Selling assets to fund retirement could cost you $$$ thousands
Are you a small business owner who is looking to sell your business assets and use capital to build wealth for retirement? The ATO have a number of small business rules that enable tax concessions for an active asset your business owns and sells at a profit. Your annual turnover is required to be below $2m and the company or associated parties meet the net value asset test.
There are two key capital gains tax (CGT) exemptions available to business owners to reduce their capital gains tax and build super for retirement.
There is the small business 15-year exemption which exempts the capital gain on the sale of the business asset you have owned for a least 15 years if you are over 55 or permanently incapacitated. The sale proceeds can be placed into super with no capital gains tax event. If you use this rule your entire capital gain will be tax free.
An example of this is a client, Sally, who runs a small winery . Sally grows her own grapes on the farm and operates a cellar door on the weekends and sells to the local markets. Sally is looking to sell her business, retire and move to the beach for a sea change. She has owned the property for over 15 years and operated the business for this time, enabling any capital gains tax on the sale of the assets to be exempt if the funds are placed into her superannuation. There are further rules and criteria to complete this strategy however this is a very simple tax effective rule to assist small business owners in their retirement. Sally came to see us to review her financial position before placing her property on the market. We completed significant research on the appropriate tax strategies to assist with reducing her overall tax position, this in turn provided Sally with confidence moving forward into retirement.
The second rule is called the “small business retirement exemption” that can be applied if you are not eligible for the 15-year rule. The business owner can place up to $500,000 into super from the sale of an active asset with a capital gains tax exemption at any age. For example, this may be from the sale of machinery, sheds, work vehicles and property that produces an income such as farmland.
The key is to plan and research before the sale of your business and determine the correct tax-exempt rules to assist you to pay less tax and maximise retirement savings.
The small business rules require considerable documentation and administration set out by the ATO.
Please call us for a free introductory meeting to chat further.