Transferring IP into a new entity feels like paperwork — a resolution, an assignment deed, done. In reality it’s treated as a market-value transaction, and while rollover relief will often defer the CGT, it comes with conditions that are easy to fall outside of. Here’s what to sort out before you sign anything.
It’s one of the most common structuring questions we get from founders — and one of the easiest to get badly wrong.
You’ve been building something under an existing company. Maybe it’s a company you set up years ago for consulting work, a side project, or an earlier venture that never quite took off. Somewhere in there, you developed IP — software, a platform, a brand, a process — that’s now the foundation of your new startup. The old company has baggage: old shareholders, old liabilities, a messy cap table, or just too much unrelated history to raise capital against cleanly. So you set up a new entity and want to move the IP across.
Sounds simple. It isn’t — and the way you do it has real tax and legal consequences that are much cheaper to get right upfront than to unwind later.
Why founders end up here with IP Transfer
There are two versions of this problem, and they get treated very differently:
1. IP developed personally, moving into a company (old or new). Common with first-time founders who started building before they’d even incorporated. The IP sits with an individual, and the question is how to get it into a corporate structure — ideally without triggering a taxable event or muddying who actually owns what.
2. IP developed inside an existing company, moving into a new company. This is the “legacy company” problem. The old entity might have unrelated trading history, other shareholders who aren’t part of the new venture, tax losses that don’t transfer cleanly, or a structure that’s simply wrong for raising capital (e.g., investors won’t touch a company with unrelated legacy risk sitting in it). The founder wants a clean new entity — just for the new business — with the IP sitting where it belongs.
Both scenarios raise the same core question: how do you move the asset without creating a tax bill or a legal ownership problem that comes back to bite you at your next raise or exit?
Why "we'll just transfer it across" is the risky part
The instinct is usually to treat this as a formality — a resolution, an assignment deed, done. But a transfer of IP between related parties is, for tax purposes, generally treated as if it happened at market value, regardless of what (if anything) actually changes hands.
That means:
- The transfer is generally treated as happening at market value, even though no cash changed hands. Where the old and new entities are commonly controlled and nothing else about the ownership structure is changing, small business restructure rollover relief will often be available — meaning no CGT is triggered at the time of transfer. But the rollover defers the gain rather than eliminating it: the low (often nil) cost base carries over to the new entity, so the tax exposure resurfaces later if the IP, or the company holding it, is ever sold outside the group.
- The rollover isn’t automatic. It depends on conditions like both entities being small business entities under the turnover threshold, the IP being an active, and — the one that trips founders up most — no material change in the ultimate economic ownership of the asset. If new investors are coming in as part of the same move, or the cap table is changing, that can take the rollover off the table and put you back into market-value CGT territory. Including a family trust in the mix can also remove the rollover.
- The IP still needs a defensible value, even where rollover applies, since the mechanics of the rollover (and the cost base carried forward) depend on it. For early-stage, self-developed IP (a codebase, an algorithm, a brand not yet trading) that’s often more art than science, and worth getting right regardless of whether tax is payable now.
- If there’s a loan or debt arrangement behind the transfer (new company “owes” the old company or the founder for the IP), Division 7A issues can surface if that debt isn’t documented and repaid on commercial terms.
- Where the IP was developed personally, there’s a separate question of whether it was ever actually “owned” by the individual in a way capable of being assigned — assignment deeds need to be watertight on this, particularly if any development happened using company resources, contractors, or IP assignment clauses in old employment or services agreements.
None of this is exotic. It’s foundational. But it’s exactly the kind of thing that gets skipped when a founder is moving fast, focused on the new company, the new brand, the next raise — and the IP transfer becomes an afterthought handled with a template document instead of proper advice.
What "transferring IP properly" usually looks like
Every situation is different, but the IP structuring conversation usually covers:
- Timing. Transferring early, before the IP has significant value attributed to it and before external investors are in the picture, keeps the ownership structure simple and the rollover conditions easier to satisfy.
- Valuation. Getting a defensible position on value — even if that’s a documented rationale rather than a full formal valuation — matters even when no tax is payable now, since it sets the cost base the gain will eventually be measured against.
- Eligibility for rollover relief. Confirming both entities meet the small business entity threshold, the IP qualifies as an active asset, and — critically — that ultimate economic ownership isn’t changing as part of the same transaction. Get this wrong and you can lose the deferral without realising it until it’s too late to fix.
- Structure of the transfer. Straight sale, licence, capital contribution, or rollover all carry different tax and commercial outcomes; the right answer depends on your specific facts and what else is happening around the same time (a raise, new co-founders, etc).
- Documentation. A proper IP assignment deed, board and shareholder resolutions, and (if personally developed) clear evidence of when and how the individual came to own the IP outright.
- What happens to the old company. Whether it’s wound up, kept dormant, or continues operating alongside the new entity has downstream implications too — particularly around any residual liabilities or obligations.
The takeaway for founders
If you’re setting up a new entity and moving IP into it — whether from an existing company or from yourself personally — treat it as a structuring decision, not paperwork. The cost of getting proper tax and legal advice before the transfer is almost always trivial next to the cost of unwinding a bad structure once you’re mid-raise and a due diligence team starts asking who actually owns your core IP.
If this sounds like where you’re at, talk to the tax advisers at Fullstack and a commercial lawyer before the transfer happens, not after.
