Month: January 2024

How The Small Business CGT Concessions Could Boost Your Super

Posted on by Adam_Admin

As a small business owner gearing up for retirement, selling your business can be a strategic move to give your nest egg that final boost.

However, navigating the intricacies of selling a business requires careful consideration, especially when it comes to contributing the sale proceeds to your superannuation fund. Let’s explore these essential considerations and small business concessions that can significantly impact your retirement savings.

Remember: always consult with a trusted and licensed adviser before acting.

When selling a business or business asset, small business owners have the opportunity to contribute a substantial portion of the sale proceeds to their superannuation fund without breaching the super caps. To make this work effectively, it’s crucial to understand and leverage four small business concessions that can help minimize capital gains tax (CGT) implications.

The 15-Year Exemption

The 15-year exemption is the most valuable concession, allowing superannuation contributions beyond the usual caps (generally as a non-concessional contribution).

However, the contribution must be made on or before the later of:

  • the day you lodge your income tax return for the income year in which the relevant CGT event happened
  • 30 days after you received capital proceeds.

If you receive a 15-year exemption amount from a company or trust, the contribution must be made within 30 days after the entity made the payment to you.

If you’ve owned the business asset for over 15 consecutive years, are over 55, and are selling in connection with retirement or due to permanent incapacitation, you may qualify.

This exemption provides a complete CGT exemption on the business sale, enabling you to contribute the full sale proceeds to superannuation.

The 50% Reduction

The 50% active asset reduction is an additional benefit, providing an extra 50% reduction of the capital gain on top of the standard 50% CGT discount available for individuals. This concession further enhances your ability to maximise your retirement savings when selling your small business.

You need to meet the basic eligibility conditions common to all 4 small business CGT concessions. This concession is applied automatically unless you elect not to apply it.

Retirement Exemption

The retirement exemption allows for a $500,000 reduction in the assessable capital gain. While this is a lifetime limit for each individual, it offers flexibility for those under 55 to pay the amount into superannuation or, for those over 55, the option to keep the amount outside superannuation.

Small Business Roll-Over

The small business roll-over permits the deferral of capital gains by rolling them into another active business asset. Utilising the retirement exemption in this context allows for a two-year deferral to contribute to superannuation or reach the age of 55. This strategic move enables small business owners to contribute to superannuation on a sale that may not have been possible otherwise.

Other Considerations and Strategies

While these concessions primarily apply to capital gains, it’s crucial to consider other factors, such as the sale of plant and equipment or trading stock, which fall under different tax sections. Additionally, the timing of the sale and the relevant contribution dates for concessions should be carefully considered.

Beyond small business CGT concessions, there are alternative strategies to boost superannuation, such as bringing forward non-concessional contributions or carrying back concessional contributions. These methods provide additional avenues for enhancing retirement savings, subject to eligibility criteria.

Selling your small business as part of your retirement strategy can be a wise move, but it requires careful planning and consideration of available concessions.

Engaging with experienced advisers early in the sale process is essential to maximise the benefits of these concessions and ensure a seamless transition into retirement.

By leveraging these strategies and consulting with knowledgeable professionals, you can make that final boost to your nest egg and embark on a secure and comfortable retirement journey.

Understanding Non-Assessable Non-Exempt (NANE) Income Through Disaster Grants

Posted on by Adam_Admin

The recent spate of extreme weather events during the summer in various parts of Australia has presented unprecedented challenges for small businesses. As a result, the pressing concerns they face may not necessarily revolve around their tax obligations.

However, amidst these trying times, business owners must be aware of the tax implications associated with the grants they may have received for support. This may include knowing whether their grants are deemed assessable or non-assessable income and the implications of either for their tax returns.

Non-Assessable Or Assessable Income?

In the wake of challenging times, many businesses have been fortunate enough to receive grants aimed at helping them navigate through financial difficulties. As businesses gear up to file their tax returns, a fundamental question arises – is the received grant considered assessable or non-assessable income?

In general, grants are treated as assessable income, adding to the taxable revenue of the business. However, a subset of business support grants is formally declared as non-assessable, non-exempt (NANE) income. This distinction is crucial as it determines whether the grant needs to be included in the tax return or can be excluded under specific eligibility criteria.

Understanding Non-Assessable Non-Exempt (NANE) Income

Non-assessable non-exempt income refers to specific grants that are not subject to taxation under certain conditions despite being a financial injection into the business. It is imperative for business owners to identify whether the grants they have received fall under the NANE category.

To ascertain the eligibility of a grant for exclusion, businesses can refer to the list of non-assessable, non-exempt government grants. Natural disaster grants, for instance, are often classified as NANE income, provided the business meets the specified eligibility criteria.

Correcting Mistakes in Tax Returns

If a business owner mistakenly includes a grant categorized as NANE in their tax return, all is not lost. The Australian Taxation Office (ATO) allows amendments to correct such errors. This emphasises the importance of regular checks and reviews of tax returns to ensure accuracy and compliance.

It is recommended to promptly rectify any errors in tax returns, as failing to do so may lead to complications and potential penalties down the line. Being proactive in addressing inaccuracies demonstrates diligence and a commitment to compliance.

Deductions for Non-Assessable Non-Exempt (NANE) Grants

While NANE grants are exempt from taxation, it is crucial to understand the scope of deductible expenses associated with these grants. Businesses can only claim deductions for expenses directly linked to earning assessable income. Common deductible expenses may include wages, rent, and utilities that contribute directly to the revenue-generating activities of the business.

However, it’s essential to note that expenses incurred in obtaining the grant, such as accountant fees or administrative costs directly associated with the application process, cannot be claimed as deductions. Business owners should carefully differentiate between expenses contributing to income generation and those tied to the grant acquisition process.

Navigating Challenging Times

In times of uncertainty, particularly in the aftermath of natural disasters, businesses need support and guidance. It is reassuring for business owners to know that assistance is available.

Beyond understanding the tax implications of grants, seeking professional help can be invaluable.

Business owners are encouraged to engage with registered tax professionals (like us) who can provide personalised advice tailored to the unique circumstances of their businesses. These professionals can offer insights into the specific grants available for their industry and help navigate the complex landscape of tax regulations.

By differentiating between assessable and non-assessable income, rectifying errors in tax returns, and navigating deductible expenses, businesses can ensure compliance with tax regulations and optimize their financial positions during these challenging times.

Seeking professional advice further enhances the ability to make informed decisions and secure support for sustainable business operations. Why not start a conversation with us today?