Practical Business & Tax Insights

A hospitality business was turning over approximately $1.5 million a year.

Sales were strong. The business was busy. Staff were working.

But there was a fundamental problem:

The owners couldn't clearly see what the business was actually making each month.

The bookkeeping was being completed, but the accounts weren't producing reliable monthly management information.

Before we could talk about improving profitability, we first needed numbers we could trust.

First, we fixed the numbers

We reviewed the bookkeeping and month-end processes and identified several issues affecting the accuracy of the monthly results.

Among other things, we:

·       moved equipment purchases that had incorrectly been expensed through the profit and loss statement to the balance sheet where appropriate;

·       cleaned up the chart of accounts so revenue, cost of goods sold and operating expenses could be properly analysed;

·       introduced tracking categories to provide better visibility over the business;

·       developed proper month-end procedures;

·       brought cash sales and undeposited cash into the accounts;

·       reconciled uncleared sales amounts from Epos Now; and

·       accrued wages into the correct reporting periods.

None of these changes, by themselves, were the objective.

The objective was to produce financial information that actually showed what was happening in the business each month.

Once the accounts were reliable, we could start asking better questions.

Then we benchmarked the business

We didn't just compare this month with last month.

We compared the business against external industry information, including specialist industry benchmarking reports, ATO small business benchmarks and IBISWorld industry research, where relevant.

We considered measures such as cost of goods sold, gross margins, labour costs, overheads, net profit margins and sales patterns.

Benchmarking wasn't the answer by itself.

It helped us identify where the business was performing differently and where we needed to investigate further.

We could then work through the underlying drivers of profitability - including purchasing and cost of goods sold, labour efficiency, pricing, operating hours, overheads and other areas affecting margins.

For example, one area we investigated was labour.

Rather than simply looking at the total annual wage bill, we asked:

Were all of the hours the business was open actually profitable?

By comparing sales patterns across different operating hours with the staffing required during those periods, we could identify times when the business was generating revenue but potentially very little profit after labour and other operating costs.

That gave the owners a better basis for making decisions about staffing levels and operating hours.

We also looked at cost of goods sold and gross margins.

One of the areas reviewed was the cost of providing free meals to staff. The business moved from providing free staff meals to a discounted arrangement, among other changes designed to improve the amount of gross profit retained from each dollar of sales.

These were only some of the areas addressed.

The broader objective was to understand what was driving profitability and identify practical changes that could improve the bottom line.

Revenue wasn't the problem

A business turning over $1.5 million can still underperform.

The objective wasn't simply to increase sales.

It was to improve the amount of profit being retained from the sales the business was already generating.

Reliable monthly reporting gave us the starting point. Benchmarking helped identify where to look. More detailed analysis helped identify what could actually be changed.

Following the changes to the financial reporting and the operational decisions that came from the analysis, within a few months, net profit had increased by approximately 7%.

The improved profitability and reporting also gave us a much clearer basis for considering remuneration for the working directors, rather than making those decisions without reliable information about the underlying performance and cash requirements of the business.

Bookkeeping should tell you something

Accurate bookkeeping is essential.

But for a growing business, getting the transactions into the accounting system is only the starting point.

Good monthly reporting should help answer questions such as:

What is actually driving our profit?

How do our margins compare with similar businesses?

Where are we losing margin?

Are our wages appropriate for the sales we're generating?

Are all of our operating hours commercially worthwhile?

What can we change to improve the bottom line?

Because the goal isn't simply to have higher revenue.

The goal is to build a more profitable business.

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This case study has been generalised and certain details have been changed to protect client and business confidentiality. Benchmarking information should be considered in the context of the particular business and should not be treated as a substitute for analysis of its actual circumstances.

For several years, a business owner had been managing their personal taxable income while regularly redrawing money from their private company.

The strategy worked when viewed one year at a time.

Their salary was being managed so that their personal taxable income remained around the 30% marginal tax bracket, while additional amounts drawn from the company accumulated as Division 7A loans.

