Don't Pay More Tax Than You Have To

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Selling the farm or business? Did you know you may be eligible for capital gains tax (CGT) concessions – particularly if you are also considering retirement?

There are four types of small business CGT concessions available to eligible business owners (including farmers running primary production businesses) when selling the business.

  • 15-year exemption (which exempts the entire capital gains).
  • 50% active asset discount.
  • small business retirement exemption .
  • rollover due to a replacement asset being acquired.

To qualify for any of the small business CGT concessions the business owners must first satisfy at least one of the following basic conditions:

  • be recognised as a small business entity and must carry on a business in the current year;
  • satisfy the maximum net asset value test or the alternative $2 million turnover pa test, or
  • the entity (individual) is a partner in a partnership that is a small business entity, and the CGT asset is an asset of the partnership,
  • the asset must satisfy the active asset test.

Some or all of the sale proceeds from the business can be contributed into superannuation which you can then draw on to fund your lifestyle in retirement.

So how does it work? Consider the following example.

Jack and Deb, aged 63, have been working their cattle and sheep farm for forty years. Ready to retire they plan to sell the farm to their sons, Michael and Jeffrey.

They purchased the 10,000 acre farm forty years ago for $300,000. The current market price is $1.48 million, which Michael and Jeffrey have agreed to pay. Accordingly, the capital gain is $1.18 million.
Their accountant has confirmed Jack and Deb qualify as small business owners and are eligible for the 15-year concession having owned their farm for more than 15 years. This concession means they can ignore any capital gains from the sale, a significant tax saving.

As they are retiring, Jack and Deb can contribute up to $1.205 million each (2011/12 FY threshold) from the sale proceeds into their superannuation fund without counting against the usual contribution caps.
Jack and Deb are equal (50/50) partners so they can each contribute $740,000 of the sale into their respective superannuations. This money can then be used to commence superannuation pensions, Jack and Deb are both over 60 so their super pensions are tax free.

As you can see, if you qualify for the small business CGT concessions significant tax savings can be made when you sell your business. By implementing an appropriate retirement strategy in conjunction with the sale of your business, you can also enjoy tax free income in retirement.
For more information call 1300 167 730.

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