If you’re planning to sell your business, capital gains tax is an enormous issue.
The Australian Tax Legislation includes some generous capital gains tax concessions. However, they are also complex.
The first test relates to income. If the business’ income is less than $2million per annum, irrespective of the value of assets owned by the business, then capital gains tax would probably be able to be avoided on the sale of your business.
The second area relates to the value of assets. Your assets can include net assets of family members in your overall calculation. The value of assets is determined at a particular time. It’s what the assets are worth at that time. Some assets are not included in the assets test. The calculation is made on net assets and, therefore, all liabilities should be brought to account in the calculation of the net asset value. If the net market asset value doesn’t exceed $6million, then, most probably, capital gains tax is not payable you can access the small business CGT concession to reduce or eliminate any capital gains. The net market value of assets includes all of your business assets but excludes your family home, superannuation and personal use assets. Personal use assets could include a holiday home if you’re not renting it out. If you’re selling a business, you can include in liabilities the commission for the sale of the business and any other expenses that are necessary to enable the sale of the business. It’s important to consider all of the liabilities you have to ensure they’re all included in this calculation.
The capital gains tax concessions are very attractive. However, there are traps and we recommend that, prior to finalising any business arrangements relative to the calculation of capital gains tax concessions for small business, you contact us for a discussion on your individual position.