Transfer duty exemption for small business restructuring

On 9 October 2020, the Queensland Commissioner of State Revenue (Commissioner) issued Public Ruling DA000.16.1 (Ruling) which outlines new transfer duty exemptions under the Duties Act 2001 (Qld) (Act) available to eligible small businesses undergoing a restructuring.   The Ruling stems from a public announcement made by Queensland Treasurer Cameron Dick on 7 September 2020.

What is a public ruling?

A public ruling, as described in paragraph 1 of Public Ruling GEN001.6 (GEN001.6), is a published document that expresses the interpretation and application of certain revenue legislation as viewed by the Commissioner.  However, paragraph 7 of GEN001.6 along with section 20 of the Taxation Administration Act 2011 (Qld) provide that public rulings do not have the force of the law meaning they can be quickly and easily overturned.  Therefore, the Ruling can be relied upon by small business owners whilst not being legislated under the Act.  Additionally, this creates uncertainty as to whether Ruling will remain in effect after COVID-19 or be overturned once the uncertainty of the pandemic climate subsides.

Current transfer duty legislation

Section 8 of the Act states that transfer duty is imposed on dutiable transactions as defined by section 9(1)(a) to include the transfer of dutiable property.  Dutiable property is defined under section 10(d) to include business assets in Queensland which can be, among other things (subject to section 35):

• personal property of a business located in Queensland;
• intellectual property;
• goodwill; and
• right/s under a franchise agreement.

Under these provisions, if a small business restructures to a registered unlisted corporation it will have to pay a duty on the transfer on the business assets that count as Dutiable Property.  In other words, by restructuring their small business, a small business owner must pay duty to transfer business assets to entities controlled by themselves.

What does the Ruling change?

Paragraph 3 of the Ruling provides that, if a transaction is eligible, it can be exempt from transfer duty under the Act.  Paragraph 5 of the Ruling outlines the eligible transactions as:

“(a) if the small business entity is an individual — a dutiable transaction that is the transfer or agreement for the transfer of small business property directly held by the individual, the dutiable value of which is not more than $10 million, from the individual to a newly registered unlisted corporation or an unlisted corporation that has been dormant since its registration, of which the individual is a shareholder;

(b) if the small business entity is a partnership — a dutiable transaction that is the transfer or agreement for the transfer of small business property directly held by one or more of the partners of the partnership, the dutiable value of which is not more than $10 million, from those partners to a newly registered unlisted corporation or an unlisted corporation that has been dormant since its registration, of which all partners of the partnership are shareholders; or

(c) if the small business entity is a discretionary trust — a dutiable transaction that is the transfer or agreement for the transfer of small business property directly held by the trustee of the trust, the dutiable value of which is not more than $10 million, from the trustee to a newly registered unlisted corporation or an unlisted corporation that has been dormant since its registration, of which all beneficiaries of the trust are shareholders.”

What is small business property (SBP)?

Paragraph 10 of the Ruling defines SBP as Dutiable Property, pursuant to section 10 of the Act, that is actively used in by a small business entity (SBE).  A residential home that allocated part of the building allocated as working space for the business is not SBP.

What is the dutiable value?

Paragraph 8 of the Ruling allows the Commissioner to look at the small business entity’s book value to determine the dutiable value of SBP.  However, section 11 of the Act also applies.

Are you an SBE?

Paragraph 9 of the Regulations defines an SBE as either:

• an individual;
• a partnership; or
• a discretionary trust,

that:

“(a) is conducted on or from a place in Queensland, or the conduct of which consists wholly or partly of supplying land, money, credit or goods or any interest in them, or providing any service, to Queensland customers;  and

(b) has an annual turnover of not more than $5 million.”

How will the exemptions be applied?

The exemptions can be full or partial.  In the case of there being multiple shareholders, a partial exemption will apply of which the amount will be the lesser of:

• the SBE’s (whether it be an individual, partnership, or discretionary trust) in the SBP before the transfer; and
• the SBE’s interest in the SBP after the transfer.

The Ruling provides six (6) examples of how partial and full exemptions could operate.

Key takeaways

Whether the Rulings will eventually be amended into the Act or will remain only during COVID-19, small businesses that are considering are likely to be eligible for a full, if not partial, exemption from transfer duty. If you are considering incorporating a small business you should consider doing this now whilst the exemption remains in force.

Links and further references

Related materials

Public Ruling DA000.16.1

Public Ruling GEN001.6

Legislation

Taxation Administration Act 2011 (Qld)

Duties Act 2001 (Qld)

Further information about transfer duty

If you are currently an SBE looking to restructure your business and take advantage of the Rulings before they are possibly revoked post-COVID19, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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