Quick summary
Before a SBR proposal can be issued, company’s tax and super lodgements must be up to date, and all currently due employee entitlements paid. If not fully compliant, the company can rely on a “substantial compliance” test instead. Issuing a plan before this is met; ends the restructuring entirely.
On this page
- Introduction
- What “Lodgements Up to Date” Means
- Legal Basis
- The Substantial Compliance Test
- Consequences of Non-Compliance
- Related Tax Issues
- ATO’s Position
- Ongoing Compliance After Proposal Acceptance
- Is Your Company’s Tax Position SBR-Ready?
- FAQs
Introduction
One of the specific eligibility requirements is tax and superannuation lodgement status. Before a plan can be issued, this needs to be up to date, or substantially up to date.
Directors often assume this is just about whether tax debts have been paid. It’s not. This requirement is about reporting obligations — lodging returns and statements — separate from whether the actual tax bill has been settled.
It’s also assessed differently to the $1 million liability threshold. That threshold is a single, fixed number checked once. Lodgement compliance is checked lodgement by lodgement, and where something’s missing, tested against a “reasonable steps” standard. Getting this wrong doesn’t just slow things down.
If a plan is issued to creditors before the lodgement and employee entitlement requirements are met, the restructuring process terminates. This is a harder failure than an eligibility problem caught early — it happens after the company has already spent time, money, and creditor attention on the process.
This guide walks through:
- what the lodgement requirement actually covers
- how the substantial compliance test works
- the related tax issues that commonly affect a plan once the ATO reviews it as a creditor
What “Lodgements Up to Date” Means
The ATO takes a broad view of “lodgements” — it’s not just income tax returns or BAS. It covers every tax return, notice, statement, application, or document the company is required to lodge. Here’s what that includes:
Income Tax Returns
Prior years’ company tax returns need to be lodged. If the company belongs to a consolidated income tax group, the head company’s own lodgement position matters too, since group membership can affect how the company is assessed.
Activity Statements — BAS, GST and PAYG Withholding
BAS covering GST and PAYG withholding needs to be current. Part of a GST group? The group’s liability and reporting position counts too, not just the individual company’s own statements.
Superannuation Guarantee Charge Statements
If super wasn’t paid in full, on time, and to the right fund, the company needs to lodge and pay a Superannuation Guarantee Charge (SGC) statement. The SGC itself isn’t technically an “employee entitlement” — but lodging the statement and paying the resulting contributions still helps demonstrate substantial compliance.
Single Touch Payroll and Other Employer Reporting
Employer reporting — including Single Touch Payroll finalisation declarations — is part of what the ATO reviews. Each obligation is judged on its own; being current on one doesn’t excuse a gap in another.
Employee Entitlements Currently Due, Including Super
Separate from lodgements, every employee entitlement currently due — including super — needs to be paid before a plan is issued. Super gets the same priority protection as in a liquidation, though for excluded employees, only the first $2,000 is protected (matching the usual liquidation cap).
Legal Basis
The lodgement and employee entitlement requirements sit under regulation 5.3B.14(1)(e) of the Corporations Regulations 2001, and ties into the priority order for employee claims (section 556(1)). The actual standard companies need to meet — the substantial compliance test — comes from regulation 5.3B.22.
The distinction that matters most: the liability threshold is a one-off test, checked once on the day the practitioner is appointed. The lodgement requirement isn’t — it’s checked continuously, obligation by obligation, right up until the plan is issued.
The Substantial Compliance Test
Not every company will be fully up to date on every lodgement and every entitlement by the time a practitioner is appointed. That’s what the substantial compliance test exists for.
It only applies to companies that aren’t completely up to date, and it comes down to two questions:
- Did the company take reasonable steps to lodge — a genuine attempt to lodge on time?
- Did external factors, rather than simple inaction, get in the way of full compliance?
Each obligation is judged separately. Being up to date on income tax returns doesn’t offset an outstanding SGC statement. A strong BAS lodgement history doesn’t excuse missing Single Touch Payroll finalisations. Every category is tested individually against the same reasonable-steps standard.
Consequences of Non-Compliance
If a restructuring plan is provided to creditors before the lodgement and employee entitlement requirements, or the substantial compliance test where applicable, have been satisfied, the restructuring process terminates. This is a direct consequence built into the framework, not a discretionary penalty applied after the fact.
Because of this, it is standard practice for the restructuring practitioner to confirm the company’s compliance position before the plan is distributed to affected creditors, rather than leaving this assessment until closer to the creditor vote. Directors should treat this confirmation step as a genuine checkpoint, not a formality.
Several other tax-specific issues commonly affect how a restructuring proposal is prepared, assessed and implemented.
Director Penalties Are Not Automatically Remitted
A successful restructuring plan does not remit a lockdown director penalty, or a standard director penalty that was not remitted within 21 days of the notice being issued.
This is because the director penalty liability exists in parallel to the liability of the company itself. Payments made under the plan may reduce the amount owed, but the director remains personally liable for any remaining balance.
Read more:
GST Groups and Consolidated Income Tax Groups
Where the company is a member of a GST group, the group’s GST liability is relevant to the plan, not just the company’s own position. The same applies to a consolidated income tax group, since liabilities and lodgement obligations can sit at the group level rather than solely with the individual company.
ATO Garnishee Notices Already in Place
Where an ATO garnishee notice is already in place on the date the practitioner is appointed, it will not generally be withdrawn because restructuring has commenced. It continues to operate on the relevant amounts, so its cash flow effect can persist alongside the restructuring process.
