The baby boomer generation is at the retirement stage now. Recently there is an increase in Aussie business people retiring but the subject of succession planning continues to be a continually under-addressed matter.
Efficient succession planning can help diminish a lot of the income tax pitfalls that originate from the point that every medium and small size business proprietor will at one point retire, close-up shop, or else leave the business.
Although at some stage just about every business owner understands they ought to employ a succession plan, it appears less frequent to find a business owner who may have actually done something concerning this. Even the relatively simple assumption that you’re going to at some point leave your enterprise ought to at the very least identify that there needs to be a procedure to tick off all the issues.
Obviously, there’s more than merely the taxation issues to take into consideration – there’s superannuation, pricing your enterprise, choosing the right person to hand over the reins, and selling or else you will be divesting yourself of something you have certainly put plenty of blood, sweat and tears into developing. Modern times might be a witness to an increase of baby boomers going through the process; however, this must cement the concept that succession planning will always be a significant decision of business lifecycle.
The ATO found that a majority of small business owners haven’t carried out sufficient planning to make an easy transition into retirement. ATO mentions that it is finding that leaving a small business is much less risky if owners have been working with their accountants or tax advisers to tackle the tax concerns of an exit strategy or succession plan prior to leaving the enterprise.
The truth is whenever a business is sold quickly and without correct planning, things can fall through the cracks and lead to obligations not being fulfilled – or bring about avoidable and expensive financial outcomes (including taxation).
With a lot of issues to manage (for example dealing with capital assets, employees, final payouts and so forth) and perhaps your lifetime’s accomplishment on the line, it may be very useful to get expert assistance and suggestions to guarantee thorough planning – particularly with the substantial sums of money involved.
A few of the issues can centre around the point that selling or passing on a business is a one-off financial transaction from the business standpoint, but from a taxation point of view, what looks like a single sale (that of the business) is in fact several sales of individual assets that must be taken into account.
Because of this, it is very vital to effectively deal with the eligibility to use the 4 small business CGT concessions, the appropriate treatment of pre-CGT assets (especially, goodwill), the restructuring or occasionally de-merging of the company prior to selling, as well as the GST treatment when selling the business as a going concern.
Not deregistering for some activities can result in troubles, like GST and PAYG withholding as well as the ABN. A BAS will continue being issued in the event you fail to cancel the GST registration and you could be penalised if you do not lodge it on time; irrespective of whether the business is still actively trading or not.
ATO audits have uncovered misunderstandings over the tax treatment of the sale or some other disposal of assets, particularly over accessing the small business CGT concessions; 50% active asset reduction ,15-year exemption, roll-over for replacement assets and the retirement exemption.
It’s a pre-requisite for any asset to be “active” to access these concessions, this addresses both tangible assets for example buildings, or intangible assets, which can be goodwill. An active asset is an asset that is utilized or kept ready for usage in the course of carrying on a business.
The profits from the sale of certain CGT assets might not be eligible for concessions due to this matter of “use”. As an example, assets that have a primary use of just deriving rent (which happens to be passive income for income tax purposes) is not qualified as active assets.
The 50% discount on CGT generally is applicable if the asset sold was held for 12 or more months by individuals and trusts. This CGT discount is not available to companies.
Decisions have to be made on selling the business enterprise itself or just the assets in the business, as there may be different taxation outcomes from each. Needless to say, when the business structure is a trust or partnership instead of a company, the tax implications will vary. We advice getting assistance with the tax implication of the different options, contact our expert tax agents and accountants if you need help.
When the business is being sold as a “going concern”, the sale might be eligible for GST exemption. However, there are several eligibility conditions, such as the vendor needs to remain in business up to the date of sale, the purchaser must be GST registered and consent in writing with the vendor that the “supply” of the business is as a going concern.
Any conversation of succession planning unwraps questions about estate planning. Passing on a business in the Will can bring concerns about making sure a business remains viable if being operated by beneficiaries of the estate or by an executor. And should there be a Self-Managed Super Fund in place, the tax treatment of benefits from the super fund will have to be addressed specifically (these are not covered by a will, but by the SMSF’s trust deed).
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