Selling your small business can mark the start of fresh beginnings. Amid the process, you’ll need a strategic handle on the sale’s tax implications to remain compliant and secure a successful transaction.
Follow this guide to decode the meaning of capital gains tax and learn how to minimise your liabilities.
Which Taxes Apply to Small Business Sales?
Tax liability usually applies to the profits gained on the sale. Let’s break down the implications below:
Capital Gains Tax
The Australian Taxation Office (ATO) could apply capital gains tax (CGT) if you earn capital on the sale. Capital gain refers to the profit you make on appreciating assets.
For instance, if a property increases in value and you sell it for more than you paid, you’ve earned a capital gain. This amount is considered assessable income. CGT doesn’t apply when you sell the business at a loss.
Goods and Services Tax
Goods and services tax (GST) doesn’t apply to sales deemed a “going concern”. You’ll acquire this status with the following criteria:
- It’s an operating business that generates profit
- Both parties agree to this condition
- The seller is GST-registered
- The buyer intends to continue running the business
GST might apply to the purchase price if you don’t fulfil this criteria.
Can You Minimise Your Tax Liability?
The ATO provides various tax concessions for owners selling their small businesses. Review them below:
- CGT concession: Get a 15-year capital gain exemption if you’ve owned your small business (an asset) for 15 years or you’re retiring.
- Retirement exception: Receive CGT relief on active assets with a lifetime value limit of $500,000 if you’re selling a small business to retire.
- Small business rollover: Defer all or part of the capital gains made on the sale for up to two years.
- 50% discount: Reduce your capital gain by 50% when selling an asset you’ve held for one year or more and are registered as an individual or a trust.
Receive Professional Guidance
Do you need advice on navigating small business taxes associated with your sale? Contact Accounting Tax Solutions for personalised support.