Restructuring a business always carries a hidden cost: tax. Any time you move assets — goodwill, plant and equipment, intellectual property — between entities, you can trigger capital gains tax and stamp duty. For small business owners looking to change their structure for genuine commercial reasons, this tax cost can make an otherwise sensible restructure unviable.

This guide is part of our complete guide to business structures in Australia.

The small business restructure rollover, contained in Subdivision 328-G of the Income Tax Assessment Act 1997, is designed to remove this barrier. It allows eligible small businesses to change their legal structure without triggering immediate capital gains tax. This guide explains exactly how it works, who qualifies, and what conditions must be met.

What Is the Small Business Restructure Rollover?

The small business restructure rollover (SBRR) is a CGT rollover relief provision that defers — rather than eliminates — the capital gain that would otherwise arise when business assets are transferred between entities as part of a genuine restructure.

When the rollover applies, the asset is transferred at its cost base (not its market value), so no CGT event arises at the time of transfer. Instead, the cost base “rolls over” to the new entity, which will eventually realise any gain when the asset is subsequently sold.

Critically, the rollover is not a CGT exemption. The tax is deferred — the receiving entity inherits the original cost base of the asset, and will pay CGT when it eventually disposes of the asset. The benefit is timing: you restructure now without a tax bill, and deal with the eventual CGT when and if the asset is sold in the future (at which point the small business CGT concessions may further reduce or eliminate the gain).

Who Is Eligible for the Rollover?

To access the SBRR, the taxpayer must be a “small business entity” — meaning the entity (or its affiliate or connected entity) has an annual turnover of less than $10 million. Both the transferor and the transferee must be small business entities or individuals who are affiliates of small business entities.

The transfer must be between entities that are “connected” — meaning there is continuity of ultimate economic ownership. The same individuals must ultimately own the same interests in the business after the restructure as before. The ATO will not grant rollover relief for a restructure that shifts economic ownership between unrelated parties.

Eligible Entities

The rollover can apply to transfers between any combination of the following:

• Sole trader to company
• Sole trader to trust
• Partnership to company
• Partnership to trust
• Trust to company
• Company to trust
• Restructures within groups (e.g., company to related company)

The “Genuine Restructure” Requirement

This is the most important — and most scrutinised — condition for the rollover. The transfer must be a “genuine restructure of an ongoing business.” The ATO has issued guidance (Tax Ruling TR 2016/3) clarifying what this means.

A genuine restructure is one driven by real commercial reasons — not by a desire to avoid tax. Legitimate examples include:

• Incorporating a sole trader business for asset protection and creditor separation
• Restructuring ahead of a new business partner joining
• Separating an operating business from assets for succession planning purposes
• Changing structure to access corporate tax benefits such as the 25% company tax rate available to a base rate entity

A restructure that has no purpose other than tax reduction — or that is followed immediately by a sale of the business — is unlikely to be treated as genuine. The ATO specifically flags situations where assets are transferred into a structure shortly before an external sale.

The Three-Year Safe Harbour

The ATO provides a practical safe harbour: if the same ultimate economic owners continue to own the transferred assets for at least three years after the rollover, the ATO accepts that the restructure was genuine — without requiring further substantiation.

If the restructured business or its assets are sold or disposed of within three years, the ATO will scrutinise whether the restructure was genuinely commercial or was primarily a tax minimisation device. This doesn’t mean you can’t sell within three years — but it means the burden of proving commercial purpose falls on you.

What Assets Can Be Transferred?

The rollover applies to “active assets” of the business — assets used, or held ready for use, in carrying on the business. This includes:

• Goodwill
• Plant and equipment
• Intellectual property
• Business premises (land and buildings used in the business)
• Customer lists and contracts

Passive assets — such as cash, investments, or rental properties held separate from the active business — are generally not eligible for the SBRR. Liabilities can also be assumed by the receiving entity as part of the restructure, but the liability assumption must be proportionate to the assets transferred.

How the Rollover Interacts with Other Tax Concessions

The SBRR is designed to work alongside the small business CGT concessions. The typical planning sequence is:

• Use the SBRR to restructure without triggering CGT now
• Continue operating in the new structure for the long term
• When you eventually sell, apply the small business CGT concessions to reduce or eliminate any remaining gain

This combination — SBRR now, CGT concessions on sale — is one of the most powerful tax planning sequences available to small business owners in Australia.

The rollover also interacts with stamp duty — but this is state-based, and the availability of duty concessions on restructures varies significantly between states. In Victoria, for example, restructures may still attract stamp duty on dutiable property even if the CGT rollover applies. Always obtain state-specific stamp duty advice when restructuring.

Choosing the Right New Structure

The SBRR opens the door to restructuring — but choosing which structure to restructure into is a separate question entirely. Companies, discretionary trusts, and unit trusts each have different tax, asset protection, and succession implications. See our guide on business structures in Australia for a comprehensive comparison.

For many sole traders considering incorporation, the transition to a company is the most common destination. This is covered in detail in our guide on moving from sole trader to company.

What the ATO Looks for in SBRR Claims

The ATO has audited SBRR claims with increasing frequency, particularly where the rollover is followed by a business sale. In conducting reviews, the ATO looks at:

• Whether there were documented commercial reasons for the restructure at the time (not constructed retrospectively)
• Whether economic ownership genuinely remained the same before and after
• Whether the business continued operating in the new structure or was sold shortly after
• Whether consideration was paid at market value — or if assets were underpriced to shift value

Contemporary documentation is critical. The ATO expects to see board resolutions, legal advice, restructure plans, and valuation reports prepared at the time of the restructure — not documents reconstructed months later during an audit.

Common Mistakes That Disqualify the SBRR

• Transferring passive assets (cash, investment property) alongside active business assets
• Using the restructure as an opportunity to change ownership (e.g., buying out a partner)
• Winding up or materially restructuring the new entity within three years
• Failing to manage GST and stamp duty consequences separately
• Inadequate documentation of the business rationale and asset values

Frequently Asked Questions

Does the rollover eliminate CGT or just defer it?

It defers CGT. The transferred assets take on the original cost base, so when the new entity sells them, the gain will be calculated from the original cost — not the market value at the time of transfer. The CGT concessions available at that future sale may significantly reduce or eliminate the gain.

Can I use the rollover if I’m planning to sell in two years?

You can still use it, but be aware that a sale within three years removes the three-year safe harbour and subjects the rollover to scrutiny. If you have clear commercial reasons for the restructure that are independent of the planned sale, you may still qualify — but you should obtain specific tax advice and document the commercial rationale thoroughly.

Does the SBRR apply to stamp duty?

No. The SBRR is a Commonwealth income tax provision and does not affect state stamp duty. Stamp duty concessions on restructures are state-specific and must be assessed separately. Some states offer concessions on related-party restructures; others do not. In Victoria, dutiable property transfers in a restructure typically still attract duty unless a specific exemption applies.

Do I need to notify the ATO that I’ve used the rollover?

There is no specific SBRR election form to lodge, but you must correctly report the rollover in your tax return and maintain documentation to support the claim. You should retain all evidence of the genuine commercial purpose of the restructure, including resolutions, legal advice, and restructure plans.

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

Frequently Asked Questions

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