Selling your business is a big decision. It's not unusual to become attached to your company, especially if you've built it from the ground up, so making the choice to move on isn't one most owners take lightly. There are a lot of things to consider when approaching the idea, including any tax implications you'll come across when selling your business in Australia.
Here are some basic areas you need to think about when putting your company up for sale.
Do you need to think about GST?
If your business is registered for GST and you wish to sell or dispose of a capital asset in some manner, then you're likely to need to include it in the transaction.
Capital assets are considered resources that your company has held on to for use in earning revenue. These are items such as:
- Land and property.
- Motor vehicles.
Capital Gains Tax (CGT) on the sale of a business
Unless you exactly break even, you're either going to make a capital gain or loss on the sale of your business.
Making a profit means that you're subject to CGT if you acquired the company after 19 September 1985. Being aware of this tax liability allows you to prepare for it in advance, rather than receiving a nasty shock down the line.
Concessions available for small businesses
If you're considered a small business under the Australian Tax Office's (ATO's) definition, then there are certain concessions you might find that you're liable for. These are as follows:
- 15-year exemption – If you're aged 55 or over and your small business has owned and used an asset for 15 years, any potential capital gain on it won't be assessed when it sells.
- Retirement exemption – The sale of any active asset (such as your business) is exempt from capital gains up to a lifetime limit of $500,000 if you're under the age of 55. However, the exempt amount must go into a retirement savings account or a complying super fund.
- 50 per cent reduction – This exemption comes into play if you don't meet the requirements for the 15-year alternative mentioned above. Using this one you can halve your capital gains from the sale so that you're only liable for CGT on the remaining 50 per cent.
- Roll-over – If you know that you're looking to use any profits made by the sale of your current company to invest in a new enterprise within the next two years, you're able to select the roll-over exemption. Basically, you're deferring the payment of any CGT until you eventually sell or dispose of your next business. This can result in decent tax savings for you, but you do have a time limit for acquiring the new company.
Here at WMC Accounting, we believe in partnering with our clients to help them achieve their aims. If you'd like to learn about how we can assist you with your business, whether you want to sell or grow it, make sure you reach out to our friendly team today.