One of the most beneficial tax concessions available to a small business owner is the 15-year exemption under the small business Capital Gains Tax (CGT) concessions.
Basically, business owners who meet the following criteria can sell a business asset tax-free, with the option to contribute up to $1.565million of the gains into superannuation.
These rules state the business owners who can qualify and those who cannot. It is a tough result for those that barely miss out on the tax concessions. Your business ownership structure and your profit distribution decisions here could determine whether you can access the concessions or not. It is important to be alert to the legislation and plan accordingly.
5 qualification criteria for a business owner:
- There is a sale of a business asset (not share or trust interest) for a gain.
- For example, the goodwill of a business, or a business warehouse or office location (office location more pertinent in the current situation as more businesses opt for a remote workforce)
- The business owner, and its related entities, must have an aggregates turnover of less than $2 million or
- The net value of the assets of the business owner, including related entities must not exceed $6 million. This excludes personal use assets, including your family home or your superannuation
- The business asset must be owned continuously for the 15 years leading up to the sale
- If the sale is made by a company or trust; that entity must have had a significant individual. This means, there must have been an individual holding at least 20% interest in the entity for at least 15 years
- At the time of the sale, the individual seller, or significant individual of the entity seller, must be aged 55 years or over and the sale is made in connection with the business owner’s retirement.
It is important to note that where the asset is sold is a share in a company or interest in a trust, the exemption may still be available, but the rules become very complicated and you will need to work through the structure to ensure there is sufficient participation in the business by the owner and the entity in which the shares are sold satisfies additional conditions in relation to annual turnover or net business assets. For example, the owner must have a minimum of 20% interest in the entity. It is also important that the rules become even more complicated if there are two layers of ownership, for example, the common structure of a trust owning a company.
This potentially large tax concession has very specific rules attached which must be astutely assessed. If you would like more information or require assistance in determining your eligibility, please get in touch with one of our best tax accountants in eastern suburbs, who will be happy to assist you.