Australia is reported to have over 2.5 million small businesses which for a population of nearly 27 million is a staggering statistic. We are one of the top countries for new small business formation along with the UK, US, Germany and Canada which is interesting when only about 75% of businesses survive past their first year of trading.
Over 97% of Australia’s businesses are classified as a small business which is generally considered a business with up to 19 employees.
When the time comes to sell your business, you need to carefully consider how to maximise your return.
Many small business owners have worked very hard to sustain and grow their business often over a lifetime often through very tough economic conditions.
Selling a business can be a daunting often very stressful process. It is important to ensure that when you do take that step you get the right advice from your trusted advisors.
When you consider selling your business it could be subject to significant Capital Gains Tax (CGT).
CGT is the tax you pay on profits from disposing of assets such as your business. Although it is called CGT, it is part of your income tax and is not a separate tax.
What is the small business CGT concessions?
If you are a family or privately owned business, you can reduce your CGT on the sale price.
There are basically for small business CGT concessions which are:
- The 15-year exemption – If you have owned the business for the last 15 years all of your capital gain is exempt from CGT.
- 50% active asset reduction – Your capital gain is reduced by 50 per cent. This concession can be applied together with the general 50 per cent CGT discount for individuals, the retirement exemption and small business rollover relief as below.
- Retirement exemption – If you are under 55 years of age you must contribute it into a complying superannuation fund or retirement savings account and if you are over 55 years of age, there is no requirement to contribute it to a complying superannuation fund or retirement savings account. There is a $500,000 lifetime limit which can be utilised.
- Rollover relief – This allows you to defer all or part of your capital gain for up to two years. If you do not acquire a replacement asset at the end of two years, you will be taxed on the deferred capital gain.
If you are a resident the 50% discount can be applied with the other CGT concessions.
What are the eligibility criteria?
Before you can be eligible for any of the CGT concessions referred to above you MUST meet the basic eligibility conditions which are:
- You must be an individual, partnership, company or trust that is operating a business and has an aggregated turnover of less than $2 million. The aggregated turnover is defined as the annual turnover of your business plus the annual turnovers of any business entities that are affiliated or connected with you, OR
- The total net value of CGT assets owned by you and any entities that are affiliated or connected to you must not exceed $6 million, OR
- You are not running a business other than as a partner, but your asset is used in your affiliate or connected entity’s small business which is commonly referred to as CGT concessions on passively held assets, OR
- You are a partner in a partnership that is a small business entity, and the asset is an interest in a partnership asset, or an asset used in the partnership business
How can we help?
At FC Lawyers our business and corporate team have over 30 years’ experience assisting clients with all the business needs and have extensive experience in business sales.
A business sale will raise technical legal and tax questions which are often complex.
Contact our experienced team to discuss your needs.
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