The loans had been put on complying terms.

But the balances weren't disappearing.

As the loans accumulated over several years, so did the minimum yearly repayment obligations.

Eventually, the client's combined minimum yearly repayments had reached approximately $120,000 a year.

Where those repayments were being dealt with through dividends from the company, the dividends, together with the client's existing salary, were now pushing part of their taxable income into the 45% marginal tax bracket.

The tax planning had worked in the earlier years.

But eventually, it started to catch up.

The tax had been deferred — not eliminated

A complying Division 7A loan can prevent an amount from being treated as a deemed dividend at the time the loan is made, provided the relevant requirements are satisfied.

But putting a loan on complying terms doesn't make the debt disappear.

Interest accrues and minimum yearly repayments generally need to be made over the term of the loan.

For several years, the strategy had allowed the client to access additional company funds while managing their immediate personal taxable income.

The problem became apparent when we looked at the position over multiple years rather than one financial year at a time.

Each additional loan created another future obligation.

Eventually, the accumulated minimum yearly repayments had reached approximately $120,000 a year. Where those repayments were being dealt with through dividends from the company, the taxable income required to service the loans, together with the client's salary, was now pushing part of their income into the 45% marginal tax bracket.

What had appeared to be tax minimisation in the earlier years was, to a significant extent, tax deferral.

The problem wasn't the Division 7A loan agreement

The loans had been put on complying terms.

So simply preparing another loan agreement or calculating another minimum yearly repayment wasn't the answer.

The bigger issue was that the strategy had been repeated without sufficient consideration of where the accumulated loans would eventually lead.

The client was also continuing to redraw money from the company.

That created the possibility of repaying old Division 7A loans while simultaneously creating new ones.

So we needed to look beyond the annual compliance requirements and consider the client's broader strategy for extracting money from the company.

That meant considering the existing loan balances, future personal cash requirements, salary, available franking credits, company cash flow and how the loans could progressively be reduced without simply allowing the same cycle to continue.

Tax planning shouldn't stop at 30June

A strategy that reduces taxable income today can still create obligations that need to be dealt with tomorrow.

In this case, the issue wasn't that Division 7A had been ignored.

The issue was that the strategy had been repeated without sufficient consideration of where the accumulated loans would eventually lead.

Good tax planning therefore asks more than:

“What does this save this year?”

It should also ask:

“Where does this leave the client five or seven years from now?”

Because sometimes the tax hasn't disappeared.

It's simply been deferred to another year.

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This case study has been generalised and certain details have been changed to protect client and business confidentiality. General information only. Division 7A outcomes depend on the particular payments, loans, agreements, repayments, timing and other circumstances involved.

Sometimes the numbers that are missing from a set of accounts can be just as important as the numbers that are there.

We were reviewing the tax position of a sole trader operating a salon business. The business was generating revenue and had the usual expenses associated with providing its services.

But one thing stood out.

There was no rent or other premises expense.

A salon has to operate somewhere.

So before simply preparing the tax return from the figures provided, we asked:

“Where are you actually operating the salon from?”

The business was operating from a dedicated room at home

The client explained that they were renting their home and had a separate room set aside for operating the salon.

That changed the tax analysis.

For a sole trader operating a business from home, there is an important distinction between simply doing some administrative work from home and having part of the home that genuinely has the character of a place of business.

In this case, the separate room was being used for the salon business.

That meant we needed to consider whether an appropriate proportion of the client's rent could be claimed as an occupancy expense, together with relevant running expenses associated with operating the business from the property.

The deduction wasn't automatically the entire rent. The business and private use of the property needed to be appropriately separated, and the claim supported by the client's circumstances and records.

Rent wasn't the only expense worth reviewing

Once we understood where the business was actually operating, the conversation went beyond rent.

We also considered whether an appropriate business portion of other costs associated with operating the salon from the rented home had been captured, such as electricity, cleaning and other relevant household running expenses.

