Restructuring is meant to solve a problem, not create a new one.
A business owner may move from sole trader to company, bring in a new partner, separate assets from trading risk, or reorganise a trust and company structure to prepare for growth.
The risk is that moving assets from one entity to another can trigger tax or Victorian duty consequences that were not expected.
In many cases, those costs can be reduced, deferred or avoided if the restructure is planned properly before anything is transferred.
Thinking about changing your business structure? Get the tax and legal position checked first.
Book a Free Client Assessment →Why Businesses Outgrow Their Original Structure
A structure that worked when the business first started may not remain suitable as the business grows.
Common reasons for reviewing a structure include:
- bringing in a business partner or investor
- reducing personal exposure to business risk
- separating valuable assets from trading activities
- preparing for future growth
- improving succession planning
- preparing for a future sale
- replacing a structure that was set up quickly and no longer suits the business.
The right question is not simply whether a different structure looks better on paper. It is whether the benefits of changing structure outweigh the tax, legal and administrative cost of doing so.
Why a Restructure Can Trigger Tax
Moving assets from one entity to another can have tax consequences even where the same person ultimately controls the business before and after the restructure.
For example, a sole trader who transfers goodwill, equipment or other business assets into a company may trigger the ordinary tax rules that apply to those assets.
That can include capital gains tax, but depending on the assets involved, other tax rules may also apply to trading stock, revenue assets and depreciating assets.
The fact that there is no outside buyer does not mean the transfer is ignored for tax purposes.
This is why the tax position should be reviewed before the legal transfer occurs.
The Small Business Restructure Rollover
The small business restructure rollover can allow eligible small businesses to transfer certain active assets as part of a genuine restructure without the immediate tax consequences that would otherwise arise.
It is not automatic.
Broadly, the conditions include that:
- the relevant entities satisfy the small business eligibility requirements
- the transferred assets are active assets
- the transaction forms part of a genuine restructure of an ongoing business
- ultimate economic ownership is maintained, subject to specific rules
- the relevant residency requirements are satisfied
- the parties choose to apply the rollover.
The ATO also looks at whether the restructure is genuinely directed at the ongoing operation of the business rather than being artificial or predominantly tax-driven.
A future sale does not automatically prevent a restructure from qualifying, but the surrounding circumstances matter.
The eligibility requirements should therefore be checked before any assets are moved.
Other Rollovers May Also Be Relevant
The small business restructure rollover is not the only possible form of tax relief.
Depending on the transaction, other rollover provisions may apply when assets are transferred to a company or between related entities.
Which rollover is available, if any, depends on the structure, the type of assets being transferred and who owns the business before and after the transaction.
This is another reason not to assume that a standard restructure template will work for every business.
If a restructure is part of preparing for an eventual sale, our guide on the tax side of selling a business is worth reading alongside this one.
Tax on the Sale of a Business →Victorian Duty Is a Separate Question
Federal income tax relief does not automatically provide relief from Victorian duty.
Duty may still need to be considered where a restructure involves:
- Victorian land
- an entity that holds significant Victorian land
- trust property
- a change in the beneficial ownership of dutiable property.
Some exemptions or concessions may apply, including in certain corporate reconstruction or trust transactions, but the conditions are specific.
The duty position should be reviewed separately from the federal tax position before the restructure is implemented.
Restructuring Trusts and Companies
Restructures involving discretionary trusts and companies require particular care.
The trust deed needs to be reviewed to confirm what the trustee is permitted to do and whether the proposed transaction is properly authorised.
The tax and legal analysis may also need to consider:
- who ultimately owns or controls the relevant assets
- whether the assets are active business assets
- unpaid present entitlements
- Division 7A issues
- shareholder or beneficiary balances
- whether land or other dutiable property is involved
- whether the transaction changes beneficial ownership.
A restructure that looks simple from an accounting perspective can create legal or duty consequences if the trust documents and ownership arrangements are not reviewed at the same time.
Tax Is Only One Part of the Restructure
A tax-effective restructure still needs to work legally and commercially.
Before transferring assets, consider whether the restructure affects existing leases, customer and supplier contracts, finance arrangements, security interests, licences and permits, employees, intellectual property or insurance. GST should also be reviewed separately, as a rollover that provides income tax relief does not necessarily deal with the GST consequences of the transfer.
A tax rollover does not automatically transfer a lease, contract or licence to the new entity.
Third-party consent may also be required before some rights or obligations can move.
Do Not Forget GST
GST can be relevant where business assets are transferred between entities.
The outcome depends on what is being transferred and how the transaction is structured.
In some cases, a transfer may qualify for specific GST treatment, but this should not be assumed merely because the restructure is occurring between related parties.
The GST position should be reviewed at the same time as the income tax and duty consequences.
When Does a Restructure Make Sense?
A restructure is usually worth considering where the existing structure no longer matches the commercial reality of the business.
Common triggers include:
- significant business growth
- increased trading risk
- new owners or investors
- plans to retain valuable assets separately from the trading business
- succession planning
- a future sale or external investment
- tax or compliance complexity under the current structure.
However, a restructure is not always the answer.
Sometimes the current structure can still work with smaller changes to contracts, ownership arrangements, insurance or accounting systems.
A structure review should come before the restructure itself.
How Phan Campbell & Associates Can Help
At Phan Campbell & Associates in Footscray, our accountants and lawyers can work together on business restructures.
Our accounting team can model the tax outcome, identify available rollovers and assess the financial impact before anything is transferred.
Our lawyers can review the legal structure, trust deeds, companies, contracts, asset transfers and any consents needed to implement the restructure properly.
By working from the same plan, the tax treatment and legal implementation can be aligned from the beginning.
If you are considering restructuring your business, get the tax and legal position checked before any assets are transferred.
Book a Free Client Assessment →
Frequently Asked Questions
1. Does moving from sole trader to a company trigger tax?
It can. Transferring business assets from an individual to a company can trigger the ordinary tax consequences that apply to those assets. Depending on the circumstances, a rollover may defer or disregard some of those consequences. The available relief should be checked before the transfer takes place.
2. What is the small business restructure rollover?
It is a tax rollover that can allow eligible small businesses to transfer certain active assets as part of a genuine restructure of an ongoing business without the immediate tax consequences that would otherwise arise. Detailed conditions apply, including small business eligibility, active asset requirements, genuine restructuring and continuity of ultimate economic ownership. It does not apply automatically simply because the business is small.
3. Does restructuring trigger stamp duty in Victoria?
It can. Duty is particularly relevant where the restructure involves Victorian land, landholding entities, trust property or a change in beneficial ownership of dutiable property. An exemption or concession may be available in some cases, but this needs to be checked separately from any income tax rollover.
4. Can I restructure a family trust into a company?
Potentially, but the transaction needs careful review. The trust deed, ownership structure, tax position, Division 7A issues, unpaid present entitlements, duty consequences and the assets being transferred can all affect how the restructure should be implemented.
5. How do I know if my business actually needs to restructure?
Common triggers include growth, increased risk, bringing in new owners, succession planning or preparing for future investment or sale. However, a restructure should not be assumed to be necessary. The better approach is to review the existing structure first and compare the commercial, tax and legal benefits of changing it against the cost and complexity of implementation.
This article contains general information only and does not constitute legal, tax or accounting advice. Restructure outcomes depend on the ownership structure, assets, entities and commercial circumstances involved. Specific legal and tax advice should be obtained before implementing any restructure.