Preparing for Future Sale or Equity with the Small Business Restructure Rollover

By Jaye Mankelow

Building on our recent discussions about succession planning, and CGT concessions, restructuring your small business can be a powerful strategy for preparing for future growth, whether that’s through attracting investors or planning a sale.

The Small Business Restructure Rollover (SBRR) provides tax benefits and flexibility, allowing business owners to transition from simpler structures into a company format. However, the SBRR also includes limitations on changing equity ownership, which requires careful planning.

The Importance of Timing and Planning

The SBRR allows you to defer capital gains tax (CGT) on transferred assets, but to qualify, the business must demonstrate that the restructure is a “genuine” change intended to benefit operations, not just for tax relief. Importantly, the SBRR imposes a three-year restriction on changing ownership, meaning that substantial equity adjustments, such as bringing in investors or transferring stakes, cannot happen immediately post-restructure. This three-year period allows the ATO to ensure that the restructure is rooted in business needs.

Using the Small Business Restructure Rollover to Attract Future Equity

The SBRR enables small business owners to transition assets into a company structure, which is often more appealing to future investors or buyers. A company structure offers:

• CGT Deferral: The SBRR allows CGT deferral on transferred assets, preserving funds for reinvestment.
• Enhanced Appeal: Company structures provide transparency, limited liability, and simpler share issuance, all of which are attractive to investors and buyers.
• Equity Options: Once the three-year period has passed, the company structure can more easily accommodate equity investments and partial sales.

Limitations on Changing Equity

The three-year ownership stability requirement restricts immediate equity changes after a restructure:

• Ownership Consistency for Three Years: The SBRR mandates that the same ownership interests and control are maintained for three years, ensuring that the restructure genuinely supports business operations.
• Impact on New Investments: For those planning to attract new equity, restructuring should be completed well before the intended capital raise to accommodate the three-year restriction.

Restructuring under the SBRR can be an effective strategy to prepare for future investment or sale, provided the ownership remains consistent for three years. By strategically timing the restructure, small business owners can maximise tax relief while positioning the business for growth. 

Our team can provide guidance on SBRR compliance, timing, and structuring to ensure your business is well-prepared for its next phase.

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