It can take many years and a lot of hard work to build a successful small business. When you finally decide it’s time to sell, tax is often the last thing on your mind. Yet it can have a big impact on how much of the sale price you get to keep – and how much goes to the taxman.
One of the biggest tax issues to consider is capital gains tax (CGT). Although the Government tightened eligibility for its small business CGT concessions in 2018, there are still generous discounts available for those who qualify. These are on top of the normal 50 per cent general discount on CGT that applies when an asset has been owned for more than 12 months.
The first concession is the 15-year exemption, which exempts the capital gain from a business asset if you have owned it for at least 15 years. If you are aged 55 or older and are retiring, or are permanently incapacitated, you won’t pay any CGT when selling, gifting or transferring the business asset.
The second concession is a 50 per cent active asset reduction. This discount allows you to reduce the capital gain arising from the sale of an active business asset.
The rollover concession allows you to defer the capital gain from the disposal of an active business asset until a later financial year if you buy a replacement asset or make a capital improvement to an existing asset. The replacement asset can be acquired one year before, or up to two years after the CGT event.
The final concession is for small business owners who sell an active business asset to retire. They receive a CGT retirement exemption up to a lifetime limit of $500,000. If you are aged under 55, money from the asset sale must be paid into a complying superannuation fund.
Before you can apply any of the small business concessions, your business must meet the Government’s recently tightened basic eligibility conditions. If you are thinking of selling your business, call us to discuss the potential CGT implications and whether your business qualifies for the concessions.