THINKING OF SELLING YOUR BUSINESS?

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

 

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
TOTAL
$4 Million

 

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.

 

 
BEFORE
AFTER
Business Goodwill
$3.0M
$3.0M
Business Premises
$1.5M
$1.5M
Investment Properties
$800k
$800k
Cash/Shares/Managed Funds
$1.0M
$400k
Value of Family Home
$1.0M
$1.0M
Value of Superannuation
$500k
$1.1M
Less
 
 
Family Home (excluded asset)
$1.0M
$1.0M
Superannuation (excluded asset)
$500k
$1.1M
TOTAL ASSETS INCLUDED
$6.3M
$5.7M

 

 

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:

 

 
BEFORE
AFTER
Capital Gain
$3.0M
$3.0M
Less
 
 
CGT Discount (50%)*
Nil
$1,5M
Active Asset Reduction (50% of Bal)*
Nil
$750k
Retirement Exemption (2 x $500,000)*
Nil
$750k
Assessable Capital Gain
$3.0M
Nil
TOTAL
$825,000
Nil

 

* 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:

 

You leave it too late to inform your advisors about your intention to sell; or

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.

 

For an obligation free review on how our capital gains tax solutions can help secure your future, before you sell, we have a couple of questions for you.

 

 

 

 


     

 

 

 


 

 

 

 

WHAT NEXT

After receiving your completed questionnaire, we will provide you with an initial report of advice for you to review and discuss with us, obligation free!

 

For further information or advice on how our capital gains tax solutions can help secure your future, contact our office today

 

 

 

 

 

This article is provided as general information only and does not consider your client’s specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of a client's specific circumstances.

 


Other Recent Posts



Session # 11 - The Business Year in review and how you can plan for success in 2020

Our Lunch Learn Program combines two of life's essentials; food and knowledge. And what better way to combine the two than with a 2 course catered lunch alongside like-minded business owners who are keen to learn & network. A more casual alternative to formal training and seminars, the best lunch and learns become an integral part of company culture - and a tasty perk that everyone looks forward to.

Session # 10 - Organisational Review - How many hats are you wearing in your business and what can you do about it?

Most small business owners understand only too well that there are always too many things that need to be done yesterday. Being under-resourced, both from a time and a staffing perspective, is a continual challenge.

Setting a clear organisational structure ensures that everyone understands their responsibilities to the business. It also helps you identify where you may need to outsource to ensure the cogs keep moving.

Get your B.I.T.E Conference 2020 tickets for only $100. Be one of the innovators who stays ahead of the curve (and saves $75). Valid until 30 November 2019.



Here's a rare local opportunity to learn more about marketing and managing your business and keeping up to date with the latest innovations that can help run your business more efficiently. A sell out event for the past three years, B.I.T.E Conference is the premier small business event in Greater Melbourne and Frankston region.