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CGT on sale of business (company).

Discussion in 'Accounting, Tax & Legal' started by Giddo, 3rd Jul, 2006.

  1. Giddo

    Giddo Active Member

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    SE Qld
    :) Acccountancy Questions - companies and CGT

    I have got a Company Pty Ltd structure which owns real estate assets.

    The company has been going 3 years, actively trading as a going concern. It is ABN registered and pays GST (and claims it too). The real estate assets form the vast majority of the firms' assets.

    If I now sell the business (the company and all assetts) as a going concern what are my obligations re CGT.

    Can I roll over CGT obligations into another business? If so can it be outside the company, or must the company structure continue?

    My accountant is away for 2 weeks so I am hoping to get a clue or 2 from this vast pool of knowledge here.
    Can anyone throw me a line with this? please...
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    Our resident accountant is sunning himself in the Greek Islands at the moment!

    There are a number of small business CGT concessions, however, their applications is fairly complex. I can give a brief outline if that's helpful, but it will be no more than a bare and incomplete description of the rules...and probably provide fairly limited guidance for your specific scenario.

    Just one related point that springs to mind. You may be liable for LAND RICH stamp duty on the transfer of the shares. Check with your accountant but if the company is "land rich" under the relevant stamp duties legislation in your state/s then stamp duty on the share transfer will be charged at the full conveyance duty rates *ouch*. From memory a number of states have moved the land threshold up but moved the relevant % of assets down from 80% to 60%...

    Also curious why you're using a company structure to hold appreciating assets like property given the general 50% CGT discount 12 month discount doesn't apply to companies.

    Cheers
    N.
     
  3. Giddo

    Giddo Active Member

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    Two words Nigel - Bad advice.

    I know better now of course. In the meantime I need to deal with my existing situation.

    I thought there may be a way to roll CGT liability into some new enterprise. If so I may do that.
    After all, if I die before I pay the tax - :D I win, isn't that right?
     
  4. Nigel Ward

    Nigel Ward Team InvestEd

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    Bummer. I'll come back to you later this evening on the active asset concessions.

    Cheers
    N.
     
  5. -T-

    -T- Well-Known Member

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    From research a couple of years ago, I believe you can do what you're saying Giddo. I had an ATO phone guy tell me that you can keep rolling CGT into new businesses until you hit retirement and get the corresponding concessions. I believe if you use the proceeds of a business sale to further/extend/expand/etc into another business, then CGT may be deferred. Don't quote me though. :)


    Seriously, call the ATO help line. You don't need to give your personal details and they'll answer you in 10 seconds. Unlike the ATO itself, the ATO help line is your friend! :D
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi Giddo

    Apologies for delay in responding. I reckon your first hurdle is going to be the "active asset" requirement.

    According to the Master Tax Guide:

    Further:


    You should chat through the various issues with your accountant. To give you some background reading check out the ATO Advanced guide to capital gains tax concessions for small business (www.ato.gov.au/businesses/content.asp?doc=/content/1367.htm).

    For your info there's 4 small Business CGT concessions:


    To qualify for small business CGT relief, the following basic conditions must be met:
    (1) a CGT event happens in relation to an asset that the taxpayer owns

    (2) the event would otherwise have resulted in a capital gain

    (3) the maximum net asset value requirements are satisfied, ie the net value of assets that the taxpayer and connected entities own cannot exceed $6m (post budget )

    (4) the asset is an active asset.


    Some positives to come out of the latest federal budget include that the assets value limit has been lifted to $6 million from $5 million. There is also a controlling individual test which used to be 50% and is moving to a 20% significant individual test. This seems like a good thing as up to 5 individuals in a company or trust structure may be get the CGT consessions.

    Hope this is of some help to give you the lowdown before you speak to your accountant.

    Best of luck

    N.
     
  7. Giddo

    Giddo Active Member

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    Thank you very much Nigel for your help with this.
    I followed the link and found that my operation should be an "active asset:) ".
    There should be a couple of ways we can save CGT. I hope. When my accountant gets back from his holiday I will yarn with him.

    From the ATO website
    concessions for small business

    Printable versionCompany or trust

    If you are a company or trust, other than a public entity, you can also choose to disregard all or part of a capital gain if:
    • you satisfy the basic conditions YES
    • you satisfy the controlling individual test YES
    • you keep a written record of the amount you choose to disregard (the exempt amount) and, if there are two CGT concession stakeholders,each stakeholder’s percentage of the exempt amount (one may be nil but together they must add up to 100%)
    • you make an ETP in relation to each of your CGT concession stakeholders, worked out by reference to each individual’s percentage of the exempt amount
    • the ETPs are made by the later of:
      • seven days after you choose to disregard the capital gain, and
      • seven days after you receive the capital proceeds from the CGT event, and
    • if a stakeholder is under 55 years of age just before receiving the ETP, an amount equal to that payment must be immediately rolled over under the ETP provisions. (If the stakeholder was 55 or more there is no requirement to roll over the amount.)
    Therefore, if you choose the retirement exemption after you have received the capital proceeds (for example, when you lodge your income tax return) there is no requirement to make any ETPs until you have made the choice. Accordingly, you may use the capital proceeds for other purposes before choosing. However, once you choose, you must make the ETPs by the end of seven days after making the choice.
    If a stakeholder is under 55 just before receiving an ETP, an amount equal to that ETP must be immediately rolled over, that is, paid to a complying superannuation (or similar) fund.
    This is an important requirement. Failure to immediately rollover an ETP into a complying superannuation (or similar) fund in accordance with the ETP provisions will mean the conditions are not satisfied and the retirement exemption will not be available. Generally, to satisfy the immediate roll over requirement, the funds need to be transferred direct from the payer of the ETP to the nominated fund and it is only in certain circumstances that a transfer of the funds direct to a stakeholder before being transferred to the nominated fund will be accepted as satisfying the requirement.

    Thanks Again Nigel.:)
     
    Last edited by a moderator: 4th Jul, 2006