The objective wasn't to find expenses to claim simply because the client worked from home.

It was to establish what it genuinely cost to operate the salon from the property and make sure the deductible portion of those costs was properly considered.

Sometimes the missing number is the clue

If we had simply taken the bookkeeping at face value, the tax return could have been prepared using the expenses already recorded.

But the profit and loss statement told us something didn't quite make commercial sense.

The business was operating a salon.

Where was the cost of the premises?

That simple question led us to understand how the business actually operated and identify expenses that warranted further investigation.

Good tax review isn't only about checking whether the numbers provided are correct.

Sometimes it's about recognising which number should logically be there — but isn't.

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This case study has been generalised and certain details have been changed to protect client and business confidentiality. General information only. Home-based business deductions depend on the taxpayer's circumstances and the nature and use of the relevant area. Occupancy expenses such as rent are generally only available where the relevant part of the home has the character of a place of business. Business and private expenses must be appropriately apportioned and substantiated. Different considerations can apply where the business is operated through a company or trust rather than by a sole trader.

While preparing a client's tax return, they provided several expenses they believed were tax deductible.

These included black work shoes, a blazer, an accounting course and donations made through GoFundMe.

Unfortunately, none of these particular expenses qualified for a deduction in the client's circumstances.

Shoes and clothing: Conventional clothing and footwear are generally private expenses, even when purchased specifically for work. Different rules can apply to protective clothing or footwear, occupation-specific clothing and qualifying uniforms.

Accounting course: Self-education can be deductible where it maintains or improves skills used in the taxpayer's current income-earning activities. Here, the course was not sufficiently connected with the client's existing role and was more relevant to broader financial knowledge and possible future activities, so it was not deductible.

GoFundMe donations: A genuine donation is not automatically tax deductible. In this case, the recipients were not deductible gift recipients (DGRs), so the donations could not be claimed.

Why we encourage clients to ask first

This is why we generally recommend clients check with us before making significant discretionary or optional purchases where the expected tax benefit is part of the decision.

The tax treatment can be very different from what someone expects. An expense might be private and not deductible, partly deductible because of mixed use, deductible over time through depreciation rather than immediately, subject to a specific limitation, or require particular records to substantiate the claim.

The same applies around 30 June. Buying something before year-end doesn't turn a private expense into a deduction, and even a deductible purchase isn't necessarily immediately deductible in full.

And importantly, a $5,000 tax deduction doesn't mean receiving $5,000 back from the ATO. A deduction generally reduces taxable income. The client still bears the remaining economic cost of the purchase.

Sometimes we'll tell a client:

“Yes, subject to the requirements, you should be able to claim it.”

Sometimes:

“Only part of it may be deductible, so start keeping these records.”

And sometimes:

“Buy it if you need it — but don't buy it because you're expecting a tax deduction.”

Ask before the money is spent

Tax treatment is best checked before the transaction happens.

A quick conversation beforehand can help determine whether an expense is deductible, whether there is a more appropriate legitimate approach, what records need to be kept and what the real after-tax cost will be.

This principle extends well beyond shoes, courses and donations. It can apply to vehicles, equipment, technology, business assets, property expenditure, superannuation contributions and other significant transactions where tax is part of the decision.

Once the money has been spent, some options may no longer be available.

Before spending money because you think you'll “claim it on tax”, check the tax treatment first.

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Certain facts and details have been generalised or changed to protect confidentiality. Deductibility depends on the nature of the expenditure, its connection with income-earning activities, applicable tax law and substantiation requirements.

While preparing a real estate agent's tax return, we noticed they used their personal vehicle extensively for work.

Between property inspections, appraisals, listings, open homes and client meetings, the client had genuinely travelled more than 5,000 business kilometres during the year.

The issue wasn't whether those additional kilometres were genuine.

They were.

The issue was that the client had been using the cents per kilometre method.

