Quick Summary
‘SBR Rollover’ refers to the Small Business Restructure Rollover — a tax concession that allows eligible businesses to change their legal structure without triggering CGT. It is unrelated to Small Business Restructuring (SBR), the insolvency process under the Corporations Act.
Table of contents
- Introduction
- SBR vs. SBRR
- What Is the SBR Rollover (SBRR)?
- Who Can Use the SBRR?
- What Counts as an “Active Asset”?
- What Counts as a “Genuine Restructure of an Ongoing Business”?
- The Safe Harbour Rule
- SBRR Tax Outcome
- Common Examples
- SBRR Complications
- Next Steps
- FAQs
Introduction
If your company is considering going through SBR, you may have also come across the term ‘SBR Rollover.’ Small Business Restructure Rollover (SBRR) is a tax concession under Australian law that allows an eligible business to change its legal structure.
It is entirely different from Small Business Restructuring (SBR), the formal insolvency process used by financially distressed companies. The two terms share an acronym, but they are governed by entirely different legislation and serve entirely different purposes.
These are different things, governed by entirely different legislation. This guide explains the tax concept — the Small Business Restructure Rollover — in detail, and points you toward the right resource if you were actually looking for the insolvency process.
SBR vs. SBRR
- Small Business Restructure Rollover (SBRR) — a tax concession under Subdivision 328-G of the Income Tax Assessment Act 1997. It lets an eligible small business change its legal structure (for example, from a sole trader to a company, or into a trust) without an immediate tax bill on the assets transferred. This is administered by the ATO and is a matter for your accountant or tax adviser.
- Small Business Restructuring (SBR) — a formal insolvency process under Part 5.3B of the Corporations Act 2001. It’s used by a financially distressed, insolvent (or likely to become insolvent) company to propose a debt repayment plan to creditors while directors stay in control.
If you’re here because your business is under financial pressure and dealing with unmanageable debt, you’re likely looking for the second one. See our guide: What Is Small Business Restructuring? Eligibility, Risks, Timelines.
We’ve also written a blog with direct comparison of the two concepts: SBR vs SBR Rollover.
The rest of this guide covers the tax rollover.
What Is the SBR Rollover (SBRR)?
The SBRR is a tax concession, introduced from 1 July 2016, that allows an eligible business to transfer active assets from one entity to another as part of a genuine restructure, without that transfer triggering an immediate income tax liability.
Without this concession, restructuring a business’s legal structure — say, moving from operating as a sole trader into a company, or introducing a trust — would typically trigger a CGT event, assessable income on the transfer of revenue assets, a balancing adjustment on depreciating assets, or assessable income on the value of trading stock transferred. The SBRR exists specifically so that a genuine, non-tax-driven restructure doesn’t get penalised with an unexpected tax bill.
Who Can Use the SBRR?
To use the SBRR, each party to the transfer needs to be one of the following in the relevant income year:
- a small business entity — generally, an entity carrying on a business with an aggregated turnover under $10 million
- an entity with an affiliate that is a small business entity
- an entity connected with a small business entity
- a partner in a partnership that is a small business entity
Aggregated turnover includes the entity’s own turnover, plus the turnover of any connected entities and affiliates.
This threshold is a completely different figure to the $1 million total liabilities threshold used for SBR (the insolvency process). Don’t confuse the two when checking eligibility.
Sole traders, partnerships, companies, and trusts can all potentially qualify, provided they meet the turnover test.
What Counts as an “Active Asset”?
Only active assets are eligible for the rollover — this includes:
- CGT assets,
- trading stock,
- revenue assets, and
- depreciating assets that are used, or held ready for use, in carrying on the business.
An asset generally needs to have been active for at least half of its ownership period (or, if owned for more than 15 years, active for at least 7.5 years) to qualify.
Assets that aren’t actively used in the business — such as most loans, and in many cases shareholdings or trust interests — typically fall outside the rollover.
What Counts as a “Genuine Restructure of an Ongoing Business”?
This is the condition that causes the most difficulty in practice. The rollover only applies where the transfer forms part of a genuine restructure of an ongoing business, not an artificial or tax-driven scheme.
The ATO’s guidance (Law Companion Ruling LCR 2016/3) looks at factors including whether:
- the restructure is happening in good faith, to improve business efficiency
- business operations genuinely continue under the new structure
- the transferred assets continue to be used in the business
- professional advice was obtained before and during the restructure
- there’s real evidence the restructure isn’t tax-driven
- the restructure isn’t being used to facilitate a later disposal of assets outside the business
There’s also a separate requirement that the restructure not materially change the ultimate economic ownership of the significant assets involved. This looks through the legal structure to the underlying natural persons who ultimately benefit from the assets — so a restructure that changes who legally owns an asset, but not who ultimately benefits from it, can still satisfy this test.
