Smart tax structuring can help LPO owners save THOUSANDS when they sell their business.

The problem is that not all LPO businesses are structured the right way!

Does that statement sound too good to be true?

The unfortunate truth is that some small business owners are paying far more tax than they should when it comes time to sell when in fact with the right advice they could be paying next to nothing! The problem is that not all LPO businesses are structured the right way!

THE EXAMPLE: Let’s say you owned your LPO for the last 5 years and over that period you increased your LPO market value by $200,000 or a capital gain of $200,000. Pretty good result, right?

THE PROBLEM: Paying tax when you sell your business.

TAX PAYABLE: The tax ordinarily payable if the business was operated as a sole proprietor could be up to $29,000!!!! (Based on 2010 tax rates).

THE SOLUTION: In the Australian Tax Legislation there is a specific part of the law geared to providing a tax break to small businesses when they sell their business. This part of the law is known as the Small Business CGT Concessions. This legislation is very complex and contains some of the most poorly worded sections in taxation (what else is new huh?). Because of its complexity many tax payers are not taking advantage of this legitimate tax break or incorrectly applying the rule.

Some fast facts on the Small Business CGT Concessions:-

  • Only available when you sell a business or an asset connected with a business.
  • Only available to small businesses.
  • There are 4 concessions which can be chosen:
    • 15 year exemption
    • 50% active asset exemption
    • Retirement exemption
    • Rollover relief

The following basic illustration is a demonstration on how the Small Business CGT Concessions can save you a lot of tax:-

Without Small Business CGT Concessions

 

Capital Gain from sale of business $200,000
Less: 50% General Discount (100,000)
Taxable Capital Gain 100,000
Tax Payable $29,000

With Small Business CGT Concessions

Capital Gain from sale of business $200,000
Less: 50% General Discount (100,000)
Taxable Capital Gain 100,000
Less: Small Business CGT Concessions
– 50% Active Asset Exemption (50,000)
– Retirement Exemption (50,000)
Net Taxable Capital Gain $NIL
Tax Payable $NIL
Tax Savings $27,000 !!!!

Did that make sense? Looks simple right?

CAUTION!!   Being able to access the Small Business CGT Concessions hinges upon your LPO being owned in the correct tax structure and meeting all the technical and complex requirements. Having the wrong tax structure could easily result in paying extra tax despite utilising the Small Business CGT Concessions!

We will discuss what the best tax structure is for your LPO in our next newsletter.

Disclaimer: This article is not designed to be detailed tax advice but general information to help you be aware of important tax issues. Please contact us on 1300 77 82 81 if you would like to have a no cost “off the clock” chat about your business structure.

Does your accountant understand the issues which are affecting your LPO profits and re-sell value?

We are Chartered Accountants who specialise in providing taxation and business advice to LPO Owners. From LIPOM statements and carded articles to 990’s and LPO11’s – we are the only accountants who understand your business.

We provide advice to LPO owners all over Australia.

Call us today on 1300 77 82 81 if you would like to have a no cost, “off the clock” review of your business structure (Valued at $500).

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