The following is NOT taxation advice.
You should seek advice from your accountant of financial adviser in relation to the taxation implications of buying or selling a business
The following information is derived from the ATO website and is reproduced here without amendment or comment.
Changing, selling or closing your business – things to consider
Here we cover the most common topics you need to consider when changing, selling or closing a business. While it’s a great starting point, we recommend you also seek advice from your tax adviser.
Sale of a going concern
A going concern is a business that is operating and making a profit. No GST is payable on the sale of a going concern if certain conditions are met. However, as the seller, you may be able to claim input tax credits for GST you paid on expenses relating to the sale.
Next step:
-
- Refer to GSTR 2002/5 – to work out whether the sale of a business meets the requirements of a ‘supply of a going concern’
Financial supply sale
The sale is a financial supply if your business is a:
-
- company and you sell its shares
- trust or partnership and you sell the underlying interests in the trust or partnership.
These types of sales are ‘input taxed’ if you exceed the financial acquisitions threshold.
An input-taxed supply means no GST is payable and you cannot claim input tax credits for GST expenses relating to the sale.
Capital Gains Tax
Capital gains tax (CGT) arises when you sell or dispose of assets you acquired on or after 19 September 1985 (post-CGT assets), minus any capital losses.
Under certain circumstances, pre-CGT shares in a company or trust may become subject to CGT.
You need to consider your CGT liability when selling any asset.
Small business concessions
There are various CGT concessions available to small business owners. Correctly applying these concessions may reduce your CGT liability when selling a business.
Specific concessions include the:
-
- 15-year exemption – that may exempt a capital gain from a business asset you have owned for at least 15 years
- 50% active asset reduction – that allows you to reduce the capital gain arising from the sale of a business asset
- retirement exemption – that allows you to receive relief from CGT if you sell assets called active assets used in your business – the exemption does not apply to gains made from passive (investment) assets
- rollover – that allows you to defer a capital gain from the disposal of a business asset for two years (you can defer the capital gain for longer than two years if you acquire a replacement asset or make a capital improvement to an existing asset).
15-year exemption
If you are aged 55 or older and retiring or are permanently incapacitated, and you have owned an active business asset for at least 15 years, you won’t pay CGT when you dispose of the asset by sale, gift or transfer.
Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.
50% active asset reduction
If you’ve owned an active business asset, you’ll only pay tax on 50% of the capital gain when you dispose of the asset.
Retirement exemption
There is a CGT exemption on the sale of an active business asset, up to a lifetime limit of $500,000. If you are under 55, money from the disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.
Rollover
If you dispose of an active business asset and buy a replacement asset or improve an existing one, you can defer your capital gain until a later year. The replacement asset can be acquired one year before or up to two years after the last CGT event in the income year for which you choose the roll-over.