The Safe Harbour Rule
“Genuine restructure” is a judgement call, which can make it hard to know in advance whether a restructure will qualify. The safe harbour rule offers a simpler, more certain alternative.
Under this rule, your restructure is treated as meeting the “genuine restructure” requirement if, for the three years after the rollover:
- there’s no change in who ultimately owns the significant assets involved, and
- those assets stay active assets throughout that period
Meet both conditions, and you don’t need to separately argue your case on the general “genuine restructure” test — the safe harbour satisfies it for you.
SBRR Tax Outcome
If your restructure qualifies for the SBRR, here’s what actually happens:
- No tax bill on the transfer. Gains and losses that would normally arise from moving CGT assets, depreciating assets, and trading stock into the new entity are disregarded. The transfer itself is tax neutral.
- The tax history carries over. The new entity inherits the cost base and tax attributes of the assets — the SBRR defers the tax, it doesn’t erase it. A future sale by the new entity will be assessed using that carried-over history.
- Both sides need to elect in. The rollover doesn’t apply automatically — the transferor and every transferee must formally choose to apply it.
In short: the SBRR lets you restructure now without a tax cost today, while keeping the underlying tax position intact for later.
Common Examples
Typical scenarios where business owners use the SBRR include:
- A sole trader moving their business into a company or trust structure as it grows
- Separating a trading business from valuable assets (like property or intellectual property) for asset protection, by moving the trading operations into a company while assets stay with a trust
- Restructuring ahead of bringing in new investors or family members, without dragging existing CGT liabilities into the new structure
SBRR Complications
Despite the concession being contained in a relatively short piece of legislation, real-world application has proven more restrictive than many business owners expect.
Key points to be aware of:
- Trust ownership doesn’t automatically flow through. The ATO doesn’t take a broad view of who’s treated as retaining ownership through a structure. Transferring an asset into a company owned by a trust doesn’t mean the trust is treated as still owning that asset for SBRR purposes.
- Eligibility depends on your specific facts. There’s no one-size-fits-all answer — the same restructure can qualify for one business and fail for another, depending on the exact structure involved.
- Getting it wrong is costly. A restructure that doesn’t meet the requirements can trigger the very CGT or income tax bill the rollover was meant to avoid. Given how technical and fact-specific the rules are, a tax adviser or accountant should be involved before any transfer takes place — not consulted after the fact if something goes wrong.
Next Steps
If you’re considering restructuring your business’s legal structure for growth, asset protection, or succession reasons, the next steps are to:
- Confirm your aggregated turnover is under the $10 million threshold
- Identify exactly which assets you’re proposing to transfer, and whether they meet the active asset test
- Document the genuine commercial reasons for the restructure, separate from any tax outcome
- Get advice from a qualified accountant or tax adviser before any transfer takes place, since eligibility is assessed on the specific facts of your situation
If you were looking for help with a company facing financial distress, our team can help. 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
Is SBR Rollover the same as Small Business Restructuring?
No. The Small Business Restructure Rollover (SBRR) is a tax concession for changing a business’s legal structure without triggering CGT. Small Business Restructuring (SBR) is a formal insolvency process for financially distressed companies. They’re governed by completely different legislation and serve completely different purposes.
What is the turnover threshold for the SBRR?
Generally, an aggregated turnover under $10 million in the relevant income year. This is different from the $1 million total liabilities threshold used for SBR eligibility under the Corporations Act.
Can any business use the SBRR?
Only entities that qualify as a small business entity, or that are connected with or an affiliate of one, can use the rollover — and only for the transfer of active assets, as part of a genuine restructure.
Does the SBRR eliminate tax on the restructure entirely?
It disregards gains and losses on the assets transferred at the time of the rollover, making the restructure tax neutral. It doesn’t eliminate tax generally — the cost base and tax history of the assets typically carries over to the new entity.
What happens if a restructure doesn’t qualify as “genuine”?
If the ATO considers a restructure to be artificial or primarily tax-driven, the rollover won’t apply, and the transfer may trigger the CGT, income, or other tax consequences it was designed to avoid.
Do I need professional advice to use the SBRR?
Given how narrowly some of the eligibility tests, particularly “ultimate economic ownership,” have been interpreted in practice, it’s strongly recommended you get advice from an accountant or tax adviser before relying on this rollover.
I searched for SBR Rollover but I’m actually dealing with company debt — where should I go?
See our guide: What Is Small Business Restructuring? Eligibility, Risks, Timelines, or get in touch with our team directly for a confidential conversation about your options.
