Small Business Restructure Rollover Eligibility

The small business restructure rollover allows eligible entities to transfer active business assets without an immediate income-tax liability from the transfer. You must establish a genuine ongoing business reorganisation, continuing economic ownership and each party’s eligibility before choosing the relief.

Which Restructure This Rollover Covers

This rollover covers qualifying business asset transfers between entities under Subdivision 328-G of the Income Tax Assessment Act 1997. A sole trader moving an ongoing business into a wholly owned company is one possible use. Companies, partnerships and trusts can also participate when the conditions are met.

The relief preserves tax values instead of recognising gains or losses that the qualifying transfer would otherwise create. A later disposal can still produce taxable income or a capital gain. Calling it a small business restructure exemption does not make every asset movement tax-free.

Formal small business debt restructuring is a separate insolvency procedure. Changing the entity that runs the business does not itself settle ATO debts or release the original debtor. Keep creditor arrangements separate from the income-tax rollover assessment.

Establish Eligibility Before the Transfer

Assess the transferor and every receiving entity for the income year of transfer. Under the statutory rollover conditions, each party must satisfy at least one eligible route. It can be a small business entity itself, have a small business entity affiliate or be connected with a small business entity. A partner in a small business entity partnership has another route.

The relevant small business entity threshold is aggregated turnover below $10 million. This uses the group calculation, including relevant connected entities and affiliates. The transferring entity’s sales alone are insufficient. Apply the available prior-year or current-year turnover tests to the actual income year. Keep the aggregated turnover calculation with the eligibility assessment.

Eligibility Assessment Record

Residency depends on entity type. An individual or company must be an Australian resident. A trust must be a resident trust for CGT purposes. An ordinary partnership needs at least one Australian-resident partner. A corporate limited partnership must satisfy its specific income-tax residency rule.

An asset held by an affiliate, connected entity or partner also needs the relevant statutory business-use connection. Record which business uses it and why that relationship satisfies the applicable asset condition. Common ownership alone does not prove that every investment or shareholder loan qualifies.

A Genuine Restructure of an Ongoing Business

A genuine restructure changes how an ongoing business operates or holds assets for a commercial reason. Document the business problem and how the new entity arrangement addresses it. Evidence can include planned expansion, reduced administration or a change in operating risk, supported by continuing customers and business activity.

Trace ultimate economic ownership through entities to the individuals who economically own each asset. Those individuals and their proportionate interests must not materially change because of the transaction. An entity structure chart helps expose a change hidden behind a new company or trustee.

A discretionary trust needs particular care because beneficiaries generally lack fixed economic interests in its assets. Section 328-440 provides an alternative where a transferred asset is trust property of a non-fixed family trust immediately before or after the transaction. The relevant family trust election must be in force. Every individual with ultimate economic ownership before and after must belong to the applicable statutory family group.

A family trust holding shares in the receiving company does not, by itself, satisfy that alternative. The company’s business assets are company property. Distinguish them from the shares held by the trustee when assessing the test.

Supported and Unsupported Arrangements

Supported case: A sole trader transfers an expanding business into a wholly owned company and continues operating it there. The records explain the commercial reason, preserve economic ownership and show how the transferred assets remain in business use.

Unsupported case: An owner moves assets out of a company as a preliminary step to selling the business and accessing a personal CGT discount. Continued ownership at the first transfer does not make that wider exit arrangement a genuine restructure.

The ATO’s genuine-restructure ruling explains why the surrounding arrangement and subsequent conduct matter. A tax benefit can accompany a genuine reorganisation. An artificial arrangement directed at extracting accumulated profits or eliminating a tax liability needs a different assessment.

Safe Harbour Limits

The safe harbour provides an alternative way to satisfy the genuine-restructure condition. Throughout the three years after the transaction:

• Ultimate economic ownership of transferred significant business assets, other than trading stock, must remain unchanged.
• Those significant assets must continue as active assets.
• Their private use must not be significant or material.

Failing the safe harbour does not automatically mean the restructure fails. Assess whether the transaction satisfies the ordinary genuine-restructure meaning on all the facts. Conversely, meeting the safe harbour leaves the other rollover conditions and the general anti-avoidance rules applicable. Assign someone to review proposed ownership changes, disposals and private use during the monitoring period.

Identify Every Asset Being Moved

Classify each transferred asset before setting its income-tax value. The ATO’s rollover guidance separates the asset categories because their rollover treatment differs.

Asset Transfer Schedule

Do not substitute market value for the rollover tax value. Keep market value separately where legal documents, accounting treatment or duty assessment need it. For pooled depreciating assets, calculate the applicable pool consequences instead of treating every item as a separate Division 40 asset.

