Business/Asset
Sales and Purchases
When it comes time to sell your business we always focus on providing clients with the best possible net outcome. To achieve this; you need your acting solicitors to be taxation specialists. As business owners you have worked too hard to miss out on the generous concessions through poor planning and inadequate advice.
For the majority of small to medium business owners the value of your business (including real business property) is your biggest asset and more than likely your retirement fund. Therefore it is critical upon its sale you receive the maximum available net proceeds. Many Australians miss this once in a life time chance through poor planning and the holding of assets in inappropriate structures.
When it comes time to sell your business, the government has been very generous with the available Capital Gain Tax (CGT) concessions. Just because you consider yourself a small business, does not mean you have automatic access to the concessions. The government has placed strict rules and regulations covering a business’s eligibility. If the correct planning is in place a husband and wife team has the ability to receive up to $4 million tax free.
Very broadly speaking the core hurdles are:
- Business must be under $6 million in value and the owner/s needs to have owned the business/asset for more than one year - CGT discount 50%
- Any assets sold must be “active assets” (used in the business for a certain period) – Active asset reduction 50% of the balance
- The business owners must use the retirement exemption rolling the sale funds into superannuation – Retirement exemption $500,000 maximum per individual
The Ultimate CGT Position
| Capital gain | $4 million | ||
| Less | |||
| CGT discount (50%) | $2 million | ||
| Active asset reduction | (50% of balance) | $1 million | |
| Retirement exemption | (2 x $500,000) | $1 million | $4 million |
| Assessable capital gain | NIL____ |
If you are planning to sell your business, or a business asset, you do not need to be looking at a $4 million capital gain for effective planning to make a huge difference to your net result. Here is an example, a client approached us with a plan to sell their business in approximately 2 years time. After a meticulous analysis of the balance sheet it was apparent a major asset would not meet the “active asset” test, due to the nature of the structure that held the asset. Due to the fact that the client had time on their side we were able to implement a solution that converted the asset into an active asset well before the actual sale. Below is a comparison study showing the change in the clients net (take home) result:
| Pre-Restructure | Our Result | |
| Capital gain | $1.5 million | $1.5million |
| Less | ||
| CGT discount (50%) | $750k | $750k |
| Active asset reduction (50% of balance) | $Nil | $375k |
| Retirement exemption | $Nil | $375k |
| Assessable capital gain | $ 750k | $Nil |
| Tax payable (approx) | $ 364k | $Nil |
Unfortunately, results like this are not always achieved. There are two very common oversights many private business owners make when they sell their business and attempt to access the available CGT concessions. Firstly, they leave it too late to inform their advisers about the impending sale; and secondly, their advisers do not have a thorough understanding of the legislation and the possible restructuring opportunities available to maximise these generous concessions.
Some very surprising and excellent results can be achieved by proper and thorough analysis and “sale year planning”, all of the capital gains will, in many cases, be tax free.
If you are thinking about selling your business please call to book an obligation free meeting with one of our experienced solicitors.