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Succession planning

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Log-in at right to access information on disposal of assets and CGT. Also access value-added content from the Tax Summary book, such as:
  • using the small business CGT concessions
  • worked examples for each structure
  • the supply of a going concern.
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One subject that makes regular appearances in the Tax Office's annual compliance programs is the tax risks it sees stemming specifically from the fact that many small and medium sized businesses close-up shop, retire or otherwise leave their businesses.

While on some level every business owner realises they should have a succession plan in place, and not just family businesses, it seems rare to find something being done about it. Even the seemingly straight-forward plan to sell your business needs to at least recognise that there should be a process to tick off all the issues.

Of course there is more than just the tax issues to consider (although CGT will figure largely) – there is super, valuing your business, finding the right person to take over, and selling or otherwise divesting yourself of something you've probably put a lot of blood, sweat and tears into growing. Contemporary times may be witnessing a big demographic spike of baby boomers going through the process, but this should only cement the idea that succession planning will continue to be an important part of business life.

Tax Office research shows that around 60% of businesses do not have a succession plan in place, yet the conventional wisdom in this area of business practice seems to be that enterprises will be more able to minimise tax risks at this planning stage. When a business is sold quickly and without proper planning, items can fall through the cracks and result in obligations not being met – or result in unnecessary and costly financial consequences (including tax).

With so many issues to juggle (such as dealing with capital assets, staff, final dividends and so on, as mentioned in 'Selling the business') and possibly a lifetime's achievement at stake, it can be extremely valuable to have professional advice and input to ensure careful planning – especially with the often high amount of money involved.

Some of the problem areas can centre around the fact that selling or passing-on a business is a one-off transaction from a commercial perspective, but issues to remember include that, from a tax perspective, the one sale is actually many sales of individual assets that need to be accounted for, as such the eligibility to access the four small business CGT concessions, the correct treatment of pre-CGT assets (in particular, goodwill), the restructuring or sometimes de-merging of a company before a sale, and the GST treatment when selling a going concern.

Not cancelling registration for certain activities can cause problems, such as GST and PAYG withholding, but also your ABN. A business activity statement will continue to be issued, for example, should you neglect to deregister for GST – and you would be penalised if you don't lodge these documents if the business is still registered, regardless of whether it is still actively trading.

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