Preserve acquisition history as well as cost. Pre-CGT assets retain their status.

For other CGT assets, the general discount holding period starts again when the receiving entity acquires the asset. An eligible transferee generally needs at least 12 months before a later CGT event to access the discount. Companies cannot claim the general CGT discount. The small business 15-year exemption has a separate acquisition-time continuity rule, subject to its other conditions.

GST and state duty need their own assessments. Income-tax rollover does not establish a GST-free going concern or a state duty exemption. Legal title, contracts and leases also require the relevant transfer documents and consents. A rollover choice cannot transfer them by itself.

The Australian Business Register’s entity-change guidance identifies changes requiring a new ABN, including sole trader to company. Plan the receiving entity’s registrations and update invoices and business documents. Coordinate cancellation of old registrations with remaining obligations instead of treating the tax rollover as a registration update.

Choose and Record the Rollover

Confirm eligibility and obtain authorised instructions before implementing the asset transfer. Use the following order so the choice matches the transaction the parties actually complete.

1. Identify every transferring and receiving entity. Record the eligible route, residency conclusion and exclusions for each one. Resolve a failed condition before proceeding on a rollover basis.
2. Obtain client instructions for the commercial reorganisation. Attach the ownership comparison and identify who can act for each entity. Document how the business will continue.
3. Agree the asset schedule and consideration. Separate assets remaining behind, liabilities assumed and any new shares issued. Calculate the tax value for each transferred asset.
4. Assess GST, duty and legal transfers separately. Obtain necessary consents and plan registrations before the receiving entity starts trading.
5. Record every party’s rollover choice. Retain a written record identifying the parties, transferred assets and effective transfer details. Match the choice to the executed agreements.
6. Complete the closing and opening working papers. Reconcile transfer values and record responsibility for any outstanding registration, duty or monitoring task.

Fictional Sole Trader-To-Company Example

An Australian-resident sole trader runs a growing repair business with aggregated turnover of $1 million. The owner transfers the ongoing business into a new Australian-resident company they wholly own. Both parties qualify as small business entities and choose the rollover. Assume the commercial purpose, active-asset conditions and continuing economic ownership are established.

The transfer includes self-generated goodwill with a nil tax cost base, trading stock acquired during the income year for $24,000 and workshop equipment. The equipment has a $30,000 adjustable value under Division 40 and is outside a small business pool. These are invented tax values, excluding any GST assessed separately.

The company receives a nil goodwill cost base and a $24,000 stock tax cost. Related depreciation rollover relief carries the equipment’s $30,000 adjustable value forward. The company continues the relevant depreciation method and effective-life treatment. The rollover does not give the goodwill a market-value tax cost or let the equipment start depreciation again at its original purchase price.

In the sole trader’s file, retain the eligibility conclusion, signed instructions and closing asset calculations. Put the same choice and asset schedule in the company’s file, alongside its opening tax registers. Record the consideration and any share cost-base calculation separately. The ATO’s rollover-consequences ruling explains those separate asset and membership-interest consequences.

If the owner instead gives another individual part of the company’s economic ownership through the transfer, revisit eligibility before applying the example. Its unchanged-ownership assumption would no longer hold.

Complete the Receiving Entity’s File

Give the receiving entity enough history to prepare its first return and explain a later disposal. Carry forward the underlying records, including any earlier tax choices, instead of supplying only a closing trial balance.

Keep the following with the receiving entity:

• The final transferred-asset schedule, tax values and supporting calculations, reconciled to the executed agreements.
• Original acquisition records, depreciation schedules and stock valuations, with relevant holding-period history.
• Prior rollover choices, including any replacement-asset obligations inherited under the small business CGT rollover rules.
• Ownership evidence, share rights and any trust deed or family trust election relied on.
• Each party’s rollover choice, authorised instructions and executed transfer documents.
• Registration confirmations and the schedule of outstanding GST, duty or legal obligations.
• Opening tax balances and accounting balances, with explanations for differences between them.

Use the accounting onboarding checklist for the receiving entity’s wider setup. Keep that work separate from the asset-by-asset tax conclusion so an opened client record is never mistaken for an approved rollover.

Before preparing the first return, match the agreed asset list to both entities’ working papers. Every transferred asset must have a matching closing and opening tax value, or a documented reason for a difference. Reconcile assumed liabilities and consideration as well. Assign unresolved non-income-tax obligations to a named staff role with a due date, then record the reviewer’s conclusion on the completed rollover file.