MEDIA RELEASE: Many business owners are potentially missing out on valuable tax concessions by failing to review their existing business structure, according to HLB Mann Judd Sydney tax partner, Peter Bembrick.

Mr Bembrick said the economic climate is reinforcing the need for business owners to evaluate the current business structure and determine whether it’s appropriate for their circumstances and future exit plans.

“What’s a good structure and how do I get there? How can I restructure if needed? These are questions that too few business owners ask themselves.

“However, if you identify the right structure early enough, the tax savings can be substantial and business owners are also better positioned for a possible exit,” he said.

According to Mr Bembrick, many business owners are unaware of the tax concessions they can take advantage of when restructuring, including capital gains tax (CGT) measures which can be particularly valuable in boosting superannuation balances.

“Unfortunately, it would be quite a low proportion of business owners who are sufficiently aware of these concessions. Under the CGT concessions, SME business owners can direct CGT savings into their super, proving advantageous for those nearing retirement, in particular,” he said.

Mr Bembrick cites the 15-year CGT exemption as the “holy grail” of concessions for small business owners. The concession applies to businesses that have continuously owned an “active” asset for 15 years, and the business owner is aged 55 or over and are retiring or permanently incapacitated.

“Not only does this concession provide a complete tax exemption, it also allows a business owner to exit and contribute more into superannuation on top of the standard contribution limits – remembering that super is a very tax effective place to have your money.

“The issue for some is they are aware of the concession but fail to realise it can be linked to super,” he said.

Across all four small business CGT concessions, generally the most critical step in terms of eligibility is meeting the maximum net asset value test. This is the total net asset value of the business owner and connected entities, and is currently capped at $6 million or less, with two notable carve-outs being the family home and existing super balances.

According to Mr Bembrick, it is yet another example of small business owners not utilising available tax concessions.

“If you know what concessions exist and whether you’re eligible, you can take advantage of them. Sometimes you can do a restructure and use the concession to ensure the restructure is tax-free, although it is of course important to remember that there are a wide range of financial and commercial reasons for undertaking a restructure, which should not be purely tax driven.

“Doing a restructure while the value of the business is below the limit can be quite tax effective, but it’s a case of use it or lose it – don’t wait until the final sale of the business to seek out available concessions as the value of the business may exceed the threshold,” he said.