The Commissioner has exercised his ‘Remedial Power’, in s370-5 of the TAA1, by making the Taxation Administration (Remedial Power – Small Business Restructure Roll-over) Determination 2017. This is to make the Small Business Restructure Roll-over (Restructure Rollover) provisions work better, with respect to depreciating assets.
The ‘Remedial Power’ allows the Commissioner to modify the tax law, by legislative instrument, to relieve taxpayers from the effect of a tax law, where he thinks it reasonable, and consistent with the purpose or object of the modified provision. This Remedial Power commenced to operate on 1 March 2017.
In this case, it is the operation of the Restructure Rollover provisions that is modified. These are the provisions, in subdivision 328-G of the ITAA97, that allow small business entities, to restructure, from any structure to any other structure, if it is a ‘genuine restructure of an ongoing business’.
- CGT assets, trading stock and revenue assets, get broad relief, namely that: ‘the transfer of an asset has no direct consequences under the income tax law’ (see s328-450).
- However, the relief for the transfer of depreciating assets, as provided under section 40-340, is more limited. It only provides for deferral of the operation of the ‘balancing adjustment’ provisions (s40-340(1), item 8).
The problem was, however, that the transfer of a depreciating asset, in the context of a restructure, could have other ‘direct tax consequences’. For example, where a company is the transferring entity, the transfer may give rise to a dividend (or deemed dividend), in the hands of the shareholder or other recipient. There could be similar ‘direct’ tax consequences for a transfer by a trustee to a unit holder or other beneficiary.
The effect of the modification is, therefore, to extend the rollover relief (in s40-340(1)), so that transfers of depreciating assets are sheltered from all ‘direct tax consequences’ under income tax law, other than the Div 40 consequences (where deferral of the ‘balancing adjustment’ provisions are still allowed but the relevant ‘cost’ of the assets will not change, in the recipient’s hands).
The relief is not back dated though. It only applies to transfers on or after the date this modification instrument comes into effect (cl.2). The following dates assist in this analysis.
- The Determination was made on 1 December 2017 and was registered on 20 December, that year.
- On 5 February 2018, the determination was tabled in both the House of Representatives and the Senate.
- Clause 2 of the Determination, provides that it commences on the first day it could no longer liable to be disallowed under section 42 of the Legislation Act 2003 (Cwth). That provision, requires a notice of motion, to disallow the Determination, to have been given, within 15 sitting days of the Determination, having been tabled in the relevant House, and a further 15 sitting days having gone by, without the motion being defeated. I can’t find this exact date, but it is likely to have been on or about 5 April 2018.
Study Questions (answers available)
- Is this determination, made by the Commissioner, under his ‘Remedial Power’, in s370-5 of the TAA1?
- Can such determinations increase a taxpayer’s tax liability?
- Does this Determination modify the ‘Small Business Restructure Rollover’ provisions, in subdivision 328-G of the ITAA97 for transfers of ‘depreciating assets’?
- Are the direct tax consequences of a transfer of depreciating assets limited to the Div 40 ‘balancing adjustment’ provisions?
- Did the Restructure Rollover provisions (before this determination) protect against a transfer of depreciating assets, to a shareholder, being taxed as a dividend?