Capital Gain Tax – Thinking of Selling your business?

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Capital Gain Tax – Thinking of Selling your business?

Do not sell without first gaining professional advice

For the majority of small to medium sized business owners, the value of your business is your biggest asset, and very likely, your retirement fund.

Upon sale of your business it is critical you receive the maximum available net proceeds. However, many taxpayers miss this once in a lifetime chance through poor transactions planning and the holding of assets in inappropriate structures. Just because you consider yourself a small business does not mean you have automatic access to all available CGT concessions.

While the rules are complex, if the correct planning is in place, a husband and wife team can receive up to $4 million tax free after the sale of their business. (If you’ve run your business for at least 15 years, all the sale proceeds might be tax free!)

Key Considerations

  • Companies do not receive the 50% general discount
  • The owner(s) need to have owned the business / asset for more than 1 year – CGT discount 50%
  • Taxpayer group:
    • Must be under $6M in net value; or
    • Under $2M turnover threshold
  • Any assets sold must be ‘active assets’ used in the business for a certain period
  • To maximise the concessions, the business owner(s) might need to use the ‘retirement exemption’, rolling up to $500,000 per individual of their sale proceeds into superannuation

Ultimate CGT Position

Effective planning for the sale of your business can make a huge difference to your after-tax return – up to $4M

Here is an Example

A client approached us with a plan to sell their business in two years’ time. The business was owned in a company structure and because the client had time on their side, we were able to implement a solution to ensure all considerations were met. Below is a comparison study showing the change in the client’s net result, assuming the final capital gain is paid out to an individual from the company, before and after our meeting with them.
As you can see above, by converting $600,000 of liquid assets (cash/shares) and making a non-concessional contribution to superannuation, the small business CGT concessions can now be applied as the total asset values included for the small business calculations is now under $6M. So, after executing the above simple strategy what result can we achieve after sale of business goodwill:

* Without proper advice, the business was unable to meet the conditions to access small business CGT concessions – as such, the entire capital gain has become taxable in the hands of the company.

Without expert advice, results like this may not be achieved. There are two very common explanations why business owners miss these generous tax concessions, these being:

1. You leave it too late to inform your advisors about your intention to sell; or
2. Your advisors do not have a thorough understanding of the legislation and the possible restructuring opportunities

As taxation specialists, our focus is on providing the best possible outcome for business owners.

Selling your Business for Maximum Net Worth

You face the real chance of missing out on the generous small business capital gains tax concessions through a lack of pre-sale planning. Poor planning in this area could result in you losing potentially $1 million in legitimate tax concessions. As an example, if you currently operate out of a company (Pty Ltd) structure you are NOT eligible for the 50% general discount on capital gains.

Timing is critical, almost all restructure options are lost once you have signed a contract, even super contributions made post contract date are invalid when looking at the $6M net asset test.

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