Small business is hard work. Ask any small business owner and he or she will tell you about the hard work, sacrifices and many hours of dedication it’s taken to get to where they are. Many see their business as their superannuation and have poured profits back in to it over the years. Which is why when they sell, they absolutely deserve to get the highest return they can.

While the 2016 federal budget was full of surprises and we have seen back-flips and changes to the proposals, there was some relief for small business owners. All the media attention has been on the changes proposed to be made to superannuation contributions and balances in pension phase. There was, however, some welcome news for small business owners with regard to continued access to the small business CGT tax concessions.

So what do you know about these very valuable concessions and how do you qualify for them if you are selling a business or business assets. Firstly, identify if you need to be considering them at all:

• Are you selling a business asset and expecting a significant capital gain?
• Are you looking to retire after the sale of your business?
• Do you wish to use the sale proceeds to fund your retirement?

How does it work?

Subject to meeting the basic requirements, business owners can take advantage of the Government’s small business concessions to reduce or even extinguish any capital gains tax (CGT) realised from the sale of a business or business asset.

If the business asset was held for more than 15 years, and the owner is either over 55 and retiring or permanently incapacitated when the asset is sold:

• any capital gains could be disregarded; plus
• up to $1,415,000 of any sale proceeds could be contributed into super without counting towards the concessional or non-concessional contributions caps.

What does it mean for me?

This is potentially a significant opportunity for small business owners. Not only does it provide scope to reduce your CGT liability, it also allows you to turn the proceeds from the sale of your business into a tax-effective income stream in retirement
through your super.

If you’re considering this strategy, it’s important to seek professional financial, legal and tax advice specific to your circumstances. You should also note that lifetime limits apply to all contributions under these concessions, and the specific forms must be completed and given to the super fund before or at the time the super contribution is made to be effective.

How do I know if I qualify?

To be eligible for the small business CGT concession, you need to meet the following basic requirements:

• Your net asset value is less than $6 million or your business turnover is less than $2 million p.a. Your net asset value includes assets used in your business but are owned by
your affiliates or an entity connected with you.

• The asset you own is an ‘active’ asset – meaning it has been used or held ready for use in a business carried on by yourself (whether alone or in partnership), your affiliate, your
spouse, your child under 18 or an entity connected with you.

• The asset has been used in the business for at least half of the ownership period or for a minimum of 7.5 years if you’ve owned it for at least 15 years.

Strategy in action

Sarah and James are joint owners of a retail shop in a small town from which they’ve run their newsagency for the last 20 years. They acquired the property in 1992 for $300,000 and have
continuously owned it outright.

In 2015, in line with their pending retirement, Sarah and James sold the property for $1 million. Both aged 60, their net assets are less than $6 million and they are looking to use the sale proceeds to fund their retirement.

Because they’ve owned their shop for more than 15 years and are retiring, Sarah and James would be eligible for the small business CGT concessions. They can apply the sale of their business as follows:

• Proceeds of sale: $1 million
• Capital gain: $700,000 ($1 million – $300,000)
• Assessable capital gain: $0

As a result, Sarah and James can contribute $500,000 each into super under the CGT cap election without it affecting their concessional or non-concessional contributions caps for the financial year. This means they could potentially contribute more into superannuation or an SMSF in the same year under their other contribution caps.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.