You may be eligible for one or more of the CGT discounts and exemptions below when selling your business. With appropriate planning, in many cases you can use these concessions to reduce your CGT liability on a business sale to nil.
50% general CGT discount
50% active asset discount
15-year 100% exemption
$500,000 retirement exemption.
The 50% general discount applies to the sale of any CGT asset, including a business, held for more than 12 months. The other three concessions apply only to the sale of business assets if the seller, and the asset, meet certain conditions.
If you qualify for the 50% active asset discount, it applies after the 50% general discount, reducing your taxable capital gain to 25% of the amount it would otherwise be. You can then use the retirement exemption to eliminate the remaining 25% of the capital gain, subject to a lifetime limit of $500,000 worth of exemptions under this rule. The title of this exemption is misleading: you do not need to retire to claim it. You must meet a further condition if you are under 55, however.
If you have owned your business for more than 15 years and are retiring in connection with the sale, the entire sale proceeds may be CGT free. Again, this depends on certain conditions being met.
If you qualify for the CGT retirement or 15-year exemption, you can contribute the money exempted from CGT to your super fund up to certain, generous limits. If the 15-year exemption applies, you may contribute up to $1.5 million of business sale proceeds to super. If the retirement exemption applies, you may contribute up to $500,000 to your super fund. These contributions are on top of your standard contribution limits of $125,000 per year.
Many small business owners cannot make sufficient superannuation contributions during their working lives to adequately fund their retirement. These additional super contribution limits are a great opportunity to give your super balance a large, pre-retirement boost, to ensure your retirement is comfortable.
There are issues around how, and whether, the exemptions apply to certain business structures. If your business doesn’t qualify it may be too late, or too expensive, to fix it just before a sale. A change to your business structure may incur a tax cost. The higher the value of your business is worth, the higher the tax cost of change can be. Therefore, it is critical to get your business structure right at the earliest possible time: for ongoing tax efficiencies and to maximise your after-tax return on an ultimate sale.
The tax aspect of this seminar covers structuring issues you should be aware of to maximise your ability to sell your business CGT-free, what to do if your business has the wrong structure and how to give your superannuation a generous pre-retirement boost.
Date: Tuesday,24 March, 2020
Time: 4:00 pm – 6:30 pm AWST
Venue: Lake Karrinyup Golf Course
Tickets: $35 - All proceeds will go to Fortuna Foundation