As a taxation expert, I have witnessed many business owners struggle with understanding the tax implications of selling their company. It can be a daunting and intricate process, but with the right knowledge and planning, it can be done successfully. In this article, I will break down the basics of how business sales are taxed in Australia. When a company sells an asset, such as property, it results in a capital gain or loss. This is simply the difference between the cost of the asset and the amount received from its sale.
The Capital Gains Tax (CGT) is then applied to this gain, which is not a separate tax but rather a part of your income tax. It's important to note that business sales tax rates are calculated differently than those for individual merchants or trusts. In Australia, corporate structures are typically taxed at a nominal rate of 25-30%, depending on entity regulations. However, selling a business involves more than just tax rates. The process itself can be complicated, requiring all necessary documentation to be transferred to the new owners.
This is especially important for businesses that are sold as a going concern, as they must continue to operate until the date of sale to maintain their reputation and value. For business owners who sell their company for more than its initial cost, there will be a capital gain from the sale. If this gain is offset by capital losses or if there are no capital gains in that financial year, the loss can be carried over to future years. To ensure a fair and satisfactory agreement for all parties involved, it's often best for the older generation to sell the company to the new generation at market price, based on an independent valuation. One of the biggest challenges business owners face when selling their company is understanding their tax obligations. This is where creating an effective tax strategy becomes crucial.
Many small business owners choose to transfer their business to family members, such as children or grandchildren. However, it's important to carefully consider the implications of the business structure before beginning the sales process. In Australia, there is a 50% discount available for most capital gains derived from the sale of assets, including stocks, property, and business assets. Companies operating under a business structure can also access various concessions that differ slightly from those available to small businesses. For example, business owners under 55 must deposit the capital gain into a designated superfund to be eligible for retirement exemption, while those over 55 can receive the capital gain tax-free. The government has implemented these policies to encourage participation in the small business sector by offering tax-efficient mechanisms that reward long-term investment in a small business.
This is why it's crucial for business owners to start planning for the sale of their company from the very beginning. If you're a business owner considering selling your established company, it's important to take the time to carefully plan your sales strategy and consider the potential tax implications. It's always recommended to consult with an accountant, such as our team at WealthVisory, for expert advice on how to sell your company.
