Entity Setup
Entity Setup: Choosing the Right Structure for Small and Medium Businesses Under Recent ATO Rules
Exploring how the ATO’s extended amendment period and refund holding powers change structuring for SMEs and small enterprises.
By NomadicTax Research Team • 5-8 min read • November 14, 2025
## Overview of Recent Entity-Releated Changes
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 introduced several changes affecting small to medium businesses (SMBs), including provisions that allow the ATO to **extend the amendment period for assessments from two years to four years**, but only at the request of the taxpayer once the initial two-year period has expired. ([ato.gov.au](https://www.ato.gov.au/law/view/document?DocNum=0000081407&FullDocument=true&PiT=99991231235958&utm_source=openai))
Additionally, the legislation now gives the Commissioner discretion to **hold refunds or tax credits for up to 90 days** if an entity is yet to provide valid Australian financial institution account details. ([ato.gov.au](https://www.ato.gov.au/law/view/document?DocNum=0000081407&FullDocument=true&utm_source=openai))
## Why Structure Matters for SMBs
Choosing how to set up your business—sole trader, trust, company—affects:
- **Liability exposure**
- **Which amendment period applies** (company or trust may be SMB if below thresholds)
- **Access to refunds and cash flow**
- **Obligations for reporting financial institution account details**
## Best Practices for Entity Setup Under New Rules
- **Assess your classification**: If your entity qualifies as an SMB, you now have options to request assessment amendments up to four years. Trusts and companies under revenue thresholds often qualify.
- **Keep accurate, up-to-date bank account information**: Failing to provide valid banking details when requested may trigger the refund hold-back, impacting cash flow. Ensure your ABN records and financial institution details with ATO are current.
- **Plan for time delays**: When needing amendments, plan ahead because the four-year extended period still requires formal application and may not apply in all circumstances.
- **Engage a tax advisor early**: The taxonomy and definitions (what is SMB, what income thresholds apply) can be nuanced. A misclassification could lead to missed amendments or undesired obligations.
## Worked Example
**Scenario**: A growing consulting company incorporated in Australia with turnover below $10 million.
- Under earlier law, the company had only two years to seek amendments to its assessment.
- Under the new law, after two years have passed, if errors are discovered (e.g. overlooked deductions), the company can apply to have the assessment amended up to four years after the initial notice.
- But if you’re a large group or outside the SMB definition, you don’t benefit from this extended period.
## Tips for Structuring Your Entity
- **Use a company or trust** where it gives you clearer segregation of activities and potential for SMB classification.
- **Monitor turnover and associate relationships** to ensure you maintain SMB status for as long as possible.
- **Document bank and financial accounts proactively**, ensuring registrations and account info with ATO are valid and kept up to date to avoid refund delays.
## Summary
The recent amendments give SMBs more flexibility and some protection via extended amendment periods, but they also give the ATO new tools—especially around refunds. Setting up your entity with this in mind, keeping your registrations clean, and working with advisors to maximize benefits will be critical going forward.