For the 2024–25 income year, the rate was 88 cents per kilometre, but the method was limited to a maximum of 5,000 business kilometres per car.

That meant the maximum deduction available under that method was:

5,000 km × $0.88 = $4,400

Even though the client had genuinely travelled substantially more than 5,000 kilometres for business, we couldn't simply claim the additional kilometres using the cents per kilometre method.

A different approach going forward

Given the client's level of business travel, we suggested that going forward they consider using the logbook method.

Under the logbook method, there isn't the same 5,000-kilometre cap.

Instead, the client can establish their business-use percentage and apply that percentage to eligible actual vehicle costs.

Depending on the circumstances, this can include expenses such as:

• fuel;
• registration and insurance;
• servicing and repairs;
• depreciation on the vehicle; and
• the deductible business-use portion of interest on finance used to acquire the vehicle.

We explained that the client would need to keep an appropriate 12-week logbook representing their normal travel pattern, together with the required odometer and expense records.

Once established, a valid logbook can generally be relied upon forup to five years, provided the client's circumstances haven't changed in a way that requires a new logbook.

Why the method mattered

We weren't trying to find a way around the 5,000-kilometre limit.

For the year being prepared, the client's cents per kilometreclaim was capped despite the additional genuine business travel.

What we identified was an opportunity to improve the position going forward.

For someone who regularly drives well over 5,000 business kilometres, particularly where there are significant vehicle running costs, depreciation and finance interest, the logbook method may produce a materially different deduction.

The actual outcome depends on the client's business-use percentageand eligible costs, which is why the two methods need to be considered based onthe client's circumstances.

The method matters as much as the kilometres

Sometimes a tax return tells us more than what deduction to claimfor the year just finished.

It can tell us what needs to change for the next one.

The client had genuinely travelled more than 5,000 business kilometres, but the method they were using meant their claim was capped.

Rather than simply processing the same claim and moving on, we explained the limitation and helped them put the records in place to consider a more appropriate method going forward.

For this client, the immediate claim was capped, but better record-keeping could support consideration of the logbook method in future years.

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This case study is based on client circumstances, with certain facts and financial information generalised or changed to protect confidentiality. Car expense deductions depend on the taxpayer's circumstances, the nature of the travel, the calculation method used, substantiation requirements and applicable tax law.

A client was considering the future sale of a commercial property that had increased substantially in value.

The property was owned by a family trust and leased to a company connected with the trust. The company operated the family's cafe business from the premises.

At first glance, the tax position could have looked straightforward:

The trust owned the property. The company paid rent. The trust received rental income.

So was it simply an investment property?

Not necessarily.

The important question was who actually used the property

For the small business CGT concessions, an asset whose main use is to derive rent can generally be excluded from being an active asset.

But there is an important distinction where an asset is used in a business carried on by an affiliate or connected entity.

In this case, the tenant wasn't an unrelated third party.

The connected company was using the property to operate the family's cafe business.

That meant the payment of rent between the entities did not, by itself, prevent the property from potentially qualifying as an active asset.

Instead of simply looking at the rental income appearing in the trust's accounts, we needed to understand the broader structure:

Who controlled the entities? Were they connected for Division 152 purposes? Who actually used the property? What was it used for? And for how long?

Those questions could materially change the CGT outcome.

Could the capital gain potentially be eliminated?

The property's ownership history raised another important issue.

Where the relevant conditions are satisfied, the small business 15-year exemption can allow an eligible capital gain to be disregarded entirely.

But owning a commercial property for 15 years isn't enough by itself.

For a trust, additional requirements apply. Among other things, the basic Division 152 conditions must be satisfied, the asset must satisfy the relevant ownership and active-asset requirements, and the trust must satisfy the significant-individual requirements.

Broadly, the relevant significant individual immediately before the CGT event must also be 55 or older and the event occur in connection with their retirement, or they must be permanently incapacitated.

