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Cleary Hoare, Australia's pre-eminent taxation and capital protection law firm for private business, has over 30 years experience.

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Business Sales & Purchases

When it comes time to sell your business, we always focus on providing clients with the best possible net outcome.  To achieve this, you need your acting solicitors to be tax specialists, like Cleary Hoare.  As a business owner, you have worked too hard to miss out on the generous tax concessions available.

For the majority of small to medium size business owners, the value of your business (including business real estate) is your biggest asset and, more than likely, your retirement fund.  Therefore it is critical that you receive the maximum available net proceeds from your sale transaction.  Many Australians miss this once in a life time chance through poor planning, inadequate advice and the holding of assets in inappropriate structures.

When it comes to business sales, the government has been very generous with the available Capital Gains Tax (CGT) concessions.  Just because you consider yourself a small business, this does not mean you have automatic access to the concessions.  The government has placed strict rules and regulations covering a business’ eligibility.  If the correct planning is in place, a husband and wife team has the ability to receive up to $4 million tax free.

Very broadly speaking, the core hurdle regarding business sales are:

 1.

Business and other assets must be under $6 million in value and the owner/s needs to have owned the business/asset for more than one year CGT Discount 50% 
 2. Any assets sold must be “active assets”, namely used in the business for a certain period Active Asset Reduction 50% of the balance
 3. The business owners must use the Retirement Exemption rolling the business sale funds into superannuation  Retirement Exemption $500,000 maximum per individual 

 The ultimate CGT position for a trust or individual would be:

Capital gain $4 million                          
Less  
CGT discount (50%) $2 million
Active asset reduction (50% of balance) $1 million
Retirement exemption (2 x $500,000) $1 million
Assessable capital gain NIL

If you are planning to sell your business or a business asset, you do not need to be looking at a $4 million capital gain for effective planning to make a huge difference to your net result.  Here is an example:  A client approached Cleary Hoare with a plan to sell their business in approximately two years' time.  After a meticulous analysis of the balance sheet, it was apparent a major asset would not meet the “active asset” test due to the nature of the structure that held the asset.  Due to the fact that the client had time on their side, we were able to implement a solution that ensured that the asset was an active asset well before the actual sale. 

Below is a comparison study howing the change in the client's (take home) result:

  Pre-Restructure Cleary Hoare Result
Capital gain $1.5m $1.5m
Less    
CGT Discount (50%) $750k $750k
Active asset reduction (50% of balance) NIL $375k
Retirement exemption (2 x $500,000) NIL $375k
Assessable capital gain $750k NIL
Tax payable (approx) $364k NIL

 
Unfortunately, results like this are not always achieved.  There are two very common oversights that many private business owners make when they sell their business and attempt to access the available CGT Concessions.  Firstly, they leave it too late to inform their advisors about the impending business sale, and secondly, their advisors do not have a thorough understanding of the legislation and the possible restructuring opportunities available to maximise these generous concessions.

Business sales planning is very important.  Some very surprising and excellent results can be achieved by proper and thorough analysis and “sale year planning”.  All of the capital gains will, in many cases, be tax free.

If you are thinking about selling your business, please call to schedule an obligation free meeting with one of our specialist commercial lawyers / tax lawyers.