Structuring your CGT concessions to maximise your benefit
There are four types of CGT concessions available to small businesses that are of significant value when selling your business. These are called the Small Business Concessions (SBC). The good news is these measures are not mutually exclusive. This means you can access more than one of these concessions, and in the order you choose - so long as you satisfy the conditions.
Additionally, utilising the SBC does not stop you from accessing the general 50% discount on capital gains where the asset is held for more than 12 months. The combination of the general 50% discount and the SBC can mean you can make a large proportion of your capital gains on the sale of your business non-taxable.
Accessing more than one of these concessions needs some planning to take full advantage of the benefits available. While everyone’s circumstances are different, if available, the concessions could be accessed in the following order:
- 15 year exemption
- 50% general discount concession
- 50% active asset exemption
- Rollover residue gain into replacement asset
- Apply any balance, where appropriate, to the retirement exemption (up to the $500,000 lifetime limit).
It’s important to understand that any gain rolled over into a replacement asset cannot then be discounted by the 50% active asset exemption or 50% general discount concession on sale of the replacement asset. Consequently these two concessions must be utilised prior to using the rollover concession. There are some differences in the tax result depending on the type of structure making the gain.
As a simple example, a family business run through a trust could utilise the general discount, active asset discount and the retirement exemption for the husband and wife and get a $4M capital gain down to Nil.
This area is very complex and everyone circumstances are different. It’s important to get the procedure and timing right, or you could miss out on the concessions.
It’s also important to understand that the ATO are looking very closely at all CGT SBC claims and you must expect an ATO review should you make a claim.
Along with this, the only way to be sure of accessing the concessions is to plan ahead. If you plan to sell your business in the next 5 years you should be looking at your structure, business affairs and asset levels to see whether you will be able to claim the concessions. There are legitimate planning strategies that can be put in place to enable you to access the concessions but these will not be able to be done too close to the sale. Get the planning done early and get advice from a competent accountant as this is the only way to ensure you will be able to save CGT on sale of your business.
Questions on small business income tax and other issues can be emailed to firstname.lastname@example.org.
By Preston Foster, Senior Financial Planner, APT Wealth and Michael Goodrick, Managing Partner, Stanley & Williamson