The idea of restructuring can be rather daunting and scary for many small businesses, but this doesn’t mean the end of the line for your business, as many think. It could actually be the move that directs you towards a brighter future.
The Small Business Restructure Rollover (SBRR) is an Australian tax concession tool that has been utilised by many small businesses over the years to transfer assets between entities without incurring immediate income tax liabilities. However, for this to be the case, the restructuring must be genuine and meet specific criteria.
In this guide, we will break down everything you need to know about SBRR, so you can confidently weigh up all your options and pick which is the right course of action for both you and your business.
What is the Small Business Restructure Rollover?
The SBRR is a scheme offered by the Australian Taxation Office (ATO) that allows for small businesses to be able to transfer active tax assets between eligible restructuring entities without incurring a capital gains tax (CGT) liability.
When SBRR is taken advantage of properly, it can help a small business to properly re-establish and position itself for long-term success. This is especially essential in a landscape that’s ever increasingly competitive like the Australian business sector, particularly for businesses exploring alternatives to insolvency in Sydney, Brisbane or Perth.
However, you must meet a certain criteria to utilise the SBRR. So, what is this criterion?
Eligibility Criteria for Small Business Restructure Rollover?
So you may be considering that the SBRR is the right move for you and your business. Well, you’ll need to meet the following criteria to be eligible for its benefits.
Entity Model
Every party that is involved within the SBRR process must be small in nature. In a figure, this means a business that has an aggregated turnover of less than $10 million per year.
SBRR eligibility also extends to businesses that are connected with a small business entity, an entity that has an affiliate that is a small business entity, or a partner in a partnership that is a small business entity.
Asset Type
The assets that you are transferring under the SBRR must be classified as active assets. This can include capital gains tax (CGT) assets, revenue assets or depreciating assets from one entity to another, or trading stock. This is to ensure that the assets that are being transferred are actually the ones that are used in carrying on the future of the business.
Genuine Restructuring
For a small business to utilise the SBRR, its restructuring must be considered genuine. In a nutshell, this means it must be undertaken for justifiable commercial reasons, and not for tax avoidance. The assets that are being transferred in the SBRR must remain in the ownership of the same individual who was responsible before the restructuring
Being able to accurately determine whether a restructuring is genuine or not depends entirely on all of the facts. Safe Harbour provides another way of meeting the requirements for SBRR.
What Are The Types of Assets Covered Under SBRR?
The SBRR applies to the following assets: Capital Gains Tax (CGT) Assets, Trading Stock, Revenue Assets, and Depreciating Assets.
| Capital Gains Tax (CGT) Assets |
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| Trading Stock |
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| Revenue Assets |
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| Depreciating Assets |
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The SBRR is not available regarding any other business assets. Those, such as loans to shareholders of a company, do not count, as they are not active assets of the business at hand.
It’s important to reach out to a respected and knowledgeable financial advisor to get a complete understanding of the assets your business has that are relevant.
Step-by-Step Process for Accessing SBRR
From afar, the process for SBRR may seem scary and daunting, but the step-by-step process below will give you an idea of what the journey may look like, and how to initially get started.
Assess Your Eligibility
Off the bat, you’ll need to ensure your business has an accumulated turnover that totals less than $10 million. From here, all parties involved in the restructuring must be either small business entities, affiliates, connected entities or partners, and you have to guarantee that all assets that you are hoping to transfer are considered active assets by the ATO. You have to be genuine in your intention as well; the SBRR can’t be for tax evasion purposes, it must be legitimate, and the economic ownership of the assets must remain the same.
Plan Your Restructure
It is important to seek grounded, informed and expert financial advice when proceeding with the SBRR. Working alongside an agency can help you to expertly structure the transfer correctly and ensure compliance with Australian tax laws. For businesses weighing up SBRR against business liquidation in Sydney, Perth or Brisbane, getting the right advice early can make all the difference. Prepare your documents, and provide a rationale that clearly outlines the commercial reasons for your restructuring. In this rationale, you will also identify the transferor and transferee entities and evidence as to how the ownership of the business will remain unchanged.
Prepare Your Supporting Documents
Collate and review the following documents:
- Financial statements for all entities involved
- Organisational chart
- Asset register with cost bases
- Minutes of meetings approving the restructuring
- Evidence of ultimate economic ownership continuity
Execute the Asset Transfers
From here, you will move all of the eligible active assets from one entity to another. Make certain that you consistently value your entities to avoid any discrepancies in your numbers. Lastly, ensure to treat the transfer as tax-deferred in tax records so you don’t trigger capital gains taxes or other taxes where it’s applicable.
Lodge Tax Returns and Report Accordingly
The SBRR treatment must be accurately reflected in the income tax returns of all entities involved. It is essential to either attach supporting documentation or ensure it is readily available in the event of an ATO review. Additionally, detailed records of the restructuring, including valuations and agreements, should be retained for a minimum of five years to demonstrate compliance.
Maintain and Monitor Your Compliance
Stay on top of everything. You’ll need to stay engaged and ensure that you are compliant with the conditions of the SBRR, especially during the 3-year safe harbour period. Maintaining holding on to documentation that shows ownership remains the same, assets are still being used in the business, and no changes have breached the conditions of the restructure.
Compliance and Legal Considerations for SBRR
| Genuine Restructure Requirement | The ATO considers the intention, structure, and outcomes of the transaction. The roll-over can be denied at a later date if it is considered not to be genuine. |
| Economic Ownership | There can be no change in economic ownership of the assets being transferred in the SBRR. All parties that had the economic power in the assets before the restructuring must remain the same afterwards. If there is shuffling, this can disqualify the roll-over. |
| Safe Harbour Rule (Optional) | If a business demonstrates that it can sufficiently meet the criteria of Safe Harbour for three years after the transfer, the ATO will accept the restructuring as genuine. Failure to utilise Safe Harbour doesn’t disqualify you, but it can make things more difficult during the process. |
| Documentation and Record-Keeping | Records must be maintained that show
Records must be maintained for at least 5 years |
| Interaction with Other Taxes | Stamp Duty for most states and territories are not exempt for SBRR restructures. Certain assets may still have GST applied |
| Legal Structure Alignment | Legal documentation such as the following should be regularly reviewed to ensure it supports the restructure.
Transfers must be done in compliance with state and federal laws, which include corporate law and trust law. |
| Seek Out Professional Advice | Due to the technical complexities of an SBRR and its long-term implications. It is integral to seek out seasoned advice from an advisor before proceeding with anything. Incorrectly implementing SBRR can result in loss of tax relief, compliance penalties, or unintended consequences. |
Why Choose BRI Ferrier?
BRI Ferrier is Australia and New Zealand’s fastest-growing business recovery, insolvency, forensics and advisory firm. We approach every engagement with impartiality and rigour. We act swiftly and responsively to help our clients with their financial challenges efficiently and effectively.
We have a wealth of expertise in our team when it comes to Small Business Restructuring Roll-over. Whether you’re looking to get started on your restructuring journey or need a fresh pair of eyes on your situation, the team at BRI Ferrier are here to help steer you in the right direction.
Our experience, professionalism, and tailored approach enable us to deliver commercial solutions that are innovative, independent and intelligent. Contact us today to get started.
