The firm said it estimates that one third of the 1.54 million private business owners over the age 55 in Australia are planning to sell their business. However, Greg Travers, tax director at William Buck, said many of the SME owners who are planning to sell their business do not adequately plan to ensure maximum financial advantage from the sale.
“Most don’t realise the importance of good planning," said Mr Travers. "To put it in context, from a tax perspective for a $4 million sale, good planning could be the difference between paying $2 million in tax or paying no tax.
“Good planning is two-fold: firstly, maximise the value of your business and therefore the consideration you can receive when selling it. Secondly, legitimately minimise the amount of tax payable on the sale. Together these actions will give you the best after-tax result from the sale of your business,” he said.
Mr Travers highlighted capital gains tax as one poorly-understood area that is costing those selling a business a significant amount of money.
“We have witnessed business owners losing significant amounts by not understanding how the capital gains tax rule applies to different structures. Seemingly small matters can fundamentally change the tax outcomes,” he said.
“Good tax planning is not crisis management. If you are trying to fix your affairs the day before you sell, you will encounter problems. This is something that business owners should be addressing at least a couple of years before they intend to sell.”
Mr Travers highlighted ‘skeletons in the closet’ as another major issue.
“Tax-related matters that might have been acceptable to you for your business in the past are often not things that a purchaser is going to want to accept. Whether it's private transactions in a smaller business or international dealings in a larger business, identify and deal with your tax issues so that you can put your best foot forward when you sell,” he said.
William Buck outlined five key tax considerations to address before selling a business.
• Understand the legal structures around who owns the business and how capital gains tax will apply.
• Identify tax risks in the business and put in place strategies to deal with them. Consider undertaking a detailed tax review to achieve this.
• Look for excess cash, investment assets, etc in the entity that operates the business and see if these can be distributed to the business owners or an associated entity.
• Ensure all lodgments and payments with the ATO and other revenue bodies are up to date.
• Look to repay shareholder loans, in particular 'Division 7A' type loans.