Small businesses seeking ATO (Australian Tax Office) approval for restructuring must meet compliance standards. This is crucial for eligibility and ensuring a smooth process minus potential penalties.
We have compiled an expert guide below to help you navigate this often daunting process. This guide covers step-by-step details on how to meet small business restructuring eligibility via the ATO.
How the Small Business Restructuring ATO Process Works
This process is more straightforward for small businesses like yours (as opposed to large organisations). This is how the ATO approaches approvals:
- Eligibility checks: These determine whether your business is suitable for this process, as opposed to alternatives (such as liquidation).
- Plan proposals: If approved, the ATO will set you a small business restructuring practitioner (SBRP) to establish a plan to resolve your debts.
- Creditor voting: The ATO and your creditors will decide whether the SBRP’s plan will proceed.
- Regular trading: If your plan is approved, you may return to regular trading until the plan expires (this can take up to two months).
Small Business Restructuring Eligibility
The small business restructuring process allows a business to restructure its debts under corporation law. A plan to repay creditors would be established if the ATO approves the restructure. While this plays out, the director can remain in control.
For SMEs, it can provide a financial lifeline. One that may allow you to return to regular trading without the need for liquidation. You must meet the following small business restructuring eligibility criteria set by the Australian Tax Office. Your company must:
- Have financial liabilities under $1 million in debt and insolvent (unable to pay debts)
- Not have been through liquidation or restructuring in the previous 12 months
- Have well-maintained tax records
- Have compliance with employee entitlements
- Be incorporated under the Australian Corporations Act
Steps to Ensure SBRP Approval
As a small business, there are several strategies to use to increase the chance of ATO approval. Even if you currently face no issues with financial distress, it’s good business practice to prepare for many unexpected developments. In the long-term, it may help to protect your business’s financial health.
As such, these are the steps to consider to assist with a restructuring approval:
Access Your Finances
Evaluate how your business is performing. Documents your liabilities, assets, cash flow, business plan, and operational expenses. This can help influence a restructuring plan and how you plan to achieve paying off your debt.
Develop a Restructuring Plan
Consider how a plan could realistically support your business by paying off debt. It’s crucial to highlight how you can repay creditors, so carefully consider your standing and how you can meet the ATO’s expectations. You may wish to:
- Define your objectives and goals
- Designate a lead restructuring team member
- Set a communication strategy with creditors and the ATO
- Consider the legal implications
With this in mind, you may wish to seek support to help you strategise at this crucial time.
Monitor Tax Compliance
Ensure your tax lodgings are up-to-date. If they are, the Australian Tax Office is more likely to approve you for a restructuring plan.
Have Open and Transparent Communication
Make sure you provide clear information to the ATO and your creditors. Long periods of silence will not support your case. You must be proactive and transparent to foster trust. This can significantly support crucial negotiations.
Demonstrate Business Viability
Offering evidence to back up your suitability will help your case. You may wish to include financial forecasts and your business plan as proof you’re on the right path should you return to regular trading.
Talk to Corporate Experts
Getting expert feedback on whether your company is eligible for this process is good business practice. This way, you can discover if you’re suitable rather than choosing an alternative route to pay your debts.
With an open discussion, you can soon resolve the direction of your business. This can provide you with peace of mind.
Get Expert Support for Your Small Business Restructuring Request
Overcome your company’s debt with expert advice from Corporate Lifeline. We offer a free opening consultation to ensure you have every success of eligibility. Call us now for a judgment-free assessment, our team is ready to help.
What are the Criteria for Small Business Restructuring?
The eligibility criteria for SBRP are as follows:
- Financial liabilities under $1 million in debt
- No company liquidation or restructuring in the previous 12 months
- Well-maintained financial records
- Compliance with employee entitlements
- Your company is part of the Australian Corporations Act
The ATO will consider your company’s standing before clearing you for a restructuring process.
How Much Does SBRP Cost?
It is a cheaper process than alternatives, such as voluntary administration, and may cost around $15,000. However, as each company’s situation is different, this total may vary. To be eligible, you’ll also need to be able to repay around 25% of the debt you owe.
