Money
Issue No. 41 - June/July 2008
CGT issues for selling SMEs
by Kimon Lycos
Thinking of Selling Your Business? – Plan Ahead to Save Tax!
Baby Boomers who are thinking of selling up successful family businesses to establish a financially secure retirement need to not only maximise the sales proceeds, but also manage the capital gains tax impact of the sale effectively.
It is imperative to plan ahead to ensure all available capital gains tax concessions can be fully utilised to achieve a good tax outcome.
Income tax legislation includes a set of rules known as the Small Business CGT Concessions. Significant aspects of these concessions include:
•A capital gain can be disregarded entirely if a business has been owned for 15 years or more and the relevant taxpayer is aged 55 or more and the sale is connected with that individual’s retirement. If the 15 year test is not satisfied the following may apply.
•A capital gain can be reduced by 50%. This Active Asset Reduction applies in addition to the general 50% discount for assets held for more than 12 months. For someone on the top marginal income tax rate of 46.5% this means an effective tax rate of about 12%. The remaining capital gain can be further reduced to nil by utilising either or both of the following.
•In certain circumstances a capital gain can be reduced to nil if the proceeds of sale are contributed to a superannuation fund. This is known as the Small Business Retirement Exemption. For taxpayers aged 55 years or more the proceeds do not even have to physically be contributed into a superannuation fund.
•Alternatively a capital gain can be deferred by reinvesting the sale proceeds by acquiring another active business asset.
The Small Business CGT Concessions are clearly very powerful but there are very complex conditions to be satisfied in order to utilise these concessions. We strongly advise any small business owner to work through these conditions with a tax professional well in advance of sale.
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