Navigating small business sales: a guide to capital gains tax and superannuation strategies

Selling a small business is a huge milestone in an entrepreneur’s life. Understanding the financial implications, including capital gains tax (CGT) and superannuation contributions, is crucial for maximising your outcome.

At Precision Wealth Management, we help you navigate these complexities. Let’s examine two case studies to illustrate the varying impacts of small business sales on taxes and retirement planning.

Understanding capital gains tax (CGT) and small business sales

Scenario one:

A couple in their 60s, having owned a small business for 20 years, decided to retire and sold their business for $800,000.

Tax implications:

In this case, the couple is eligible for small business CGT concessions, which can allow them to sell their business CGT-free. This exemption significantly impacts their financial outcome by minimising their capital gains tax liability.

How small business capital gains tax concessions can impact your sale

Superannuation contribution strategy:

Post-sale, the couple can make superannuation contributions up to the superannuation contribution cap. This straightforward approach means they can deposit the proceeds into their super fund, leveraging concessional contributions without complex planning or substantial tax implications. This strategy ensures they maximise their retirement savings efficiently.

Strategies for minimising CGT on small business sales

Scenario two:

A business owner in a larger company with five owners, not eligible for small business CGT concessions, sells their share of the business for $800,000.

Tax implications:

In this instance, the total business sale was over $6M, leaving them without access to the small business capital gains tax concessions, the sale adds significantly to the owner’s taxable income, resulting in a substantial capital gains tax liability. This situation requires careful planning to mitigate the impact on their finances.

Utilising concessional contributions super for retirement planning

To manage the tax burden, establishing a bucket company could be a viable solution. By transferring the business proceeds into a bucket company, the owner can benefit from the lower company tax rate rather than facing a high personal tax bill. This strategy helps spread the tax small business impact over several years.

Maximising your superannuation contribution after selling a small business

Additionally, the owner can make a large concessional superannuation contribution to use any available carry-forward concessional contributions cap. For more detailed advice on concessional contributions super, refer to our previous blog on carry forward contributions.

The role of a bucket company in managing capital gains tax

The bucket company’s funds should be invested prudently, with consideration given to risk profiling to align with future withdrawals and also consideration to a company not being eligible for any capital gains tax discounts making growth assets less attractive. Once the funds are fully drawn, the bucket company can be closed, having served its purpose of effectively managing the tax implications.

Key advice on selling a small business and managing tax implications

These case studies highlight how two small business owners with identical sale proceeds can face very different financial scenarios based on their eligibility for capital gains, tax concessions, and overall financial situation.

At Precision Wealth Management, we provide tailored advice on selling a small business, helping you navigate the complexities of CGT, capital gains tax concessions, and superannuation strategies.

Navigating small business sales: a guide to capital gains tax and superannuation strategies

If you’re contemplating a small business sale or need expert advice on managing the tax small business implications, we invite you to consult with us. Our team can assist you in making informed decisions to optimise your financial outcomes.

For personalised advice, contact Precision Wealth Management today! Let us help you navigate the intricacies of capital gains tax and superannuation contributions to achieve the best results for your unique situation.

DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.