Understanding Small Business CGT Concessions: How to Maximise Tax Benefits When Selling or Restructuring your Business
Written by Daniel Dubois
If you are a small business owner planning to sell or restructure your business, one of the most valuable opportunities you can leverage are the Small Business Capital Gains Tax (CGT) concessions available under Australian tax law. These concessions can significantly reduce the tax burden on sale of your business assets, helping you preserve more of your wealth.
In this article, we'll walk you through how to make the most of these small business tax incentives, including eligibility criteria and essential considerations to ensure a smooth and tax-efficient business exit.
What are the Small Business CGT Concessions?
Small business CGT concessions provide tax breaks for owners who sell or dispose of their business assets. These concessions are designed to support small business owners, making it easier to transition to retirement, restructure or pass down the business to the next generation, or simply sell the business while minimising tax liabilities.
There are four key CGT concessions available to eligible small businesses:
15-Year Exemption – can allow you to completely avoid CGT on the sale of your business
50% Active Asset Reduction – reduces the gain for actively trading businesses
Retirement Exemption – allows for contributions to superannuation to offset some or all of the capital gain
Rollover Relief – provides relief for entrepreneurs moving from one business to another
The concessions each offer a different way to reduce the capital gains tax payable on the sale or restructure of your business, and can sometimes be used together to provide for a significant reduction in tax exposure.
How Do You Qualify for Small Business CGT Concessions?
Before you can benefit from small business CGT concessions, below are a few of the eligibility criteria your business must meet:
Active Business Requirement - your business must be an active business not simply holding investment assets (eg. rental properties or investments).
Small Business Definition – you and your business must meet the definition of a "small business" under Australian tax law and have an aggregated turnover of less than $2 million or have net assets below $6 million.
Ownership Structure - business owner (or owners) must hold a significant portion of the business. Typically, at least 50% of the business needs to be owned directly to qualify for the concessions.
Retirement Age: for the Small Business Retirement Exemption, you must be aged 55 or older when selling or restructuring the business.
Key Considerations When Selling Your Business
While small business CGT concessions may offer significant benefits, there are several important considerations to keep in mind before you proceed:
Planning Ahead
It’s essential to plan your business exit in advance. The best time is when you set up or buy the business – the second best is right now. Understanding the specific CGT concessions available to you can significantly impact the timing and tax efficiency of the sale. Early planning ensures that you make the most of available incentives, including structuring of your current operations and any eventual sale in a way that effectively manages tax.
Business Structure
The structure of your business can impact your eligibility for the CGT concessions. For instance, if your business is held within a family trust, you may need to carefully assess how that impacts your ability to access the retirement exemption or active asset reduction. Reviewing the business structure with Salt Financial will be key to maximising tax benefits.
Professional Guidance
Selling a business and claiming small business CGT concessions can be complex. Working with an experienced tax advisor such as Salt is essential to ensure you meet the eligibility criteria and that you are correctly applying the concessions to reduce your tax exposure.
State Taxes and Other Considerations
Keep in mind that state-based taxes, such as stamp duty on business sales, may apply, and these could impact your overall tax strategy. Be sure to factor in all applicable costs when calculating your final tax liabilities.
In summary:
Selling your small business can be a rewarding experience, and the Small Business CGT concessions are a powerful tool to help you reduce tax liabilities when you do. Where appropriate to do so the concessions are also a valuable tool as part of any restructure. By understanding the key CGT concessions and ensuring your business meets the eligibility criteria, you can then arrange the sale of your business for maximum tax efficiency and financial benefit.
Proper planning, structuring, and professional advice are critical to making the most of these opportunities. If you’re considering selling your business, consult with Salt who can help you navigate the complexities and make the most of your available tax benefits.