What is the tax on selling a business in Australia?

by 2nd of July, 2020

Not many people know that business owners are responsible for paying Capital Gains Tax (CGT) when selling their business. There is also many other taxes or exemptions that you could qualify for if you’re selling your business. Dr. Adrian Raftery from Mr Tax Man explains more below from the expert of his book, 101 Ways to Save Money on Your Tax - Legally!.

Close or sell your business

If you close down or sell your business, there are significant opportunities to do some tax planning and minimise CGT as much as possible.

If you are a retiring small business owner you may be entitled to disregard some or all of your capital gains if you:

are 55 years or over
retired or are permanently incapacitated
owned your ‘small business CGT assets’ for 15 years or more.

If you do not satisfy the above criteria, the ATO says you may still be entitled to the following concessions to reduce any potential taxable capital gain from the sale of your small business:

50 per cent general CGT discount — for capital gains on assets that you have held for 12 months or more
small business 50 per cent active asset reduction — reduces the capital gains on ‘active assets’ by 50 per cent
small business retirement exemption — disregards any remaining capital gain by up to a lifetime limit of $500 000 per individual if paid into a complying superannuation fund
small business asset rollover — defers a capital gain where you acquire ‘replacement assets’.

Qualifying for small business concessions

To qualify for these small business concessions, the ATO says you must satisfy the following conditions:

You have been carrying on a business with a turnover under $2 million.
The net value of your CGT assets and any related entities is a maximum of $6 million.
Your CGT asset is an ‘active asset’.
If the asset is a share or interest in a trust:
- there must be a ‘controlling individual’ just before the CGT event
- the entity claiming the concession must be a ‘CGT concession stakeholder’ in the company.

When doing capital gains tax calculations on your home used for a business, the ATO allows you to have acquired it for its market value on the day when the property was first used to produce assessable income.

If you’re thinking of selling your business, it’s important to engage with relevant professionals. If you have any questions about listing your business online for sale, you can contact the Bsale team at info@bsale.com.au and we’ll be in touch with you soon.

Caragh Welford

Caragh has been an advocate of small business since making the switch working for multi-nationals to independent, Australian owned businesses (like Bsale). With a passion for online marketing and being inspired by the ever-changing business world, Caragh enjoys sharing her thoughts with our Bsale audience. (FYI, it's pronounced Kara!)

You can find Caragh on Linkedin

Tags: selling legal finance small business