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Business Sales & Purchases

Are you a small business owner considering selling your business?  If so, it is imperative you obtain expert advice from a tax specialist before doing so in order to ensure that you take full advantage of the small business CGT concessions which may be available. 

As a small business owner, you would have invested hugely, both time and money, in your business.  The value which you have built up will often not only be your largest asset, but your retirement fund.  Therefore, it is critical that upon sale, you receive the maximum net proceeds possible.  With the correct planning, a husband and wife team has the ability to receive up to $4 million tax free from the sale of a small business. 

Currently, the Government has in place very generous capital gains tax concessions for small businesses.  However, just because you consider yourself to be a small business does not necessarily mean you will be able to access these concessions.  There are strict, and often complex, rules of eligibility and it is unfortunate that many Australian business owners, who have worked hard over many years building up their business, miss out on the concessions because of poor planning, inadequate advice and because they have held assets in inappropriate structures.

Broadly, the main small business concessions available and the requirements to obtain them are set out in the table below.

 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 table below shows how a capital gain of $4 million from the sale of a small business can be derived tax free.  Whilst this is the "ultimate" CGT position, you do not need to be looking at a gain of $4 million for effective planning to make a huge difference to your net result:

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

 
The tax planning and advice offered by Cleary Hoare goes well beyond merely advising whether or not your business satisfies the relevant legislative provisions.  Take the following scenario: a client approaches us with a plan to sell their business in a couple of years' time and seeks our advice.  After reviewing their circumstances, it becomes apparent that a major asset will not meet the "Active Asset Test".  Due to the fact that the client has time on their side, we are able to implement a solution that converts the asset to an active asset well beyond the sale.  Below is a table comparing the client's actual result with their result had they not sought and implemented our solution:

  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

 

The client in this scenario obtained an excellent result because they sought advice early.  If you are considering selling your business, the things that you should do to best place yourself to take maximum advantage of the generous CGT concessions are:

  1. Seek advice from advisers who have thorough understanding of the legislation and the possible restructuring opportunities available, such as Cleary Hoare;
  2. Seek advice as early as possible.

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.