Based on the circumstances we reviewed, there appeared to be potential access to the small business CGT concessions, including the possibility of the capital gain being disregarded entirely if all of the requirements for the 15-year exemption were ultimately satisfied.

That was a very different starting point from simply saying:

“The trust receives rent, so it's an investment property.”

And if the 15-year exemption wasn't available?

The analysis didn't necessarily end there.

Depending on the circumstances, Division 152 contains other concessions that can potentially reduce or defer an eligible capital gain, including the 50% active asset reduction, retirement exemption and small business rollover.

Which concession — or combination of concessions — is appropriate depends on the particular transaction and taxpayer.

The important point for this client was that the property couldn't be analysed in isolation.

On paper:

Family Trust → owned the commercial property

Connected Company → operated the cafe from the property

Looking only at the trust's accounts showed rental income.

Looking at the broader business structure showed something muchmore important: the property was being used in the family's operating business by a connected entity.

That could fundamentally change the Division 152 analysis.

Before treating commercial property as a passive rental investment for CGT purposes, ask:

“Who is actually using the property — and what are they using it for?”

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This case study has been generalised and certain facts, entity details and financial information have been changed to protect client and business confidentiality. General information only. Eligibility for the small business CGT concessions depends on satisfying the requirements of Division 152, including the applicable basic conditions, active asset test and additional conditions for each concession. Connected-entity and affiliate relationships, aggregated turnover, maximum net asset value, ownership history, business use and significant individual requirements can materially affect the outcome. The 15-year exemption has additional requirements and does not apply merely because an asset has been owned for 15 years.

A medical specialist approached us ahead of a significant career change.

From 1 July, they were moving from employee to partner in their professional practice, with an expected annual profit entitlement of approximately $350,000, paid through regular fortnightly distributions.

As an employee, the financial side had been relatively straightforward. Salary came through payroll, PAYG tax was withheld and superannuation was largely dealt with through the employment arrangements.

Becoming a partner changed that.

Rather than waiting until the first year was over and dealing with everything at tax time, we started planning before the first partnership distribution arrived.

How much of the $350,000 could they actually spend?

That was one of the client's most practical questions.

A fortnightly partnership distribution arriving in a bank account isn't necessarily equivalent to an employee's net salary.

Depending on the arrangements, there may be no employer withholding sufficient tax before the cash reaches the client.

So we modelled the expected annual position and translated it into a practical framework for each distribution: how much should be reserved for tax, how much could be allocated towards planned superannuation contributions, and how much could reasonably be treated as available for personal spending and other commitments.

Instead of simply telling the client to “remember to save for tax,” they had a framework for managing their cash from the beginning.

Then we looked at the family trust

The professional firm had confirmed that its partnership arrangements permitted the client's interest and associated profit entitlement to be structured through an appropriate family trust arrangement.

That created another planning opportunity — but it didn't mean the entire $350,000 could simply be distributed among family members to produce the lowest possible tax bill.

Professional-firm profit allocations are an area of specific ATO scrutiny.

We therefore considered how the partnership arrangement operated, the nature of the client's profit entitlement, the role of the family trust and the ATO's professional-firm profit allocation framework.

Depending on the precise arrangements, other provisions - including the personal services income rules — can also require consideration.

The objective wasn't:

“How much of the specialist's income can we move to somebody else?”

It was:

“What structure is commercially available, legally effective and appropriate under the tax rules — and how should it operate from day one?”

The move to partnership changed more than the client's income

Moving from employee to partner wasn't simply a pay rise.

The client was moving into a different tax and financial environment.

We needed to consider the expected partnership profits, family trust structure, tax provisioning, superannuation and personal cash flow together. We also raised broader matters such as professional indemnity and income protection insurance, with appropriately licensed advice obtained where required.

By planning before the transition, the client could start the first year knowing how the structure was intended to operate and, just as importantly, how much of each fortnightly distribution they could reasonably spend without creating a tax cash-flow problem later.

A $350,000 profit entitlement sounds like an income question.

