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 Australian Taxation Office.
The biggest tax issue 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.
CGT is imposed whenever you sell capital assets you acquired on or after 19 September 1985. The capital gain is calculated on the sale price of the asset, minus its cost base. Tax is then calculated on the capital gain, multiplied by your normal marginal income tax rate.
While CGT applies to company shares and goodwill, it does not apply to trading stock and depreciating assets used solely for taxable purposes like business equipment. See more about CGT assests and exemptions here.
To soften the tax blow, the Government offers small business owners several concessions. These are on top of the normal 50% general discount on CGT that applies when an asset has been owned for more than 12 months.
Applying the four small business CGT concessions could eliminate or substantially reduce tax payable on the sale of your business if your annual turnover is under $2 million.
Before you can apply any of the small business concessions, your business must meet the Government’s recently tightened basic eligibility conditions.
If you want to take advantage of the concessions, you need to ensure you check the qualifying requirements carefully, or speak to us for more information as the rules are quite complex. They include:
How you sell the business’s operations also raises tricky tax questions.
It’s important from a tax perspective whether you are selling the shares in the company that carries on the business, or whether the company entity is selling its business and then distributing the proceeds back to shareholders.
If the company sells the business and makes a distribution, the 50% general CGT discount will not apply.
If you are thinking of selling your business, call us on 03 5443 0344 to discuss the potential CGT implications and whether you qualify for the small business CGT concessions.