Making sense of the menu of small business CGT concessions

The theme of The Tax Institute’s Noosa Tax Intensive in November 2018 was “Mixing it right from the start to the finish - your client’s journey to sizzling success”.

The focus of the event was on your client’s growth journey, ensuring that you have the right ingredients from the start, have the ability to capitalise on the recipe and grow it once the recipe is just right. 
In her session ‘Making sense of the menu of small business CGT concessions’ Leanne Connor, CTA (WGC Business Advisors), looked at what’s involved when a client is looking to restructure or is considering an exit through a business or share sale.

In her paper presented at the event, Leanne asked “What if you don’t have the right ingredients from the start to achieve what you set out to achieve? What if you have managed phenomenal growth and now you want to exit the business without giving away the value to the taxman?” 

Speaking to us before the Intensive, Leanne said " Revisiting the small CGT concessions available and the associated tips and traps with its application will assist in understanding and mitigating the tax cost of either a planned business exit or as part of the implementation of a wider succession planning strategy”.  

The benefits of available tax concessions can be moderated by the compliance costs and complexities associated with determining eligibility for those concessions. The proposed amendments to Div 152 will undoubtedly add to the existing complexity, and with retrospective effect. 
Leanne’s paper is excerpted in this post.

As an adviser, you may be regularly called upon to review a client’s business structure to ensure that it is meeting the needs of the various stakeholders. Alternatively, a client has an eye on the exit strategy and is looking for ways to mitigate the tax impost on sale. Whether looking to restructure or considering an exit, you will be called upon to evaluate and mitigate the tax cost of the transaction.

There is a smorgasbord of tax concessions available to small business owners, which can provide full or partial relief from taxation on a capital gain arising from the disposal of assets related to their business. 
Some provisions provide relief for all businesses, other provisions are specifically targeted to small businesses. It is unfortunate that the rules relating to “the smaller end of town” appear disproportionately complex in determining eligibility for those concessions. This complexity has been exacerbated with the introduction of further integrity measures, in relation to CGT events involving the disposal of shares in a company or interests in a trust, to ensure that the concessions are only accessed in relation to assets used in a small business or ownership interests in a small business.
Advisers need to be on top of their game to ensure you correctly determine eligibility for these tax concessions. Failure to identify eligibility for tax relief will erode the value your client has built up in their business. Conversely, incorrectly applying tax concessions when the client is ineligible, or inadequate planning for the potential application of these concessions, can be equally catastrophic for the client and potentially expose the adviser to costly PI insurance claims. 
Factors to consider when restructuring 
There are a number of factors that should be taken into consideration when advising a client if they are currently operating in an appropriate structure or whether it would be advantageous to change.
Whilst you may start a business journey with a well thought out plan, a client’s needs can and do change over the lifecycle of the business and therefore there are times when a restructure is desirable, if not essential, to address the current circumstances. 
Leanne’s paper goes on to look at selecting the right operating structure, and whether a restructure may be appropriate. 
Restructuring using other CGT rollover provisions 
Business restructuring will inevitability involve a CGT event – a change in the beneficial ownership of an asset from one taxpayer to another. The change may be in the ownership of a single business asset, multiple business assets or an ownership interest in the entity operating the business or connected with the business entity. 
There are a number of CGT rollover provisions, including those specifically targeting small business, which operate to either defer or disregard part of all of the capital gain or loss from a CGT event until another CGT event happens in relation to those assets.
Before launching into a review of the concessions specifically targeting small business, Leanne recaps on the rollovers that are available for all entities, regardless of size. 
In summary, there are two types or groups of rollovers, being replacement asset and same asset rollovers. Leanne’s paper looks at each, then goes on to look at utilising the Small Business CGT Concessions – Div 152, provides an overview of the CGT Concessions, and wraps up with a comparison of the Small Business Restructure. 
Her paper is available to view here
Leanne Connor, CTA, is a Director of WGC Business Advisors Pty Ltd, a chartered accountancy firm specialising in taxation and strategic advice to SMEs and high net worth individuals. 
Leanne has more than 30 years’ experience providing accounting, business advisory, strategic superannuation and taxation services. Her areas of expertise include tax and superannuation planning, business restructuring and understanding the fundamental issues relating to SMSFs, family trusts and private companies.


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