When it comes to selling a business, it’s never as simple as it seems. There are a number of factors to consider and one of the majors ones that is often overlooked is Capital Gain Tax (CGT).
CGT arises when you sell or dispose of an asset that was acquired on or after 19 September 1985, minus any capital losses – and this includes businesses. Under certain circumstances, company/trust shares may be subject to CGT even if acquired before this date.
Though there is good news for small business. Concessions are available for small business owners that meet certain criteria– making it possible to reduce the CGT amount. The turnover threshold for CGT concessions is $2 million.
According to the ATO website, specific concessions available for business sales include:
15-Year Exemption
If you are aged 55 or older and retiring or are permanently incapacitated, and you have owned an active business asset for at least 15 years, you won’t pay CGT when you dispose of the asset by sale, gift or transfer.
Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.
50% Active Asset Reduction
If you’ve owned an active business asset, you’ll only pay tax on 50% of the capital gain when you dispose of the asset.
Retirement Exemption
There is a CGT exemption on the sale of an active business asset, up to a lifetime limit of $500,000. If you are under 55, money from the disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.
Rollover
If you dispose of an active business asset and buy a replacement asset or improve an existing one, you can defer your capital gain until a later year. The replacement asset can be acquired one year before or up to two years after the last CGT event in the income year for which you choose the roll-over.
So when it comes to selling your business, be sure to consider the CGT involved. Always seek advice from your accountant or financial planner to ensure your business sale and tax is being handled correctly.