Plenty of businesses outgrow the structure they started in. A sole trader who wants asset protection, or a partnership bringing in an investor, will often need to move into a company or trust. The catch is that transferring business assets between entities normally counts as a disposal for capital gains tax purposes, which can turn a sensible structure change into an expensive one. The small business restructure rollover exists to remove that barrier when the restructure is real.
The main conditions
- Small business entity test. The businesses involved need aggregated turnover under $10 million.
- Active assets only. The rollover applies to assets genuinely used in the business, such as goodwill, equipment or trading stock, not passive investments.
- Same ultimate owners. The people who economically owned the business before the restructure need to hold the same ownership, directly or indirectly, afterward. This is not a way to bring in a new owner tax free.
- Australian residents. The entities involved generally need to be Australian tax residents.
The part that trips people up
The restructure has to be genuine, meaning it needs a real commercial reason such as protecting the business from risk, preparing for a new partner, or setting up for succession. A restructure done mainly to save tax, with no real change in how the business operates, does not qualify, and the ATO looks at substance rather than paperwork. Getting this wrong can mean the rollover unwinds later, with the original capital gains tax bill arriving anyway, plus interest.
What to do
If a structure change is on your mind, talk to your accountant before you move anything. They can confirm whether the rollover applies, document the genuine commercial reason properly, and check that GST and stamp duty, which the rollover does not cover, are not going to catch you by surprise instead.