At the forefront of Australia over the past year has been the impact of the big consultancy firms (Accenture, Deloitte, KMPG, PwC and EY), as they sought to build creative capacity within their practices. Although this phenomenon is not necessarily new, it has certainly been brought to the fore and fuelled by a number of recent acquisitions – the purchase of Sydney based creative agency The Monkey’s in May 2017 by Accenture for a multiple of 17 times EBITDA being the most prominent.
In this environment, and given the avid interest most agency owners generally have in realising value from their business, a particularly notable matter is the potential changes to the small business capital gains tax (“CGT”) concessions.
Under current rules, if a small business owner meets certain criteria there are generous CGT concessions available on the sale of their business. Available concessions range from an additional 50% discount on gains realised (capital gains are already subject to a 50% discount if an asset is held for greater than 12 months), to potentially all of the gain being tax free if the business has been owned for more than 15 years.
Although the definition of a ‘small business’ is one where turnover is less than $2 million, in reality it is currently possible for the owners of businesses with turnovers significantly exceeding this to access the concessions. Examples have been put forward of taxpayers qualifying for these concessions by arranging their affairs so that interests in larger businesses do not count towards the tests for determining eligibility. Theoretically the owners of The Monkeys (business sold for $63 million), with careful planning and depending on personal circumstance, could have qualified (albeit unlikely).
Another applicable test is where the taxpayer’s maximum net asset value does not exceed $6 million. This test excludes their home, personal use assets and superannuation. Looking at this very simplistically, three equal unrelated shareholders with a business valued at say $15 million could each potentially be eligible (as they each own shares worth $5 million). It is a rather complex process to assess eligibility for these concessions, however over the years we have worked with our clients to utilise them to great effect.
Changes now proposed by the Australian government (which would be effective 1 July 2017) significantly limit application of the concessions to the sale of shares or units but they broadly would remain available to taxpayers with ownership interests in businesses with aggregated turnover of less than $2 million or business net assets of less than $6 million.Assuming the changes become law, extra care must be taken to ensure the new requirements are satisfied if seeking to apply the concessions to the sale of a business after 1 July 2017. Failure to do so could inadvertently result in the loss of the valuable concessions.
To find out more about tax concessions on the sale of business, contact Shani Ford.