Skip to main content
Tax

What’s The Most Important Part About Exiting A Business? Tax Tops Our List

By 22 February 2025No Comments

Exiting a business can be both exciting and challenging. Whether you’re planning for retirement, pursuing a new venture, or passing the reins to a family member, it’s crucial to plan your exit with tax efficiency in mind. 

Here’s how Australian business owners can navigate this process to maximise returns and minimise tax liabilities.

Understanding Your Exit Options

There are several ways to exit a business, each with different tax implications:

  1. Selling the Business: This can be to an external buyer, a competitor, or an employee. The sale of a business involves capital gains tax (CGT), but there are concessions to reduce or eliminate this tax.
  2. Passing the Business to a Family Member: Transferring ownership to a relative may qualify for specific concessions, but careful structuring is required to avoid unintended tax consequences.
  3. Winding Up the Business: If the business is no longer viable or you wish to cease operations, understanding how to manage remaining assets and liabilities is key.
  4. Public Listing: Though less common for small businesses, listing on the stock exchange requires specialised planning and tax considerations.

Key Tax Considerations

Capital Gains Tax (CGT) Concessions

The sale of business assets often triggers CGT. However, small business owners may be eligible for significant CGT concessions, including:

  • 15-Year Exemption: If you’ve owned the business for at least 15 years and are over 55 years old, you may qualify for a full exemption.
  • 50% Active Asset Reduction: A 50% discount on capital gains for assets used in the business.
  • Retirement Exemption: Up to $500,000 of capital gains can be exempt if contributed to your superannuation.
  • Rollover Concession: Allows deferring CGT by reinvesting in another business.

Goodwill Valuation

Goodwill—the intangible value of your business—is a significant factor in most sales. Ensuring accurate valuation is vital to avoid disputes and unexpected tax liabilities.

GST and Other Taxes

If selling the business as a going concern, it may be GST-free. However, selling individual assets or winding up could attract GST and other taxes. Engaging an accountant ensures compliance with all obligations.

Structuring the Sale

The way your business is structured—whether as a sole trader, partnership, company, or trust—affects the tax implications of your exit. For example:

  • Companies: Selling shares instead of assets may provide tax benefits.
  • Trusts: Distributing proceeds effectively can minimize tax for beneficiaries.
  • Partnerships: Clear agreements are essential to avoid disputes.

Planning Ahead

Effective tax planning should start years before your exit. Here are some strategies:

  • Keep Accurate Records: Comprehensive financial and tax records make it easier to calculate CGT and identify eligible concessions.
  • Engage Professionals: An accountant and solicitor can guide you through the complexities and ensure compliance.
  • Prepare for Due Diligence: Buyers will review your financials, contracts, and tax history, so ensure everything is in order.

Exiting a business is a major milestone, and a tax-efficient plan can make the transition smoother and more rewarding. 

By understanding your options and seeking professional advice, you can achieve your financial goals while minimising tax liabilities. 

Whether you’re ready to sell, pass it on, or wind it up, taking the time to plan ensures you leave your business on the best possible terms.