Business structure changes are one of the more complex events a bookkeeper will encounter. Clients often decide to restructure — moving from a sole trader to a company, incorporating a company into a trust structure, or bringing in a new business partner — without fully understanding the accounting and tax implications. Your job is to manage the transition in the books while flagging the issues the accountant needs to address.
Getting a structure change wrong can mean CGT events are missed, opening balances are incorrect, or historical compliance records are lost. Here's what to look for and how to handle the transition.
Why Clients Change Structure
The most common trigger is growth. A sole trader who builds a successful business is often advised by their accountant to incorporate — the company tax rate (25% for base rate entities) is significantly lower than the top marginal rate (47% including Medicare levy), and the company structure provides asset protection and flexibility for profit distribution.
Other common triggers:
- Bringing on a business partner (sole trader to partnership, or partnership to company)
- Estate planning (restructuring into a trust for family succession)
- Approaching an asset sale and needing to use small business CGT concessions
- Managing liability risk in a higher-risk industry
In every case, the restructure should be driven by qualified tax advice — the bookkeeper's role is to implement the accounting consequences of whatever structure has been decided on, not to recommend the structure change itself.
Sole Trader to Company: What Changes in the Books
When a sole trader incorporates, the business's assets and liabilities are effectively transferred from the individual to the company. For CGT purposes, this is treated as a disposal by the individual and an acquisition by the company — at market value, regardless of what cash actually changes hands.
Key bookkeeping steps:
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Final sole trader accounts: Prepare a closing balance sheet for the sole trader as at the date of transfer. This should show all assets (bank balances, debtors, inventory, equipment) and liabilities (creditors, loans) at the point of transfer.
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Opening company accounts: The company acquires those assets and liabilities at market value. Set up the company's chart of accounts from scratch — do not carry over the sole trader's accounts.
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Share structure and director's loan: The transfer of net assets from the sole trader to the company typically creates a shareholder's equity entry (share capital). If the company acquires more than the sole trader paid for the assets, the excess is often structured as a director's loan from the company to the individual.
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New registrations: The company needs its own ABN, TFN, and generally a new GST registration. The sole trader's registrations are cancelled. Reconlink bank feeds and other integrations need to be updated to the company's accounts.
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Super guarantee: The company is now the employer — payroll and super obligations begin from the transition date.
CGT implications: The small business restructure rollover (Subdivision 328-G) can defer CGT on the transfer of active assets, subject to conditions. This is a decision for the accountant and tax adviser, not the bookkeeper — but the bookkeeper needs to know whether the rollover has been applied, because it affects how the transferred assets are valued in the company's books.
Company to Trust: A More Complex Transition
Restructuring from a company into a trust structure is more complex because a company cannot simply become a trust — a new trust is created, and assets are transferred from the company to the trust.
This triggers CGT events at the company level (disposal of assets), and the same small business restructure rollover may or may not apply depending on the circumstances. The company may also face issues around franking credits if it has accumulated them.
In the accounts:
- The company's assets are written off against a disposal account
- The trust is established with its own accounts, acquiring the transferred assets at their agreed values
- The consideration (what the trust pays) is often structured as units in the trust, held by the company or its shareholders
This transition should not be implemented without the direct involvement of the client's accountant and, in complex cases, a tax lawyer.
Partnership Changes: Adding or Removing Partners
When a partnership changes composition — a new partner joins, or an existing one leaves — the bookkeeping consequences are significant:
New partner joining:
- The new partner's capital contribution is recorded as a credit to their capital account
- The profit-sharing ratio changes from the admission date (not retrospectively, unless agreed)
- Depending on how the new partner's share is structured, there may be a revaluation of existing partnership assets to reflect market value
Partner leaving:
- The departing partner's capital and current account balances are settled
- Any excess payment over book value (goodwill payment) creates a CGT event for the departing partner
- If the remaining partners pay the departing partner more than the book value of their interest, this excess may be goodwill — which has specific CGT implications
Opening Balances After a Structure Change
One of the most common errors in structure changes is incorrect opening balances. The new entity's accounts must open with figures that:
- Reflect the assets and liabilities actually transferred
- Use market values (not book values from the old entity) unless a rollover is applied
- Are reconcilable to the closing figures of the old entity
If opening balances are wrong, the entity's financial statements will be wrong from inception — and the error will compound with every period that follows. Take the time to reconcile the transfer properly before entering a single transaction in the new entity.
Practical Checklist for Managing a Structure Change
- Obtain the final financial statements of the transferring entity
- Confirm the date of transfer precisely (contracts, business sale agreement, or ASIC documentation)
- Establish new entity accounts — do not copy-paste from the old entity
- Set up new bank accounts and update all direct debits and income streams
- Register for GST, PAYG withholding, and payroll (if applicable) under the new entity
- Reconcile opening balances to the transfer documents
- Flag CGT events and any rollover elections to the accountant
- Retain records of the old entity for at least five years (ATO requirement)
Structure changes are a significant event in any client's business life. Managed well, they're an opportunity to establish clean, well-organised records in the new entity. Managed badly, they create compliance problems that persist for years.