client who operates his business as a sole trader and wish to restructure to a company with the individual as the shareholder on behalf of a discretionary trust (will do a FTE for the individual, and the trust has a individual trustee).

We wish to know if the section 328-440 of ITAA1997 Ultimate economic ownership will apply to this circumstance, how we understand it is it should apply as the ultimate economic ownership stays with the individual but wish to have a second opinion.

Thank you

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1,778 views
2 replies

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Most helpful replyATO Certified Response

KylieATO(Community Support)Community Support
ATO Certified Response28 Apr 2021

Hi @Jack9

To be eligible for the small business restructure rollover, the transaction must not change the ultimate economic ownership of the transferred assets. The ultimate economic owners of an asset are the individuals who, directly or indirectly, own an asset. Where there is more than one individual with ultimate economic ownership, there is an additional requirement that each individual's share of ultimate economic ownership be maintained. Family trusts may meet an alternative ultimate economic ownership test where:

    • the trustee has made a family trust election, and
    • every individual who had ultimate economic ownership of the transferred asset before the transfer, and every individual who has ultimate economic ownership after the transfer, must be members of the family group relating to the family trust.

    Based on the information provided in your post it would appear that your proposed circumstances would meet the alternative ultimate economic ownership test for the purposes of the small business restructure rollover.

    To find out more on the small business restructure roller, including the other eligibility criteria please consider visiting our website at Small Business Restructure Rollover

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    Most helpful replyATO Certified Response

    KylieATO(Community Support)Community Support
    ATO Certified Response28 Apr 2021

    Hi @Jack9

    To be eligible for the small business restructure rollover, the transaction must not change the ultimate economic ownership of the transferred assets. The ultimate economic owners of an asset are the individuals who, directly or indirectly, own an asset. Where there is more than one individual with ultimate economic ownership, there is an additional requirement that each individual's share of ultimate economic ownership be maintained. Family trusts may meet an alternative ultimate economic ownership test where:

      • the trustee has made a family trust election, and
      • every individual who had ultimate economic ownership of the transferred asset before the transfer, and every individual who has ultimate economic ownership after the transfer, must be members of the family group relating to the family trust.

      Based on the information provided in your post it would appear that your proposed circumstances would meet the alternative ultimate economic ownership test for the purposes of the small business restructure rollover.

      To find out more on the small business restructure roller, including the other eligibility criteria please consider visiting our website at Small Business Restructure Rollover

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      Small business restructure rollover from sole trader to company | ATO Community