Small business restructure rollover: how to change structure without a tax bill

Published Saturday 25 July 2026

Table of contents

• What is the small business restructure rollover?
• Who is eligible for the small business restructure rollover?
• Common types of business restructures
• Step-by-step guide to restructuring with the rollover
• Tax implications you need to know
• Common mistakes to avoid
• Simplify your business restructure with Xero
• FAQs on small business restructure rollovers

Key takeaways

• The small business restructure rollover (Division 328-G) lets you transfer assets to a new business structure at their existing cost base, deferring capital gains tax (CGT) and other tax consequences.
• You're eligible if your aggregated turnover is under $10 million, the restructure is genuine, and the ultimate economic ownership of the assets stays the same.
• Stamp duty, which varies by state, isn't covered by the rollover, so you'll need to factor that cost into your planning.
• Professional advice from a tax agent or accountant is essential to meet the Australian Taxation Office (ATO) requirements and avoid costly errors.

What is the small business restructure rollover?

The small business restructure rollover is a tax relief provision under Division 328-G of the Income Tax Assessment Act 1997. It allows eligible small businesses to change their legal structure without triggering a tax event on the transfer of active assets.

If you're a sole trader looking to move into a company or trust, or a partnership shifting to a company, this rollover can save you from an unexpected tax bill at the point of transfer.

How the rollover works

Under the rollover, your assets transfer to the new entity at their existing cost base. This means no capital gain or loss is recognised at the time of transfer.

The rollover applies to a range of asset types, including:

• Capital gains tax (CGT) assets such as goodwill, land, and intellectual property
• Depreciating assets like equipment, vehicles, and machinery
• Trading stock at its current value
• Revenue assets including debts owed to the business

Because the cost base carries over, the new entity inherits the same tax position as the old one. Any capital gain is deferred until the new entity eventually sells or disposes of the asset. This doesn't eliminate the tax; it pushes it into the future.

Why the rollover exists

The Australian Government introduced the small business restructure rollover on 1 July 2016 to remove tax barriers that discouraged business owners from changing their structure.

Before this provision, transferring assets to a new entity triggered CGT, income tax on trading stock, and other tax consequences. Many business owners stayed in structures that no longer suited them simply because the cost of restructuring was too high.

The rollover recognises that your structure needs may change as your business grows, and that tax shouldn't be the reason you avoid making the right commercial decision.

Who is eligible for the small business restructure rollover?

To use the rollover, you need to meet three core requirements set by the ATO. Each one must be satisfied, so it's worth understanding them in detail before you start planning your restructure.

Turnover threshold

Your aggregated turnover must be less than $10 million in the income year you restructure. Aggregated turnover includes the turnover of any connected entities or affiliates, not just your own business income.

If you're a sole trader with a turnover of $2 million but you also have a 40% stake in another business turning over $5 million, those figures combine for the purposes of this test. Check your total position carefully before assuming you qualify.

The genuine restructure test

The restructure must be for legitimate commercial reasons, not primarily to reduce tax. The ATO looks at the substance of what you're doing, not just the legal form.

Reasons the ATO generally accepts as genuine include:

• Protecting personal assets from business liabilities
• Retaining and attracting employees through a more formal structure
• Raising capital or bringing in investors
• Simplifying a complex arrangement of related entities
• Preparing the business for growth or eventual sale

If the dominant purpose of your restructure is to gain a tax advantage, the rollover won't apply, and you could face penalties. The ATO can and does review restructures, so you need clear documentation of your commercial reasoning.

The ultimate economic ownership test

The ownership percentages of the transferred assets must stay the same after the restructure. In practical terms, the same people who owned the business before must own it afterwards, in the same proportions.

For example, if you're a sole trader moving to a company, you need to be the sole shareholder of that company. If two partners own a business 60/40, the new entity must reflect that same 60/40 split.

The safe harbour rule gives you a three-year window. If you maintain the same economic ownership after the restructure, the ATO generally treats the ownership test as satisfied on an ongoing basis, with a three-year safe harbour period used in practice for compliance purposes rather than a strict statutory expiry. Changing ownership within those three years can trigger the deferred tax consequences, so plan accordingly.

Common types of business restructures

There are several ways to restructure a small business in Australia. The right option depends on your goals, the complexity of your operations, and your long-term plans.

Sole trader to company

Moving from a sole trader to a company is one of the most common restructures. A company is a separate legal entity, which means your personal assets are generally protected from business debts and liabilities.

