CAPITAL GAINS TAX AND SELLING A BUSINESS
John (a hypothetical sole trader) has just sold his business for a large profit. The tax man is waiting
for his share. Yes, gains resulting from the sale of businesses are subject to capital gains tax (subject
to owning the business before 19 September 1985).
HOW ARE CAPITAL GAINS CALCULATED?
Simply, it is sale proceeds less the cost of the establishing and/or buying the business.
For example, if John sold his business for $1 million after buying it 15 years ago for $500,000,
the capital gain is $500,000.
In reality, the calculation is often far more complex depending on the financial history of the
business. Your accountant can readily perform and explain these calculations.
HOW MUCH TAX WOULD JOHN PAY?
Normally, John would add $500,000 to his income in the year of sale!! Applause from tax man.
There are some generous concessions available. However, these depend on many complex factors
which John’s accountant can explain in more detail. They include, for example, the length of time
John has owned the business, what entity does John operate the business in, what is John’s net
wealth position and annual business sales, to name some of many.
WHAT TAX CONCESSIONS MAYBE AVAILABLE.
50% General Discount for business assets owned longer than one year. This does not apply
to all entities. This concession might reduce John’s taxable income by $250,000.
Active Asset Concession. This concession might reduce John’s taxable income by a further
Retirement Concession. This might reduce John’s taxable capital gain to $0.
15 Year Exemption may also be an option for business assets held at least 15 years.
This totally exempts the capital gain depending on many factors.
John should consult his accountant prior to any sale of his business. The accountant
can assist in readying the business for sale with a view towards obtaining the tax concessions.
The concessions are complex. Simple unintended actions sometimes make them invalid.
Copyright 18 February 2022. Rede Accountants.