As your business grows and evolves, restructuring can be a smart move to improve efficiency, safeguard assets, and plan for the future. One of the key benefits available to Australian small businesses during this process is the Small Business Capital Gains Tax (CGT) concessions, which can help reduce or even eliminate tax liabilities when restructuring or selling business assets.

Why Consider Restructuring Your Business?

Restructuring your business can bring several advantages, such as:

• Asset Protection: Separating personal and business assets to minimise risk exposure.
• Tax Optimisation: A new structure may offer tax efficiencies and additional deductions.
• Succession Planning: A well-planned structure facilitates a smoother transition to new owners or future generations.
• Operational Efficiency: Different structures provide varying levels of flexibility and regulatory compliance to suit business needs.

Small Business CGT Concessions Explained

Small business owners in Australia can access four key CGT concessions when selling or transferring business assets as part of a restructure. These concessions provide financial relief, allowing businesses to reinvest or transition more efficiently.

1. 15-Year Exemption

If you have owned your business assets for at least 15 years and are retiring or permanently incapacitated, you may be eligible for a full exemption from CGT. This concession is particularly beneficial for long-standing businesses planning for retirement.

2. 50% Active Asset Reduction

Eligible businesses can claim a 50% reduction in the capital gain when disposing of active business assets. This reduces the taxable amount, making reinvestment more feasible.

3. Retirement Exemption

Business owners can disregard up to $500,000 of capital gains if the proceeds are used for retirement purposes. If you are under 55, the exempt amount must be contributed to a complying superannuation fund.

4. Rollover Relief

This concession allows you to defer CGT when selling or transferring business assets, provided the proceeds are reinvested into a replacement asset within two years. This helps support business growth and expansion without an immediate tax impact.

Eligibility Criteria for Small Business CGT Concessions

To qualify for these concessions, your business must meet specific eligibility criteria, including:

• An annual aggregated turnover of less than $2 million, OR
• Net business assets valued at less than $6 million (excluding personal assets such as your home).

The asset must also meet the “active asset” test, meaning it has been used in the running of the business for at least half of the ownership period or for 7.5 years if owned for more than 15 years.

Applying CGT Concessions in Business Restructuring

Common situations where small business CGT concessions can be beneficial include:

• Transitioning from a sole trader to a trust or company structure.
• Transferring business assets into a family trust for improved estate planning and asset protection.
• Selling a division of the business to streamline operations.
• Expanding business operations by reinvesting sale proceeds into new ventures.

Important Considerations When Restructuring

Before restructuring your business, consider the following:

• Consult with qualified tax and legal professionals to ensure compliance and maximise benefits.
• Weigh the long-term benefits and potential costs associated with the restructure.
• Ensure adherence to Australian Taxation Office (ATO) regulations.
• Maintain accurate records and documentation to support CGT concession claims.

Conclusion

Restructuring your business can be a strategic decision that enhances growth and security. Leveraging small business CGT concessions can make the transition more financially viable, whether you’re preparing for retirement, protecting your assets, or planning for future expansion.

If you’re considering restructuring, seeking expert advice and using platforms like Trustify can provide the support you need to navigate the process smoothly and maximise the tax benefits available to your business.