For this client, the more important question was:

“I'm becoming a partner — what needs to change before the first dollar arrives?”

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This case study has been generalised and certain details, including financial amounts, have been changed to protect client and business confidentiality. General information only. Professional-firm structures and profit allocations depend on the particular legal and commercial arrangements and applicable tax law. PCG 2021/4 provides an ATO compliance-risk framework for certain professional-firm profit allocation arrangements and does not itself determine the underlying tax treatment. Personal services income rules may also require consideration depending on the circumstances. Trust distributions, superannuation contributions and other tax outcomes depend on the client's individual circumstances.

During a conversation with a client, they mentioned that an estate was in the process of being finalised.

They expected to receive approximately $2 million of inherited assets, including shares, interests in residential property, investment properties, physical gold and other investments.

None of the assets were necessarily being sold.

They were simply passing to the client as part of the estate.

It would therefore have been easy to think:

“There's nothing we need to do until I eventually sell them.”

But that was exactly why we raised an important question:

What tax history needs to come with the assets?

The Cost Base Isn't Always the Value You Inherit

Receiving an asset worth $500,000 doesn't necessarily mean $500,000 becomes its cost base for CGT purposes.

The treatment can differ significantly from one inherited asset to another.

Depending on the circumstances, the beneficiary may effectively inherit the deceased's existing cost-base history. In other situations, market value at the date of death can become relevant — including for certain assets acquired by the deceased before the introduction of CGT and certain qualifying inherited dwellings.

That meant we couldn't simply record:

“Inherited assets — approximately $2 million.”

We needed to look at the assets individually.

When did the deceased acquire them? What did they originally pay? Were they acquired before or after the introduction of CGT? What subsequent costs and improvements were incurred? Was a property the deceased's main residence? Was it being used to produce income? Was a date-of-death valuation required?

Those questions could materially affect the eventual CGT calculation.

The Residential Property Raised Another Question

The inherited residential property also required separate consideration.

Special CGT rules can apply to a dwelling inherited from a deceased estate, including circumstances where a full main-residence exemption may be available if the relevant ownership interest is disposed of within two years of the deceased's death, subject to the particular conditions.

That made the estate-administration period relevant for more than simply collecting records.

There could also be a time-sensitive tax consideration around what ultimately happened with the property.

Rather than discovering that issue several years later, it could be considered while the estate was still being administered and the relevant information was readily available.

Get the Records While They're Available

We recommended obtaining and retaining the relevant tax history as part of the estate process.

Depending on the particular asset, that could include:

·       original acquisition records;

·       historical share and investment statements;

·       details of subsequent purchases and disposals;

·       records of capital improvements and other relevant expenditure;

·       information about how properties had been used;

·       relevant estate documentation; and

·       date-of-death valuations where the tax rules made market value relevant.

This mattered because the client might hold some of these assets for another 10, 20 or 30 years.

By the time they're eventually sold, the executor, lawyers, accountants, investment providers or family members currently dealing with the estate may no longer have the records readily available.

Reconstructing decades of tax history at that point can be considerably more difficult.

And the Assets Don't Just Create a Future CGT Issue

Some of the inherited assets could also begin affecting the client's tax position immediately.

Shares may produce dividends and franking credits.

Investment properties may produce rental income and deductible expenses.

Other investments may generate income or have their own record-keeping requirements.

So the tax conversation shouldn't necessarily begin when an inherited asset is eventually sold.

For this client, it began when the assets were being inherited.

Preserve the tax history while the records are available

Receiving an inheritance isn't just about determining what assets you're getting and what they're worth today.

For significant inherited assets, another important question is:

“What tax history needs to come with them?”

A portfolio worth approximately $2 million today may eventually be worth substantially more.

If an asset is sold decades later, having the correct acquisition history, supporting expenditure and relevant valuations could make an enormous difference to how confidently and accurately the capital gain can be calculated.

That's why we don't want a client coming to us 20 years later with a sale contract and saying:

“I inherited this years ago, but I have no idea what the cost base is.”