A company structure also offers:

• A flat company tax rate of 25% for base rate entities, compared to individual marginal rates that can reach 45% plus the Medicare levy
• Easier pathways to raise capital by issuing shares to investors
• Perpetual succession, meaning the business continues to exist even if you step away

The trade-off is more compliance. You'll need to lodge separate company tax returns, maintain corporate records, and meet Australian Securities and Investments Commission (ASIC) obligations.

Sole trader to trust

A trust structure can be useful if you want flexibility in how you distribute business income. A discretionary (family) trust allows you to allocate income among beneficiaries each year, which can help manage your overall tax position across the family group.

Trusts also provide:

• Strong asset protection, as the assets are held by the trustee on behalf of the beneficiaries
• Estate planning benefits, making it easier to transfer wealth across generations
• Separation of personal and business risk

Trusts have their own compliance requirements and can be more expensive to set up and maintain than a sole trader structure. The rules around trust distributions have also tightened in recent years, so professional advice is essential.

Partnership to company

If you're currently in a partnership, moving to a company can address some of the inherent risks of the partnership model. In a partnership, each partner is jointly and severally liable for the debts of the business. A company limits that exposure.

A company structure for former partnerships also offers:

• Clearer governance through a formal board and shareholder agreements
• Perpetual succession, so the business isn't disrupted if a partner leaves
• A defined framework for bringing in new partners as shareholders

Reorganising between related entities

Some restructures involve moving assets between entities you already control, rather than creating a new structure from scratch. For example, you might consolidate two related companies into one, or shift an asset from a trust to a company within the same group.

The rollover applies to these transfers as long as the eligibility criteria are met. The key requirement is that the ultimate economic ownership of the assets doesn't change.

Step-by-step guide to restructuring with the rollover

Restructuring your small business involves several stages. Here's a practical guide to help you work through the process.

1. Assess whether restructuring is right. Before committing to a restructure, evaluate whether your current structure is genuinely holding you back. Consider your business goals for the next three to five years, your risk exposure, your growth plans, and whether you're paying more tax than necessary under your current arrangement. A restructure involves time, cost, and complexity, so if your current structure still meets your needs, it may be better to revisit the decision later.
2. Choose your new structure. Compare the options available. Each structure type (company, trust, or a combination) has different implications for tax, asset protection, compliance, and control. Map each option against your priorities. If asset protection is your main concern, a trust or company may suit. If you want to bring in investors, a company is typically the clearest path.
3. Get professional advice. Engage a tax agent, accountant, or business adviser who has experience with the small business restructure rollover. They can confirm your eligibility, help you document the genuine restructure test, and guide you through the ATO requirements. This is also the stage to get legal advice on the new entity's governing documents, such as a company constitution or trust deed.
4. Register and transfer. Set up the new entity with ASIC (for a company) or through a solicitor (for a trust). Then transfer the relevant assets under the rollover provisions. Keep detailed records of every asset transferred, its cost base at the time of transfer, and the date of transfer. The ATO expects thorough documentation if it reviews your restructure.
5. Update your tax registrations. Once the new entity is in place, update your registrations with the ATO. This includes applying for a new Australian Business Number (ABN) and Tax File Number (TFN), registering for goods and services tax (GST) if your turnover is $75,000 or more, transferring or cancelling your pay as you go (PAYG) withholding registration, and updating your business activity statement (BAS) obligations. If you have employees, you'll also need to transfer their employment records and superannuation arrangements to the new entity.
6. Post-restructure compliance. After the restructure, you enter the three-year safe harbour period. During this time, you must maintain the same ultimate economic ownership of the transferred assets. If you sell shares, change trust beneficiaries, or otherwise alter the ownership structure, you could trigger the deferred tax consequences. Keep your records organised and up to date. The ATO may request evidence of the restructure, including the commercial reasons, asset valuations, and ownership documentation, years after the event.

Tax implications you need to know

The rollover defers certain tax consequences, but it doesn't cover everything. Here are the main tax considerations when you restructure.

Capital gains tax (CGT)

The rollover defers CGT on the transfer of active assets to the new entity. The new entity inherits the original cost base and acquisition date of each asset. This means when the new entity eventually disposes of the asset, the capital gain (or loss) is calculated based on the original figures.

If you were eligible for the CGT small business concessions before the restructure, the new entity may also be eligible, provided it meets the relevant conditions at the time of disposal.

