Believe it or not, there are times when taking an overseas holiday, upgrading your family home, buying a holiday home or perhaps swapping your Holden for a top-of-the-range BMW may actually save you money. Perhaps you could consider saving even more by helping your children pay the deposit on their first homes. Or what about becoming more financially secure by making an extra-large super contribution?
The spending of money to save money may seem ridiculous. But some Small to Medium Enterprise (SME) owners who are planning to sell their businesses may find themselves in the fortunate position of being able indulge themselves and their families in order to become eligible for the highly valuable small business CGT concessions. Access to the concessions potentially can drastically cut or even wipeout multi-million dollar CGT bills that would otherwise be payable on the sale.
As SME owners should understand, various small business CGT concessions are available to businesses with either an annual net turnover of less than $2 million or a maximum net asset value of $6 million. Eligible business owners are entitled to CGT exemptions, discounts or rollover relief on the sale of “active” business assets. These tax breaks are in addition to the 50% general CGT discount for individuals, trusts and super funds.
Here are 10 strategies that may help business owners fall within the asset test for the small business CGT concessions:
1. Understand what assets are included in the asset test
Know what assets are counted for the threshold and then – if possible and practical – adjust your spending accordingly. The net market value of the business assets, personal bank accounts, personal investments – together with those of affiliates – are included in the test.
2. Understand what assets are excluded from the asset test
These are your main residence, superannuation and assets “solely for personal use and enjoyment” (such as holiday homes, luxury boats and exotic cars). A key consideration is how the assets are used.
3. As your business grows, closely monitor how asset values measure against the threshold
This is crucial even if you have no intention of selling at this stage.
4. Consider restructuring your business
A restructure, such as changing from a trust to a company, could trigger CGT liabilities which, depending on the circumstances, could be significantly reduced or eliminated through the general CGT discount and the small business CGT concessions. The restructure should still make good commercial sense, and not solely motivated by tax cuts.
5. Upgrade your family home
Buying a more costly home could possibly help to fall within the $6 million asset threshold. In addition to homes not being included in the asset test, their future capital gains are exempt from CGT.
6. Make extra-large super contributions
By making the contributions, the value of assets counted for the small business CGT concessions is reduced, and business owners are maintaining their personal wealth, and future earnings within the super fund which are concessionally taxed.
7. Help your children pay the deposit on their first homes
This spending is not caught within the small business CGT asset test and – like upgrading your family home or making big super contributions – is likely to be beneficial for family wealth.
8. Buy a holiday home
Again, this personal-enjoyment asset does not count towards the asset test, and its value may increase over the long-term.
9. Buy a luxury yacht and/or car
Although these assets are not caught within the test if used only for your personal enjoyment, their value will almost inevitably decrease. Whether their purchase is a smart move may well depend largely on the amount of tax is saved, if any, by reducing the value of assets included in the small business CGT asset test.
10. Go on a long overseas holiday
Certainly, spending a large amount on an overseas holiday will reduce the worth of your assets.
It is important to seek financial advice before taking any of the suggestion up.