ATO is Tightening its Approach to Small Business Restructuring (SBR)

In recent times the ATO has become rigorous in its review of SBR plans. This is a timely reminder that whether cashflow is tight or not, you should always be on top of your obligations. 

 
What is Small Business Restructuring?

The SBR framework was introduced to assist eligible small companies in addressing financial difficulties while continuing to trade under the control of their directors.

Under this process, directors work with a registered liquidator acting as the restructuring practitioner (“RP”) to develop a plan to restructure the affairs of the business and compromise creditor claims to be repaid over a period of time. If the majority of creditors accept the plan, the company can continue trading while implementing the restructure.

Historically, the ATO have supported these plans when they were transparent and commercially reasonable. However, over the past six months, the ATO’s approach has shifted to a more stringent evaluation.

 
Key Trends in ATO Engagement

• Closer scrutiny of proposals – Plans are now carefully assessed for commercial viability and genuine prospects of success.  ATO is now hesitant to accept any compromise below 25 cents to 30 cents in the dollar.
• Greater emphasis on compliance history – A company’s track record of lodgement and payment compliance heavily influences the ATO’s voting position.
• Integrity and public interest focus – Proposals that appear to advantage directors, related entities, or raise concerns about fairness are less likely to be approved.
• Early and proactive engagement – The ATO encourages restructuring practitioners to discuss plans before submission and identify issues early.
• Heightened attention to related-party debts – Companies with unresolved director loans or related-party transactions are facing far stronger resistance and, in many cases, outright rejection.

In short, the ATO is now seeming to ask themselves: “does the taxpayer deserve the plan?” and “will the taxpayer act differently going forward, or will they fall back into the same pattern?”.

Beyond these compliance benchmarks, the ATO are increasingly rejecting plans where it is the sole or dominant creditor by a significant margin. This reinforces the ATO’s focus on ensuring SBR is used for genuine recovery efforts, not as a mechanism to avoid tax obligations.

 
While at Aegis we don’t specialise in SBR activity, we have successfully assisted clients to navigate this landscape closely with their elected insolvency specialist.

Source – ICB - https://www.icb.org.au/s/news/ato-tightens-its-approach-to-small-business-restructuring-sbr-MCUNVP7VIHX5EC3FFHRB2DLC2PSM