Sometimes good tax planning isn't about reducing today's tax.

It's making sure the information needed to calculate tomorrow's tax isn't lost today.

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The CGT treatment and cost base of inherited assets depend on the particular asset and circumstances, including when and how the deceased acquired it, its use, the circumstances at the date of death and the circumstances of the estate and beneficiary. Special rules apply to inherited dwellings, including the deceased-estate main residence provisions. Financial amounts and certain details have been generalised to protect confidentiality.

Selling a business can create a substantial tax bill.

But a business sale isn't necessarily taxed as one transaction, and for eligible small business owners the small business CGT concessions in Division 152 can materially change the outcome.

One of our clients was involved in the sale of a manufacturing business.

After separately dealing with components such as trading stock and plant and equipment, the relevant capital gain was approximately $400,000.

Rather than simply reporting that gain and calculating the tax, we reviewed whether the client could access the small business CGT concessions.

The result?

A $400,000 capital gain was ultimately reduced to nil.

First, we separated what was actually being sold

When a business is sold, the entire sale price doesn't necessarily receive the same tax treatment.

A manufacturing business sale can involve goodwill, trading stock, plant and equipment and other assets.

Trading stock has its own income-tax treatment. Depreciating assets can produce balancing adjustment consequences. Assets such as goodwill can instead give rise to a capital gain.

So before considering the small business CGT concessions, we first needed to determine what the client was actually selling and how each component should be treated for tax purposes.

For this client, the relevant capital-gain component was approximately $400,000.

Then we tested the small business CGT concessions

Division 152 isn't automatic simply because someone owns a small business.

We reviewed the client's structure, aggregated turnover and the nature and history of the relevant business asset.

In this case, the business had aggregated turnover below $2 million, the relevant goodwill satisfied the active asset requirements and, based on the client's circumstances, the relevant basic conditions for accessing the small business CGT concessions were satisfied.

The client also had approximately $100,000 of carried-forward capital losses available.

That produced the following progression:

$400,000 capital gain

→ $300,000 after applying $100,000 of capital losses

→ $150,000 after the 50% general CGT discount

→ $75,000 after the small business 50% active asset reduction

→ $0 after applying the small business retirement exemption

The original $400,000 capital gain had been reduced to nil.

But the entire business sale wasn't tax-free

This distinction is important.

The small business CGT concessions didn't simply make every dollar received from selling the manufacturing business tax-free.

Trading stock, depreciating assets and other components of the transaction still needed to be dealt with under their respective tax rules.

What we reduced to nil was the capital gain component after applying the client's available capital losses, the general CGT discount and the relevant small business CGT concessions.

The retirement exemption also has its own conditions and a $500,000 lifetime limit per individual. Where an individual is under 55 just before making the choice, additional superannuation requirements can apply.

A business sale needs to be analysed before the tax return

For this client, the tax outcome wasn't determined simply by the sale price.

It depended on understanding the assets being sold, the client's existing capital losses, whether the relevant asset qualified for the CGT discount, whether the Division 152 basic conditions were satisfied and which small business CGT concessions could then be applied.

That analysis took an approximately $400,000 capital gain to nil.

When selling a business, the important question isn't simply:

“How much did I sell it for?”

It's:

“What exactly am I selling - and what tax concessions could apply before the transaction is completed?”

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This case study has been generalised and certain details, including financial amounts, have been changed to protect client and business confidentiality. General information only. Eligibility for the small business CGT concessions depends on satisfying the relevant requirements in Division 152, including the basic conditions, active asset requirements and any additional conditions applying to the particular concession. The general CGT discount is subject to separate eligibility requirements and is not generally available to companies. The small business retirement exemption is subject to a $500,000 lifetime limit per individual and additional requirements can apply, including superannuation requirements where the relevant individual is under 55. Trading stock, depreciating assets and other components of a business sale may have separate tax consequences.