3 factors that can affect how you’re taxed when selling your business

November 29, 2016 October 22nd, 2021

Getting ready to sell your business should be exciting. After all, this is the payoff for all the hard work you’ve put into establishing your business and making it what it is today.

Unfortunately, businesses are often sold in a rush, with limited (if any) planning. As a result, tax and other factors can severely affect the return on sale—not to mention the owner’s plans for the future.

Understanding tax implications before you decide to sell your business allows you to better manage them and keep more of your hard-earned money.

When you sell your business, you’re generally selling an asset—plant and equipment, trademarks, branding, or even goodwill. And if the proceeds of the sale are greater than the asset costs, then a tax will be applied. But exactly how your return on investment is taxed can vary significantly, depending on your personal circumstances.

Three factors that can affect how you’ll be taxed when selling your business

Business structure is one of the biggest factors that can affect your return on investment. Who owns the business being sold? How is the business structured (e.g. company, trust, personally held assets)?  Are you selling the business, or selling shares in a company that owns the business?

Another huge consideration is Capital Gains Tax (CGT), and whether you qualify for any of the concessions. These small business concessions, which apply when your aggregated turnover is less than $2 million, could reduce your tax liability by 50%, 75%, or even 100%. The concessions include:

  • active asset reduction
  • retirement exemption
  • rollover exemption
  • the 15-year exemption.

GST is another area worthy of consideration. Your sale can be GST free if you can satisfy the ‘going concern’ criteria (i.e. the business you’re selling is an ongoing enterprise).

Why you should plan to sell your business from the start

The most important is to start planning the sale of your business from the moment you set it up. In fact, you should be structuring it to minimise future tax consequences before you set it up.

Taking the time to plan everything gives you a great opportunity to legally minimise the amount of tax you’ll have to pay when you sell your business. However, the rules and regulations are extremely complex, and will depend on your particular circumstances. So it’s imperative to obtain professional business structure and tax planning advice before you go to market. The more planning and research you do before selling your business, the more chance you’ll have of minimising the tax you’ll have to pay and maximising your return on investment.

What you need to consider when selling your business

Selling your business is a huge decision. And there’s a lot to consider before you put it on the market. For example:

  • What are you selling—goodwill, plant and equipment, or a combination of these?
  • Is the business easily identifiable so it can be sold?
  • Does your business depend on you, or is it completely autonomous?
  • Do you have policies and procedures, manuals and business plans in place? Or is it all in your head?
  • Do you have the past five years of tax returns, financial records and management reports on hand?
  • Is your bookkeeping in good order?
  • Do you have your customer lists, databases, supplier contacts and employment contracts in order?
  • Is your business profitable, growing and energised? Or is it declining, tired and shrinking?

To maximise your net return you need to be prepared, have your business in order, and ensure you have professional expertise available. MBC can help you get the return you want, both personally and financially. Contact us at any time for an obligation-free discussion.