Small businesses have been able to access a range of taxation concessions for a number of years including, but not limited to, simplified depreciation, trading stock and GST rules. More recently the Federal Government has extended the taxation concessions available to small businesses to include a concessional corporate tax rate and a new income tax offset.
Capital Gains Tax (CGT) Concessions can eliminate, reduce and / or defer the CGT implications from the sale of assets used by small businesses and are available to all business structures including sole traders, companies and trusts.
Subject to the satisfaction of a set of basic eligibility conditions (detailed below), small businesses may be able to access one, or more than one, of the following CGT concessions:
It is important to note that concessions 1, 3 and 4 above each have additional eligibility conditions, some which are specific to company and trust structures. These additional conditions include varying age-based requirements and timeframes that can limit access to, and application of, the concessions. For example, the retirement exemption has a lifetime limit of $500,000 per individual. Further, individuals under 55 are generally required to contribute the applicable exempt amount into a complying superannuation fund (these contributions are not counted towards an individual’s non-concessional contributions cap).
The 50% general CGT discount available to individuals and trusts for CGT assets held for 12 months or more operates in conjunction with the Small Business CGT Concessions which can further reduce the taxation consequences from the sale of business assets.
To be eligible for the Small Business CGT Concessions, the following basic conditions must be satisfied:
There is also an additional condition that must be satisfied if the asset is a share in a company or an interest in a trust.
A Small Business Entity is an entity that:
The recent 2016/17 Federal Budget incorporated a proposal to increase the Small Business Entity aggregated turnover threshold to $10 million from 1 July 2016. However the existing $2 million aggregated turnover threshold is proposed to be retained for determining eligibility to the Small Business CGT Concessions.
Whilst taxation is obviously only one factor to consider when deciding if and / or when to dispose of a business, it is important to seek specialist advice from a qualified tax professional to understand the likely taxation consequences from the business sale and available CGT concessions (including the associated eligibility conditions and obligations).
Adopting some simple strategies prior to selling your business can facilitate access to CGT concessions that may be otherwise unavailable, resulting in substantial tax savings.
If you are considering selling your business, or have recently sold your business, BLG Business Advisers are here to help! Contact us online or call (02) 4229 2211 to arrange an appointment with one of our experienced tax advisers.