Top Tax Tips for Restructuring your Small Business in 2026

Most business structures work until growth or external pressures expose the shortcomings. In 2026, we expect many owners will revisit their structure due to business changes resulting in a structure no longer being fit for purpose.

Restructuring may be necessary when you need a to protect assets, prepare for succession or sale, bring in a new owner, or simplify an overly complex group. The ATO’s recent compliance focus on discretionary trusts and Division 7A are also driving requests to restructure.

The Three Tax Pathways We Use Most Often

Clients and their advisors often approach us look to ‘restructure’ their business.

The tax law offers several rollovers and concessions that can reduce or defer income tax consequences, but each pathway has detailed requirements that businesses must satisfy. The gating questions later in this article help you understand which pathway could suit your situation.

In this article, we will deal with the three pathways we see most often:

1. the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 (Cth) (SBCGT concessions);
2. the small business restructure rollover in Subdivision 328-G of the Income Tax Assessment Act 1997 (Cth) (SBRR); and
3. the general rollovers in the Income Tax Assessment Act 1997 (Cth), including the Division 615 company interposition rollover, and the Subdivision 122-A rollover to a wholly-owned company.

We will step through high level considerations, but we will not consider the key technical nuances around the requirements. This article provides general information only and does not take into account specific circumstances.

Small Business CGT Concessions

The SBCGT concessions can reduce, defer, or disregard a capital gain  a business makes on a qualifying CGT asset when you meet the conditions.

In practice, these rules often matter when you move or reorganise CGT assets such as goodwill, business premises, shares, units, or other business CGT assets. They do not address the ordinary income consequences that can arise for trading stock and depreciating assets.

To access the SBCGT concessions, you must satisfy the basic conditions. At a high level:

1.  Active Asset Test: The asset must qualify as an “active asset” for at least half of the ownership period, or at least 7.5 years if owned for more than 15 years; and

2.  Size tests: The taxpayer needs to either meet:

  2.1 the CGT small business entity pathway: the entity carries on a business in the income year of the CGT event, and its aggregated turnover for the current income year (or the previous income year) is less than $2 million; or

2.2  the maximum net asset value pathway: the net value of the CGT assets of the entity, its affiliates, and its connected entities does not exceed $6 million just before the CGT event; and

3.  Additional tests for shares and units: where the asset is a share or unit, extra conditions can apply, including the “80% test”, which looks at whether active assets (plus certain inherently connected cash and financial instruments) make up at least 80% of the value of the entity’s assets.

If you satisfy the basic conditions, you may then access one or more concessions, that being the:

·      15-year exemption;

·      50% active asset reduction;

·      Retirement exemption; and

·      Small business rollover.

Each concession has further requirements and operates differently. If you want a deeper technical guide, see our detailed flowchart and framework here.

Small Business Restructure Rollover

SBRR suits “same owners, new structure” changes. It can allow a small business to transfer active business assets between eligible entities without triggering immediate income tax consequences.

Unlike the SBCGT concessions, the SBRR can apply to a wider range of active business assets, including CGT assets, depreciating assets, trading stock, and revenue assets. This makes it particularly relevant when you restructure an operating business with significant plant, equipment, and stock.

The SBRR contains detailed requirements. The gateways below help you identify whether the SBRR is worth exploring further:

1. Size test: aggregated turnover is less than $10 million. Aggregated turnover can include the turnover of affiliates and connected entities;

2. Genuine restructure of an ongoing business: the transfer must occur as part of a genuine restructure of an ongoing business. The ATO considers there must be a clear commercial driver such as improving asset protection, reducing administrative complexity, supporting growth, or meeting financing requirements. A genuine restructure does not include a divestment of the business, or a step toward asset realisation. Recognising the subjectivity of this term, the ATO also provides a safe harbour to treat the restructure as genuine for SBRR purposes if you satisfy the relevant safe harbour conditions for three years after the transfer; and

3. No change to ultimate economic ownership: the restructure must not change who ultimately owns the business assets. This analysis can become complex where the structure includes multiple entities, or where discretionary trusts sit in the ownership chain.

General rollovers (including Subdivision 122-A,Subdivision 124-M, and Division 615)

Outside the small business pathways above, other rollover provisions in the Income Tax Assessment Act 1997 (Cth) may apply.

In practice, these rollovers often become relevant where the business exceeds the size requirements set out above, and the restructure involves a corporate end state, such as transferring a business into a company, exchanging equity as part of a restructure, or inserting a holding company to simplify a group.

Common general rollover provisions include:

1. Subdivision 122-A: disposal or creation of assets by an individual or trustee to a wholly-owned company;

2. Subdivision 124-M: scrip for scrip rollover, which can apply where an owner exchanges shares or units in one entity for shares or units in another as part of a restructure; and

3. Division 615: rollovers for business restructures, commonly used to insert a holding company above an existing company in the right circumstances.

These rollovers contain detailed requirements. They often depend on a tight fact pattern, careful sequencing, and clear documentation.

 The Three Gating Questions That Decide Which Pathway Fits

Each pathway above has detailed requirements. The questions below help you work out which pathway should be tested first.

Gating question 1: Size – what are the relevant thresholds?
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Gating question 2: Asset mix – what assets does the relief apply to?

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Gating question 3: End state – what entity type can the assets be transferred to?

Non-income tax traps

In addition to the income tax pathways above, the following non-income tax issues should be considered as part of any proposed restructure:

1.         GST: transfers of a business or business assets can create GST issues, including whether the transaction qualifies as a going concern and whether registrations, invoicing, and reporting need to change;

2.         Division 7A: Division 7A issues can arise where a company lends money to, pays money to, or transfers assets to a shareholder or an associate;

3.         State transfer duty and landholder duty: duty may apply to transfers of real property and to transfers of interests in entities that hold real property;

4.         State land tax: a new ownership structure can change land tax outcomes, including grouping and trust surcharge issues; and

5.         Losses: losses can become trapped in the wrong entity or become harder to use after ownership changes.

Closing

If you are considering a restructure of your business in 2026, please contact Velocity Legal. We can help you identify the most appropriate pathway and work through the detailed requirements and implementation steps. We also advise on the non-income tax issues flagged above, including GST, Division 7A, duty, land tax, payroll tax, and losses.

This article provides general information only and does not constitute legal or tax advice. You should seek advice tailored to your circumstances before implementing any restructure.