Economic downturn? Check.
Stock market blues? Check.
Depressed asset prices? Check.

The current economic downturn is a golden taxation opportunity for businesses considering a restructure.

Operating a business through the right structure is essential for many reasons, including asset protection, distribution flexibility and capital gains tax concessions that apply to a future sale.

Many businesses are established using the wrong structure. Historically, businesses that have been operating for many years have been reluctant to restructure. Changing structures can trigger stamp duty and capital gains tax liabilities.

Current low asset prices may significantly reduce the stamp duty and capital gains tax liabilities otherwise payable for businesses that restructure now.

A relatively low stamp duty and capital gains tax liability now may reap huge rewards in the future if a new structure offers greater tax concessions. Furthermore, some restructures need to be implemented more than 12 months before a sale to ensure that capital gains tax concessions are available.

Consider the following example:

Charlie incorporated a company, XYZ Pty Ltd to buy a new business for $200,000 three years ago. Earlier this year the value of the business had increased to $400,000. Had XYZ Pty Ltd sold the business and paid the proceeds to Charlie, tax of approximately $93,000 would have been payable based on a top marginal tax rate of 46.5%.

The economic downturn has now seen the value of the business reduce to $200,000 again. XYZ Pty Ltd transfers the business to the XYZ Trust and pays no capital gains tax. If XYZ Trust were to sell the business in two years for say $400,000 it could take advantage of the 50% concession from capital gains tax available to trusts and individuals that have held assets for more than 12 months. Charlie's tax bill on a sale of the business would also be halved to $46,500 (23.25% of $200,000).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.