There have been changes made recently which allow more business taxpayers to be eligible to access the CGT Small Business Concessions.
When you sell your business you may make a capital gain. Income tax is payable on this capital gain at a maximum rate of 46.5%. The CGT Small Business Concessions when applied allow capital gains on the sale of business assets, such as goodwill to be reduced. When applied in their entirety, they can reduce the tax payable on a capital gain of up to $2 million made on the sale of a business to zero.
To apply the CGT Small Business Concessions you must first satisfy the eligibility criteria. One of these criteria is that you must have net assets of less than $6 million to be eligible. These assets can include your assets, your spouse’s assets and assets in entities that you control. An alternative test is that if you are a “Small Business Entity” you are deemed to meet the net assets test of less than $6 million regardless of your actual asset value.
To be a Small Business Entity you must be carrying on a business and have a turnover of less than $2 million per year. The turnover test can look at multiple options to determine your eligibility. For example this may include last year, the current year or next year. It is important to note that your turnover can include the turnover of other entities that are connected with you.
Becoming a Small Business Entity can allow you to pass the net assets test and access the CGT Small Business Concessions when you sell your business. This means you can significantly reduce the tax implications on making a capital gain on the sale. It also has other implications while you are still carrying on a business. Being a Small Business Entity can mean that you can claim upfront tax deductions for some prepaid business expenses, faster depreciation for small value assets purchased and some other tax benefits. And let’s face it, there are few of us that don’t like a tax benefit!
If you are considering selling your business in the near future, it is worthwhile reviewing the implications of such a sale now to ensure you are aware of your options and have the opportunity to take advantage of any avenues that may now be open to you. There may be actions that you can put in place now to minimise the tax consequences and maximise the concessions available to you. As always, it is recommended that you speak with your accountant regarding any plans you may have for your business as they will be in the best position to offer advice.