What the ATO looks for when reviewing SBR proposals

After starting out slow following its introduction in 2021, there has been a significant increase in uptake of the Small Business Restructuring (SBR) regime in recent years – becoming a key insolvency process used by thousands of businesses in an array of industries. 

Yet despite the increased interest, the SBR process is not always the most appropriate insolvency appointment for a business. It is important to consider creditor expectations, and particularly the Australian Tax Office (ATO), who is commonly the largest creditor in an SBR.

With a business only able to submit an SBR proposal once every seven years, business owners should be aware of the common red flags that may lead to an SBR proposal being rejected and subject to a higher level of scrutiny by the ATO.

Who is eligible for small business restructuring?

Imagine you own a small business and have endured several financially difficult years. You are carrying substantial tax debt, suppliers are chasing payment, and you’re not quite sure how you will make it through the next quarter.

Instead of closing your doors, SBR could be a viable option to restructure unsecured debt while you continue to trade and remain in control of the business.

The SBR process is cheaper and simpler than entering voluntary administration, and requires you to:

• Work with a restructuring practitioner.
• Develop a plan to repay a compromised debt amount in a reasonable timeframe.
• Present the plan to creditors to vote on.

To be eligible to start the process, you must be an incorporated entity (not a sole trader or partnership) with total liabilities under $1 million. Neither the company nor the directors can have been in an SBR process or simplified liquidation in the last seven years.

Another critical eligibility requirement is that your business is up to date with all ATO lodgements and employee entitlements. This includes superannuation contributions, which has been highlighted by the ATO as a cause of confusion for some business owners wishing to pursue SBR. Superannuation guarantee charge (SGC) statements – which you must lodge if you fail to pay employees’ superannuation in full or on time – must also be up to date, as well as any payments for SGC liabilities.

With Payday Super coming into effect on July 1 2026, SGC charges are set to change significantly, so this will be an important consideration for struggling businesses considering SBR in the new financial year.

Common red flags that can lead to rejected SBR proposals

Meeting all of the eligibility criteria does not automatically guarantee a successful SBR process. Some of the red flags that could lead to the ATO voting to reject a proposal include:

• Unresolved director loans
• Poor compliance histories
• De-prioritisation of tax debts over other creditors
• Material governance issues
• Lack of transparency or delays providing key information
• Behaviour inconsistent with SBR intent
• Concerns over ongoing viability

The ATO is also very aware of SBR being used to “park” tax debt – which means using SBR to delay paying the ATO without a genuine intent to save the business.

These red flags affirm that your actions before submitting an SBR proposal do matter. For example, if you have director loan accounts where money has been taken out of the business without paying tax, you can expect the ATO to consider the level of drawings in comparison to the level of indebtedness. For this reason, if there is a perception that a director or related party has benefited from the business and creditors are otherwise being asked to compromise their debts, creditors may be sceptical and vote to reject the proposal. 

 Any SBR proposal must present a genuine path forward, supported by cashflow forecasts and a repayment plan that makes sense. It is worth taking the time to get it right before submitting the plan, because once it has gone to creditors to vote on, no changes can be made.

If there is uncertainty about whether the ATO will see a particular issue as concerning, there may be an opportunity to discuss the draft plan with them before it is formally submitted. This transparent approach can work in your favour, especially where the issue is a genuine mistake or an accidental oversight that has since been fixed.

Preparing a solid SBR plan from the outset

Given failed SBRs often lead to liquidation, it’s important to work closely with your restructuring practitioner from day one. Help them gain a true picture of your business, its challenges, and its future viability once a plan is in place that seeks to prevent the same financial issues from reoccurring.

When done well, an SBR can offer a clean slate for a struggling business – if owners are willing to cooperate transparently, in good faith, and with a willingness to re-evaluate how the business operates going forward.

If the ATO and other creditors can see you have made improvements to the business, and have a promising future ahead, they are more likely to accept your proposal.

For help developing an SBR proposal, including reviewing your debt situation and liaising with the ATO, RSM’s qualified restructuring practitioners are here to assist. We have supported hundreds of small businesses through the process, and are well acquainted with the ATO’s requirements. Our goal is to help you move forward without the burden of legacy debt, and create a stronger foundation for the future.
 

FOR MORE INFORMATION:

Or to book a confidential and friendly discussion about small business restructuring, contact the Restructuring and Recovery team at your local RSM office.