Should you be thinking about a business restructure?

While many businesses are in “survival mode” during COVID-19, it may nevertheless present a great opportunity to restructure business operations and/or assets from currently inefficient business structures.  Where a business structure isn’t as commercially effective as it should be, restructuring can be an expensive exercise from a tax perspective – you need to consider Capital Gains Tax (“CGT”), stamp duty (in various States & Territories) and various other administrative and lodgement requirements. COVID-19 may cause significant reductions in the value of assets, including goodwill and property.  This means, for example, that businesses that were previously not eligible for the CGT small business concessions (where the market value of net assets was over $6m), may now fall under the threshold.  This opportunity can be used to restructure into a better commercial structure without a CGT liability or a significantly reduced one.  Another restructure opportunity may arise, for example, where the same entity undertakes the business operations and also owns the depreciating assets.  To achieve better asset protection, it may be possible to transfer the depreciating assets to a separate entity and obtain the instant asset write-off, subject to various conditions. When considering a restructure, it is always important to be able to justify it on commercial grounds. The ability to undertake a commercial restructure with significantly reduced tax costs does not necessarily lead to the application of the anti-avoidance provisions, but these must be considered in the broader context.