In this series of three articles, we explore key issues that business owners in mining and resources need to consider when they want out, and importantly, why they’ll need a professional advice team to handle what are typically highly complex and diverse issues across legal, tax, accounting and personal financial planning priorities.
#1 CGT exemptions favour super savings
After years of hard work, you’d be forgiven for thinking you deserve to take the proceeds from the sale of your mining and resources business to bolster your super and fund your retirement lifestyle. But that would be a mistake.
The reality is, your business sale will have Capital Gains Tax (CGT) and income tax implications that need to be carefully considered. However, this may not be as bad as you think as there are CGT exemptions that favour your retirement savings through superannuation, allowing proceeds from the sale of your business to be contributed beyond the normal contribution caps. While this may sound like a tax issue, it’s equally a financial planning matter.
It stands to reason that you’ll need to know if the ATO’s Small Business CGT exemptions apply to you. Then you’ll need to know how to make the most of the CGT-exempt proceeds from the sale of your business in the tax effective investment environment of superannuation. But first, here are some quick facts:
Small business CGT concessions
The ATO offers small business CGT concessions that can assist small business owners in mining and resources to reduce, or eliminate, the CGT normally due on disposal of their business. These concessions include enabling business owners to contribute business sale proceeds to their superannuation.
Eligibility
The first step in bolstering your retirement wealth and saving tax is to be absolutely certain you are eligible to make a small business CGT concession contribution. Basic eligibility criteria for such contributions include a capital gains tax event occurring and an active asset that meets a specific definition has been sold, and either:
- Your business has an annual turnover of less than $2 million; or
- You and your associated entities, including your business, have net assets of no more than $6 million (excluding personal use assets such as your home)
Assessing whether a business meets eligibility criteria for CGT concessions is complicated and depends on factors including your business structure and any related entities.
The two key CGT exemptions which can help business owners boost their super by allowing contributions beyond the normal contribution caps are as follows:
#1: Small business ‘15-year’ exemption:
Providing two big benefits, the 15-year exemption is usually the most effective for small business owners wanting to build their super balance using the proceeds from the sale of their business.
This applies for business owners aged 55 and over who have continually used and owned their business assets for 15 years as they may have no assessable capital gain when they sell and contribute sale proceeds to superannuation under this exemption. Further, super contributions under this exemption are not subject to the usual annual concessional and non-concessional contribution caps of $25,000 and $100,000 respectively. Instead, contributions are measured against a lifetime CGT cap which is $1.515 million (as of 2019/20), meaning higher than normal contributions to super are allowed following the sale of the business under this exemption.
#2 Small business ‘retirement’ exemption:
The retirement exemption also enables small business owners to make superannuation contributions beyond normal contribution cap amounts. This exemption allows up to $500,000 of the capital gain to be eliminated and contributed to superannuation (using a portion of the $1.515m lifetime cap). Remaining cap amounts can be used under other small business CGT exemptions, including the sale of a different business in the future.
There are other discounts and reductions that may be advantageous to work in conjunction with the above, all of which require expert advice to ensure you make the most of the available concessions based on your business and personal circumstances.
Collaboration and specialised advice
While your business accountant is best qualified to determine your eligibility and subsequent tax management and minimisation, when it comes to contributing business sale proceeds to superannuation in the manner than best suits your financial circumstances and retirement plans, you’ll need additional expertise. The key to the best possible outcomes is to take a professional advice ‘team’ approach.
Working closely with your accountant, your financial adviser has the qualifications, knowledge and experience to manage your superannuation contribution, investment and retirement planning strategy. There are specific rules regarding when and how these concessions and exemptions are accessible, with potential mistakes wiping out any benefits otherwise gained and resulting in harsh tax penalties.
Equally, when your lawyer collaborates with your accountant and financial adviser, the benefits include specialised advice that can enhance sale negotiations, execution of the business sale agreement with conditions that integrate both the business and personal affairs of the business owner on completion of the sale and beyond.
Resources Unearthed recognises and addresses the need for business owners in mining and resources to access coordinated and properly integrated specialised advice. Our collaborating team includes professionals from financial planning, accounting and business advice, law, lending and finance and numerous other disciplines that each contribute to providing coordinated solutions for the often-complex matters that affect business owners in the mining and resources business sectors.
To find out more about utilising the small business CGT concession when selling your small business to boost your retirement wealth, and to learn more about our collaborative approach to achieving the best possible outcomes, please contact Brett Cribb or James Marshall on +61 (0)7 3007 2000 or contact@resourcesunearthed.com.au
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in mining and resources.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.
