Whilst many women have discovered the benefits of working for themselves few are aware of the benefits and concessions provided by the Federal Government to help reduce capital gains tax (CGT) on the sale of their small business.
The small business CGT concessions effectively offer small business owners three benefits in the event of selling qualifying business assets:
~ Tax payable on the capital gain from the sale can be either reduced, deferred or completely eliminated;
~ Companies and Trusts may be able to distribute funds more tax effectively to certain shareholders, unit holders and
~ Provide the means for some, or all, of the sale proceeds to be contributed to superannuation and have
thesecontributions exempted from the standard non-concessional contributions cap.
To be more specific, there are four CGT concessions that may apply to the sale of small business assets. These are:
~ Small business 15-year exemption
~ Small business 50% reduction
~ Small business retirement exemption
~ Small business roll-over
Where an asset qualifies for one or more of the small business CGT concessions, any capital gain generated by the sale of a qualifying small business asset can be reduced, deferred or eliminated. However there are further conditions that must be met first before the above concessions can apply.
Failure to meet any of the following conditions will result in you not being able to utilise the small business CGT concessions. These conditions are:-
1) Active asset test:
This is the core test and must be met on all occasions ie the capital gain is realised from sale of an ‘active asset’ of the business. This includes shares in the business and goodwill.
2) Maximum net asset value test or the small business entity test:
You must also satisfy either the $6 million maximum net asset value test or the $2 million small business entity test. The $6 million net asset value test includes the value of certain assets of your affiliates and entities controlled by you, but excludes your superannuation, home and other personal use assets. The $2 million small business entity test is available if you fail the $6 million net asset value test. The $2 million small business entity test is a measure of your business’s turnover (ie basically gross sales).
3) Significant individual test:
This only applies as a basic condition where the asset being disposed of is a share in a company or an interest in a trust ie there must be an individual who owns a minimum 20% stake in the business.
If proceeds from the sale of a small business are being contributed to superannuation, then it will be important that the member complete and forward an approved Election Form to their superannuation fund before, or at the time, that the contribution is being made.
The small business CGT cap election form is available via the Australian Taxation Office (ATO) website.
Cecilia, aged 62, is considering retirement and has decided to sell her hairdressing business which she has owned for the past 25 years. Sale of the business results in a capital gain of $400,000 in the 2011/2012 financial year.
Assuming Cecilia Has satisfied all of the basic conditions we can now apply the small business 15 year retirement exemption and contribute the entire $400,000 tax free into her superannuation.
Small business CGT concessions can apply in addition to the standard offsets of capital losses and the general CGT discount for assets held more than 12 months, however these must all be applied in a specific order.
The small business CGT concessions can be extremely complex and it is highly recommended that professional advice be sought from both your accountant and financial adviserto ensure the best outcome.