The ATO has issued new guidance on what it wants from Small Business Restructuring proposals. Jirsch Sutherland breaks down the key changes.<\/p>\n
Small business owners weighing up a Small Business Restructuring are being told to get their financial house in order first, as increased scrutiny from the Australian Taxation Office makes straightforward proposals a thing of the past.<\/p>\n
Latest data from Alares shows SBRs accounted for less than 10 per cent of all new insolvency appointments in July 2026, with overall appointment numbers falling back to levels last seen in 2023. The decline comes as the ATO, often the largest creditor in an SBR, has issued detailed new guidance to restructuring practitioners setting out what it expects from proposals and the factors that can influence its vote.<\/p>\n
Jirsch Sutherland Partner and restructuring practitioner Emma Mos says that more than five and a half years after SBR was introduced, the regime remains a strong option for viable small businesses, but getting a plan approved now takes more work.<\/p>\n
\u201cSBR remains a very good regime and we\u2019ve seen first-hand the second chance it can give viable businesses,\u201d she says. \u201cBut the days of relatively straightforward proposals are behind us. Creditors have much more experience with SBR now and the ATO has made it very clear what it expects. A better return than liquidation doesn\u2019t automatically mean a plan will be supported. The underlying business needs to be viable, the numbers need to stack up, and the proposal needs to withstand scrutiny.\u201d<\/p>\n
The ATO\u2019s latest guidance sets out several areas directors and their accountants need to get right before a plan is issued.<\/p>\n
Tax and superannuation compliance needs to be up to date or substantially compliant, and employee entitlements must be appropriately addressed. Financial statements and cash-flow forecasts need to clearly demonstrate the business can meet plan repayments alongside its ongoing tax and super obligations.<\/p>\n
Related-party transactions, including loans, repayments and major asset purchases made while tax debt was building up, can face close review. The plan itself needs to represent the company\u2019s best possible offer from day one, since it can\u2019t be changed once voting begins. And where the ATO is a significant creditor, draft plans and supporting documents should be provided at least five full business days before they go to other creditors.<\/p>\n
Mos says the tighter scrutiny makes early action more important than ever. \u201cIf tax debt is building and cash flow is deteriorating, that\u2019s the time for directors and their accountants to start the conversation. SBR works best when there\u2019s a good business underneath the financial distress and enough time to put forward a credible plan.\u201d<\/p>\n
Recent Jirsch Sutherland cases show what thorough preparation and early ATO engagement can achieve.<\/p>\n
The Totem Collective, a national youth social enterprise that uses skateboarding and creative programs to support young people, faced financial pressure after rapid growth, COVID disruptions and flood damage. An SBR allowed it to restructure legacy debt, save jobs and keep its programs running across the country.<\/p>\n
A Western Australian manufacturer of safety-focused pre-cast concrete products had a tougher path. The ATO initially indicated it wouldn\u2019t support the proposed SBR, but early engagement proved decisive, detailed ATO feedback allowed the proposal to be revised and ultimately accepted. Timing mattered too, with the draft proposal submitted ahead of an advised period of reduced ATO availability.<\/p>\n
\u201cThese are exactly the businesses SBR was designed to help,\u201d Mos says. \u201cSBR remains a powerful second-chance mechanism, but getting the fundamentals right has never been more important.\u201d<\/p>\n
For directors and accountants weighing up the SBR pathway, the message is clear: preparation, transparency and early conversations with the ATO now matter more than ever to getting a plan across the line.<\/p>\n
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