A simple guide on how to change the structure of your business

An inevitable part of business is growth, and as such a business can outgrow the structure it was created under. 

It is important to look at the legalities of changing your business structure and to have a chat with an expert. Here are some common questions we receive. 

Can I change my business structure once I have created it?

A successful business will always grow and with this comes change. As your business evolves so too does its needs and it is possible to adapt your business structure to suit these changes. 

How do I change business structures?

If you change your business structure it coincides with a change in legal entities. For this to happen you will need new ATO registrations. 

Here is a checklist of everything you will need to successfully change.  

  1. Register a new tax file number and ABN 
  2. Create a new bank account for the change in structure
  3. Update all relevant parties with your new bank details
  4. Update all invoices with the new ABN and bank details
  5. Contracts and agreements will need to be signed under the new business entity
  6. Ensure you complete your business financials and tax return under the newly formed  structure
  7. Ensure you deregister the old structure. Follow the directions on the ASIC website
  8. Complete the final tax return
  9. And lastly, the ATO will need to be notified that you’re no longer trading under the old  entity

Why would I change my structure?

Business growth:

There are numerous reasons you may want to change your business structure. The first could be business growth, this includes expanding overseas or diversifying your business. A prime example of this is bringing investors into a sole trader business. 

Change of ownership:

Whether new owners are becoming a part of your business, you are investing into an existing business or the current business is a part of a trust, it is a must to change your business structure to suit your new ownership needs. 

Asset protection:

There is a rise in complexity and risk as your business evolves. Protecting your assets as a sole trader becomes paramount with the growth of the business and it can be beneficial to change your structure to ensure this. An example of this is a sole trader who changes company structures so they are not personally liable for the business should anything go wrong, instead the company is. 

What are the tax implications of changing structures?

A capital gains tax (CGT) would be applied if you registered a change in your company’s structure prior to July 1st 2016. However, since then the Federal Government has offered some relief for some small business owners which now means when your business is ready to evolve no adverse CGT will be applied. This is known as the “Rollover Relief” – however there are strict regulations that need to be met to qualify for this: 

Genuine Restructure:

The restructure needs to be done solely on its own and cannot happen at the same time you are selling your business or winding down. Furthermore, it cannot be done just to avoid paying tax. 

No Change In Economic Ownership:

Another regulation to consider is no material change can be made to the ownership of the business. To clarify, this means the change cannot bring in new owners to the business without paying the capital gains tax. 

A few points to consider before changing business structures:

Time Of Restructure:

The start of a financial year is the perfect time to begin your structural change. You can begin with a fresh start and close out the old structure completely. However, you may need to change your structure at another point during the year and we would suggest doing it as soon as possible to ensure you are reaping the benefits of the tax efficiencies.  

Long Term Implications:

When restructuring make sure you consider the future needs of the business as well as your current needs. Have a look at your company’s long term goals and how you can choose the right structure to make them happen. 

Have A Chat With The Experts

At QC we have all the information you need to help your business grow. Get in contact with us so we can help you reach your business goals.