Offsetting of Tax Credits Under a Restructuring Plan
Offsetting applies automatically under tax law whenever a credit arises, with no discretion to change that outcome in an insolvency context. The ATO applies offsetting to SBR plans in the same way as under a Deed of Company Arrangement.
The outcome depends on the period the credit relates to, not the date it is processed:
- A credit relating to the pre-restructuring period is applied to pre-restructuring debts, even if the plan has finished, and even if those debts would otherwise be released under the plan
- A credit arising during restructuring is applied to post-restructuring liabilities first, with any excess applied to pre-restructuring debts
- Once the plan is completed and the company is released from its admissible debts, post-restructuring credits are generally refunded, provided no post-restructuring liabilities remain outstanding. Pre-restructuring credits continue to be applied against pre-restructuring debts despite the release.
ATO’s Position
The ATO isn’t just another creditor here — it’s usually the biggest one, and often holds enough value to decide the vote on its own. Its general stance: back a plan if it pays creditors more, sooner, than winding the company up would, and there’s nothing raising public interest concerns.
Required Documents
Where the ATO is a major creditor, it will review a draft restructuring plan and supporting information if this is provided no later than five full business days before the plan is required to be issued to creditors. Required supporting information typically include:
- three years of profit and loss accounts and balance sheets,
- asset details as at the date of appointment,
- transaction reports for director, shareholder or related-entity loans,
- cash flow forecasts with key assumptions, and
- an estimated dividend to creditors in a liquidation scenario for comparison.
The ATO will not consider a plan until all requested supporting information has been provided.
Common Rejection Reasons
The most common reasons the ATO rejects a restructuring plan are:
- non-repayment of director or related-entity loan accounts,
- a poor tax compliance history,
- non-payment of tax liabilities, and
- a plan that would provide an unfair advantage over other businesses.
A rejection decision cannot be reviewed, and the ATO is not obliged to provide reasons, although it is normal practice to give general reasons unless doing so would raise privacy or confidentiality concerns.
Before the ATO reviews your draft plan, make sure your compliance position holds up.
More on this here: SBR proposal got rejected, here’s why.
Ongoing Compliance After Proposal Acceptance
The lodgement requirement does not end once a restructuring plan is accepted. The company must continue to meet all ongoing tax reporting and payment obligations in full and on time throughout the life of the plan.
If the company fails to comply after the plan has started, the ATO may take stronger enforcement action, even where the company is otherwise meeting the specific payment terms set out in the plan. Maintaining tax compliance throughout the restructuring period is treated as a condition of the plan’s ongoing viability, not a separate administrative matter.
Is Your Company’s Tax Position SBR-Ready?
Often, it’s not the business that sinks an otherwise workable restructuring plan — it’s lodgements that never got a close enough look before the process started.
Your next steps should be:
- Gather the company’s lodgement history across income tax, BAS, SGC and STP reporting
- Work through the checklist above, category by category
- Identify and document any gaps, along with the reasons behind them
- Seek advice before appointing a practitioner, rather than after the plan has already been prepared
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation consultation to assess your position and help you understand the best way forward. Get in touch today.
FAQs
Do all tax debts need to be paid before SBR?
No. Tax debts can generally form part of the restructuring plan itself. What must be current is the company’s Lodgement position — the returns, statements and reports it is required to submit — assessed separately from whether the resulting liability has been paid in full.
What happens if Lodgements are not up to date?
The company must satisfy the substantial compliance test under regulation 5.3B.22 of the Corporations Regulations 2001, showing reasonable steps to lodge and external factors preventing full compliance. If neither the requirement nor the test is met, issuing the plan terminates the restructuring process.
Is the SGC statement treated the same as an employee entitlement?
No. The Superannuation Guarantee Charge is not an employee entitlement under section 596AA(2) of the Corporations Act 2001. However, lodging and paying it can help demonstrate substantial compliance with the broader Lodgement and reporting requirement under regulation 5.3B.22.
Does SBR remove director penalty liability?
No. A successful restructuring plan does not remit a lockdown director penalty, or a standard penalty not remitted within 21 days of the notice. The director remains personally liable for any balance not covered by payments made under the plan.
Will an existing ATO garnishee notice be lifted during SBR?
Generally, no. A garnishee notice already in place on the date the restructuring practitioner is appointed will not usually be withdrawn because restructuring has begun, and continues to apply to the relevant amounts throughout the process.
How does the ATO decide whether to support a restructuring plan?
The ATO generally supports a plan where it would deliver a higher return to creditors within a reasonable period than liquidation would, and where there are no public interest concerns. Poor compliance history and unpaid related-entity loans commonly lead to rejection.
Does the Lodgement requirement apply after the plan is accepted?
Yes. The company must keep meeting all tax reporting and payment obligations in full and on time for the life of the plan. Non-compliance afterward can trigger stronger ATO enforcement action, even where scheduled plan payments are being met.
How far back do income tax returns need to be lodged?
There is no single fixed number of years in the legislation; each required return is assessed individually against the substantial compliance standard. In practice, the ATO also typically requests three years of financial statements when reviewing a draft plan as a major creditor.
Can offsetting reduce the tax debt included in a restructuring plan?
Yes, potentially. Credits generated by later-lodged returns or activity statements can reduce final tax debt figures. Pre-restructuring period credits are applied to pre-restructuring debts under PS LA 2011/21, so practitioners should factor possible offsets into cash flow and viability assessments.
Does being part of a GST or tax consolidated group change the requirement?
Yes. Where the company belongs to a GST group or a consolidated income tax group, the group’s liabilities and Lodgement position affect the individual company’s restructuring plan, so directors and the practitioner need to review group-level obligations, not only the company’s own filings.
