Business entity changes involve transferring a business from its current structure to a more advantageous structure.
The most common reasons for a business restructure are:
• Change in ownership: If an existing business is acquired (say a company) then the business structure may be changed (to a trust).
• Change in management: Taking on a business partner would involve a sole trader moving to a partnership, company or trust.
• Operational reasons: Reorganizing business functions to improve performance.
• Legal reasons: Some professionals can only operate through certain structures.
• Financial reasons: Restructuring to meet financial goals.
• Business growth: Restructuring to improve cash flow by reducing tax, i.e. moving from a sole trader to a company.
• Economic downturn or downsizing: Downsizing and simplifying a business structure to reduce costs i.e. moving from a company structure to a sole trader.
Effective from 1st July 2016 small businesses with an annual turnover of less than $2 million pa can change their business legal structure without attracting any capital gains tax liability (CGT) at that point.
This concession recognises that new small businesses might choose an initial legal structure that they find does not suit them when the business is bigger and more established.