On 7 September 2020, the Queensland Treasurer announced the abolition of stamp duty on small business restructures. The Queensland Commissioner of State Revenue (Commissioner) has now released Public Ruling DA000.16.1 (Ruling) which sets out an administrative arrangement to give effect to that announcement for eligible transactions entered into on or after that date.
Queensland retains one of the broadest duty bases among the States and Territories. In particular, Queensland 'dutiable property' includes not only interests in land, but most types of tangible property (e.g. plant and equipment and trading stock) and intangible property (e.g. goodwill, intellectual property, trade receivables, statutory licences and customer contracts).
The Ruling sets out a welcome (albeit limited) suite of transfer duty and vehicle registration duty exemptions targeted at restructures undertaken by 'small business entities'.
Taxpayers will still be required to make a lodgement with the Queensland Office of State Revenue (OSR) in order to claim an exemption. Further, in some circumstances only a partial exemption will be available.
Small business entity
Broadly, a 'small business entity' is defined as an individual, partnership or discretionary trust that:
- carries on business in Queensland (and / or provides goods or services to Queensland customers); and
- has an annual turnover of not more than $5m.
The Ruling does not define 'annual turnover' – further guidance on this would be welcomed, noting the potential for uncertainty on issues such as the relevant year to be examined, what income items are included in turnover and whether the turnover figure must include the turnover of associated entities in certain circumstances.
Small business property
Importantly, the small business entity must directly hold the relevant 'small business property' to be transferred, being dutiable property that is 'actively used' to carry on the small business entity's business. The concept of 'active use' is not expressly defined, however the Ruling notes that property is not 'small business property' if it is not 'directly used' in the conduct of the business. The Ruling states that a home (even if part used to conduct the business) and passive investments are not small business property.
Eligible transactions
Broadly, the transfer of (or agreement to transfer) small business property by a small business entity (or in the case of a partnership, one or more of the partners) will be wholly or partially exempt from transfer duty (or vehicle registration duty, as applicable) if:
- the transferee is a newly registered unlisted company (or a dormant company that meets certain requirements);
- where the small business entity is:
- an individual, that individual is a shareholder in the transferee company;
- a partnership, all partners of the partnership are shareholders in the transferee company; or
- a discretionary trust, all of the 'takers in default' (i.e. default beneficiaries) are shareholders in the transferee company; and
- the dutiable value of the small business property is not more than $10m.
The Ruling notes that 'dutiable value' takes its ordinary meaning as set out in the Duties Act 2001 (Qld) (Duties Act), generally being the greater of the property's unencumbered market value and the GST-inclusive consideration paid or given (or agreed to be paid or given) for the property. The Ruling states that the Commissioner may take the property's book value as evidence of unencumbered market value (however, it is important to note that book values for some assets such as goodwill may not be available and that the Commissioner always has the power to request further information or valuation evidence).
Given that the $10m threshold outlined above relates to 'small business property' (i.e. Queensland dutiable property only), it appears clear that the total value of a transaction could exceed $10m in certain circumstances without jeopardising an exemption claim (e.g. the value of business assets transferred in other states or territories would not count towards the $10m threshold).
Determining whether a partial or full duty exemption is available
Importantly, only a partial duty exemption will be available in certain circumstances. In very broad terms, if the relevant individual / partner / default beneficiary's interest in the transferee company (immediately after the transfer) differs from that individual / partner / default beneficiary's economic interest in the small business property immediately prior to the transfer, duty may be payable by reference to the difference.
The Ruling outlines some helpful scenarios to illustrate the exemption calculation. For example, if an individual has 100% legal ownership of the relevant small business property before the transfer but then only holds a 50% interest in the transferee company immediately after the transfer, transfer duty (or vehicle registration duty, as applicable) would still be imposed on 50% of the dutiable value of the small business property.
More complicated examples in the context of partnerships and discretionary trusts are also set out in the Ruling.
Investment by a third party post-restructure
The Ruling is silent as to whether the small business restructure duty exemption may be revoked if a third party acquires an interest in the transferee company at some point after the small business restructure is completed. In particular, the Ruling does not contain 'post-association' requirements similar to those set out in the corporate reconstruction relief provisions of the Duties Act.
It is possible that such third party investment could be made free from duty (assuming that the transferee company is not a 'landholder' for the purposes of the Duties Act). However, time will tell if the OSR permits this or whether the OSR will instead introduce additional requirements that must be satisfied post-completion in order for the duty exemption to be preserved.
Please contact us for further guidance on these exemptions and comprehensive advice on how to most efficiently undertake your proposed business restructure.
