We all know it takes years of hard work and effort to reap the benefits from a successful small business. If you’re considering selling your business, it’s crucial to approach it correctly or risk losing the benefits of your hard work.
Timing is critical
The earlier we can establish the value of your business, the more opportunity to make the most of your circumstances and the capital gains tax (CGT) concessions available. If the value of your business and assets are growing and you are approaching a defined threshold for accessing these concessions, acting fast will make a substantial difference to the ending tax result.
Satisfy eligibility conditions
The first requirement is that a CGT event must occur in relation to your CGT asset, that is, you dispose of a CGT asset such as goodwill. In order to satisfy the eligibility requirements for Small Business CGT Concessions, you must meet the definition as defined under Division 152 of the Income Tax Assessment Act 1997 (Cth). Broadly speaking, you must be small business (turnover less than $2million) or have net assets of no more than $6milllion.
Know what CGT concessions are available to you
This delicate stage of the business life cycle offers a big opportunity for your business. With four CGT concessions available you can potentially be rewarded with a significant tax savings on the sale of your business.
- Small business 15-year exemption (Subdivision 152-B)
If you are over 55 when you sell aCGT asset (e.g. your business), have owned the CGT asset for a continuous period of at least 15 years and the sale is made in connection with your retirement, you can completely disregard any capital gain arising from the sale.
- Small business 50% active asset reduction (Subdivision 152-C)
If you are not ready to retire or have not owned your business for 15 years, then an election under this concession allows you to reduce a capital gain you make by 50% – in addition to the 50% CGT general discount available to individuals under Division 115. This in effect reduces the gain by a massive 75% (if you meet the relevant conditions).
- Small business retirement exemption (Subdivision 152-D)
This useful exemption is available to those under the age of 55. You can elect to disregard all or any part of a capital gain made from the sale of aCGT asset provided you contribute the proceeds into a super fund. A lifetime limit of $500,000 applies, so you can keep utilising this exemption over the course of multiple asset sales until you reach the limit.
- Small business roll-over (Subdivision 152-E) By electing a roll-over, you can neatly reinvest the proceeds from the sale of your existing business into a new business (that you either start or acquire) and defer the making of a capital gain from the sale until you ultimately dispose of the new business.
Want more advice on how to access these concessions and maximise profits?
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