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Did You Make This Mistake When Setting Up Your Small Business?.

Article by WealthSafe.

Date Published: 4 Feb 2015


Read VERY CAREFULLY if you own a small business, and have a company …

If you’re making this mistake, it could cost you as high as $180,000 in capital gains tax on your business worth $500,000!

To put it another way, rather than pay only $55,000 in tax, you end up paying as high as $240,000 in tax!!! So what is this mistake?

Let’s start with a story.

Assume Jake and Kerry begin a business together. They go to see their accountant, excited and full of hope.

Their accountant, Norman, says, “Hey guys, you want to keep your costs down, so let’s just set up a company online.” Jake and Kerry say, “Great” and “Whose name do we put the shares in?” The accountant says, “Oh, just your names are fine for now.”

Jake and Kerry say “Great, because we really don’t want to spend money on trusts or anything like that just yet”.

Time goes on, and 3 years later, Jake and Kerry have a profit of $250,000. They’re pretty excited. They’re even more excited when a business broker friend tells them the business is worth $500,000.

So they decide to sell it, because they want to do something else. They’ve got bored.

So they agree for Jake to go to see Norman (the accountant) to organise it, and check out the tax bill. As Kerry said to Jake “we’ll probably have to pay the buggers about $100k or so … well hopefully not as I’ve heard small business owners get some concessions or something”

Jake goes to see Norman and instead, gets an awful shock. He nearly has a cardiac arrest on the spot in fact. Why, what happened?

This is what Norman said to Jake when he asked about how much tax he’d pay and if there were concessions for small business …

“Hey Jaky boy, sorry, we have an issue. Although there are great CGT tax concessions for selling a small business, they won’t help you here. You’re going to be up for tax of 240,000 when you sell it”.

Jake’s heart fell straight into his feet.

He says “what the f**#”

Norman goes on …

“The thing is, Jake, companies don’t get the 50% CGT discount. And although they get this exemption called the ‘active assets”, which is 50% also, you can’t get that either because of the way company dividend laws work. Although the company gets the exemption, as soon as you pull the money out of the company, you pay full tax.”

Jake says “but how can that be? Why weren’t we told?”

Norman says “well the thing is, if you had set up a family trust to run the business, or if you’d had a family trust as a shareholder, this wouldn’t have happened. I’m not sure why it was done this way in the first place. Can you remember why you did it?”

Jake says “Huh? You told us to do it that way and save costs. Don’t you remember?”

Norman the accountant goes deadly quiet, and goes “Oh”.

And thus endeth a beautiful relationship.

(EPILOGUE: Norman’s partners in his accounting practice told him to deny all responsibility and put the blame on Jake. After all, suing accountants is expensive, and very difficult, and they doubt Jake and Kerry will sue them …)


If you’re running your business through a company, and don’t have family trust shareholders, or running the business through a family trust, see us like yesterday. Go back in time if you have to.

(I know, time machines aren’t invented yet, but you get the drift … )

Because know this … you can still do something if your business is in growing phase. Once it’s making truckloads of profit, it becomes harder if not impossible to restructure without donating a fortune to our lovely friends at the Tax Office.

So … get your ass down to Wealth Safe and organise a consultation with one of our Specialists today!

Just call us on 1300 669 336, or fill in the form with the details of your needs, and we’ll be ringing you and asking you on a date (well maybe not, but we’ll organise a consult).

Book Your Free
Tax Saving Assessment.

Wealth Safe

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