There will always be tax payable when selling a business. But there are legal ways to minimise or defer the taxes from the sale. The best way to achieve the best financial outcome from the sale of a business is to speak with your tax professional as early as possible in the process. Read on to find out why:
3 Reasons to Seek Professional Advice About Tax When Selling a Business
You May Be Able To Minimise Capital Gains Tax
There are certain capital gains tax concessions that are available to small businesses in Australia. The amount of the concession varies but, generally, the concessions allow you to reduce, defer, or disregard an amount of the capital gains tax (CGT) payable on the sale of a small business.
Eligibility for Small Business CGT Concessions
The structure of your business will determine whether you are eligible for the small business concessions relating to these capital gains concessions. Determining whether you are eligible can be complex. But for those businesses that can meet the small business concession, the amount of capital gains tax payable can be drastically reduced.
Some considerations in determining eligibility include whether:
- The asset being sold is a share in the company or an interest in a trust;
- Your small business has an aggregated turnover of less than $2 million;
- You meet the maximum net asset value test;
- And more.
Given the stringent requirements that you must meet to access this concession, as well as the large potential tax savings, it is crucial that you seek professional advice before selling your business.
Your Tax Advisor Will Provide Guidance About What & When To Sell Your Business
There are so many factors that will influence how much tax is payable once you sell your business. By speaking with a tax professional in advance of the sale, you set yourself up to reduce your tax liability and receive more of the proceeds from the sale. Here’s how:
You have time to structure your business
With planning, you may be able to structure your business in a way that invites concessions such as the CGT concession outlined above. This often takes time and is best achieved when the sale of the business is planned in conjunction with professional tax guidance.
You can better structure the sale of the business
With guidance, you may be able to structure the sale in a manner that allows you to take advantage of certain CGT exemptions. For instance, if you’re under 55 and pay the proceeds of the sale into a retirement account or superannuation fund, you may be eligible for a CGT exemption or reduction.
You can time the sale of the business to your advantage
You may be able to time the sale so you can take advantage of concessions, such as the CGT exemption that’s available for business assets that have been held for more than 15 years.
You will be better prepared for the tax liability from the sale
Ultimately, you will likely receive a tax bill following the sale of your business. Planning for the sale of your business allows you to plan for the tax liability that comes with the sale. This can help you to avoid situations where you may not have the funds available to pay the tax liability.
You May Be Able to Minimise or Eliminate GST Payable
For businesses that are registered or required to be registered for GST, the sale of certain assets owned by the business is generally a taxable sale. This means that it may be subject to GST.
For instance, there would usually be GST payable if you sell your business’s capital assets (such as new equipment, corporate vehicles and the like).
But there are circumstances where GST is not payable on the disposal of a capital asset. For example:
- There is no GST payable if the capital asset is not a business asset.
- If you sell your business as a going concern and include the capital assets, then you may not have to pay GST which may reduce the total tax when selling your business.
- Farmland may be sold GST-free in some circumstances, too.
Reduce Your Tax Liability By Planning The Sale of Your Business
Planning for the sale of your business is the best way to achieve a more favourable outcome from the sale. Ideally, you’ll speak with a tax professional at the earliest possible stage in the selling process (or years in advance if you want to make the most of your succession planning).
If you need tax advice, reach out.