Want to minimise tax when selling your business?
Are you a business owner who is considering selling your business, but is unsure what the tax implications are?
When it comes to selling your business, there are many decisions to make, and sometimes these decisions may impact your tax liabilities on sale. It is therefore wise to speak to an expert about the road ahead before starting the journey of selling.
If a business is sold without having extensive analysis of its tax implications, you may end up having to pay up to 47% tax on the profit. However with proper consultation well before the sale, you may be able to reduce the income tax liability down (sometimes to nil!). The difference can be enormous when the profit is huge.
For example: a business sale with profit of $3m, with 47% tax, your share to keep is $1.59m, however with a 0% tax, you get to keep $3m. That’s a difference of $1.41m!
Below are some concessions you may be able to use to minimise your tax.
Small business CGT concessions
The ATO have some very generous concessions for small businesses when it comes to calculating capital gains tax on the sale of business:
- 15-year exemption
- 50% active asset reduction
- Retirement exemption
The above concessions can apply to you when the following conditions are satisfied:
- you’re a small business with an aggregated annual turnover of less than $2 million
- your asset was used in a closely connected small business
- you have net assets of no more than $6 million (excluding personal use assets such as your home, to the extent that it has not been used to produce income)
- the asset must be an active asset
If the sale involves a company or a trust, there are more conditions to satisfy.
You may qualify for this exemption where:
- You have owned the business for 15 years continuously
- You are aged 55 or over
- You are retiring or permanently incapacitated
If you qualify for this exemption, any capital gains you have on the sale of business will be CGT free.
50% active asset reduction
If the 15-year exemption does not apply, then you may use the 50% active asset reduction to reduce your capital gain by 50%.
This can be used in conjunction to the normal 50% CGT discount for when you have owned your business for more than 12 months
If the 15-year exemption does not apply, then you may use the retirement exemption to reduce your capital gain potentially to nil.
For those who are under 55 years old when using this exemption, you will need to make a personal contribution equal to the exempt amount to a complying super fund or retirement savings account.
There is also a lifetime limit of $500,000 apply to each individual.
If you are planning to purchase another business or a replacement asset within 2 years of selling your business, you may be able to defer all or part of the capital gain.
It’s never too early to start the conversation…
If you are considering selling your business in the next few years, NOW is the time to start the conversation, as some of our tax minimisation strategies require actions taken a few years before the actual sale.
Disclaimer: the above article provides general advice only and the information above may not apply to your specific circumstances.