Stamp duty (state-based)

The small business restructure rollover doesn't cover stamp duty. Stamp duty is a state and territory tax, and the federal rollover has no effect on it.

Stamp duty treatment varies by state:

• Some states offer concessions or exemptions for genuine business restructures.
• Others charge full stamp duty on the transfer of dutiable assets, particularly real property.
• The rates and thresholds differ significantly across jurisdictions.

Check with your state or territory revenue office before finalising the restructure. Stamp duty on property transfers can be substantial and may affect whether the restructure makes financial sense.

GST considerations

If you're transferring a business as a going concern, the transfer may be GST-free under Division 38 of the GST Act. To qualify, the business must be operating at the time of transfer, all necessary assets must be included, and both parties must be registered for GST.

If the going concern exemption doesn't apply, you may need to account for GST on individual asset transfers. Your tax adviser can help you structure the transfer to minimise unnecessary GST exposure.

Depreciation and asset write-offs

When depreciating assets transfer under the rollover, the new entity continues depreciating them at the same rate and from the same base. You don't get a fresh start on depreciation just because the asset has moved to a new entity.

If you've claimed the instant asset write-off on certain assets, those deductions stay with the original entity. The new entity picks up the asset at its adjusted tax value and continues from there.

Common mistakes to avoid

Even with professional support, restructures can go wrong. These are the most frequent errors business owners make when using the small business restructure rollover.

• Restructuring primarily for tax: if the ATO determines the dominant purpose of your restructure was to reduce tax, the rollover won't apply, and you could face penalties.
• Changing ownership: altering the ownership percentages during or after the restructure can disqualify you from the rollover and trigger deferred tax.
• Forgetting stamp duty: many business owners focus on the federal tax relief and overlook the state-based stamp duty costs, which can be significant.
• Skipping asset valuations: you need accurate, documented valuations of all assets at the time of transfer, both for the rollover and for future CGT calculations.
• Missing the safe harbour window: changing ownership within three years of the restructure can undo the rollover benefits.
• Not updating registrations: failing to update your ABN, TFN, GST, and PAYG registrations with the ATO can create compliance issues and delays.
• Going without professional advice: the rollover rules are detailed, and mistakes can be expensive, so a qualified tax agent or accountant can help you get it right the first time.

Simplify your business restructure with Xero

Changing your business structure is a significant step, and keeping your financial records accurate and up to date throughout the process is essential. Xero's cloud accounting software can help you manage this transition smoothly.

With Xero, you can track your assets, manage multiple entities, and keep clean records across both your old and new structures. Accurate reporting makes it easier for your accountant to handle the rollover documentation and meet ATO requirements.

Get one month free and see how Xero can support your business through a restructure and beyond.

FAQs on small business restructure rollovers

Here are answers to common questions about the small business restructure rollover.

What is the small business restructure rollover?

It's a tax relief provision under Division 328-G that lets eligible small businesses transfer active assets to a new structure without triggering an immediate tax event.

What is the turnover threshold for the rollover?

Your aggregated turnover, including connected entities and affiliates, must be under $10 million in the income year you restructure.

Can you restructure a sole trader to a company without paying CGT?

Yes, provided you meet all three eligibility requirements: the turnover threshold, the genuine restructure test, and the ultimate economic ownership test. The CGT is deferred, not eliminated.

What counts as a genuine restructure?

The ATO looks for legitimate commercial reasons such as asset protection, attracting employees, raising capital, or simplifying your entity structure. Tax reduction can't be the dominant purpose.

What is the safe harbour rule?

If you maintain the same ultimate economic ownership for at least three years after restructuring, the ATO treats the ownership test as satisfied without further scrutiny.

Does the rollover cover stamp duty?

No. The rollover is a federal income tax provision and has no effect on state or territory stamp duty. You'll need to check your obligations with the relevant state revenue office.

What types of assets qualify for the rollover?

CGT assets (such as goodwill and property), depreciating assets, trading stock, and revenue assets all qualify, provided they're active assets used in the business.

How long does a business restructure take?

Timelines vary depending on complexity, but most restructures take between four and 12 weeks to complete, including entity setup, asset transfers, and registration updates.

Do you need an accountant to use the rollover?

While there's no legal requirement, the eligibility criteria and documentation demands are detailed enough that professional advice from a registered tax agent or accountant is strongly recommended.