As a business owner in the mining and resources sector, you’ve worked tirelessly to build an enterprise that supports your family and provides for your employees. But what happens when it’s time to step back?
While growing your business, retirement planning might not have always been at the forefront of your mind. However, as you start thinking about the future, the structure of your business can significantly impact your finances long after the business is sold.
Succession planning isn’t just about finding the right person to take over; it’s about ensuring that the structure of your business allows you to maximise the financial rewards you’ve earned. One of the most effective ways to do this is through strategic superannuation contributions, especially when preparing for the sale of your business.
Business Owners: Start Planning Early for Maximum Benefit
For business owners building an asset they eventually plan to sell, considering your business structure early on is crucial. The earlier you address your structure, the easier and less costly it is to adjust if necessary. By planning ahead, you position yourself to take full advantage of tax-efficient strategies, such as superannuation contributions, and avoid potential pitfalls that could arise from an inefficient structure. This proactive approach ensures that when the time comes to sell, your financial position is optimised, saving you both time and money.
The Power of the Right Structure
Superannuation is traditionally designed for employees, but with the right advice, business owners can use their business assets to significantly boost their superannuation savings. The key lies in having the optimal business structure in place. This structure not only allows for more efficient tax management but also positions you to take full advantage of superannuation contributions—both concessional and non-concessional.
Boosting Super with Business Sale Proceeds
When you sell your business, there are two significant Capital Gains Tax (CGT) exemptions available that can enhance your superannuation.
- Small Business 15-Year Exemption: If you’ve owned a business asset for at least 15 years and are over 55 years of age, selling the asset can exempt you from CGT if you’re retiring or permanently incapacitated. The proceeds from this sale can be contributed to your superannuation as a non-concessional contribution. To maximise this benefit, notify your super fund so the contribution counts toward your CGT cap ($1,780,000 for 2024-25) instead of your non-concessional cap.
- Concessional Contributions: These contributions are tax-effective because they reduce your taxable income. Whether made through your business or personally, these contributions can provide immediate tax relief and long-term benefits by growing your superannuation in a low-tax environment.
In addition to the above, there may be other tax effective business super contribution opportunities which may be available to you, even if you aren’t over the age of 55.
Maximising Superannuation Along the Way
Beyond the sale of your business, regular superannuation contributions can help you build a substantial retirement fund over time. By consistently contributing, you take advantage of a tax environment that is often more favourable than other options, such as holding assets in a company, trust, or personal capacity.
- Tax-Effective Concessional Contributions: These contributions lower your taxable income, offering a dual benefit of tax savings now and growth in a low-tax environment later.
- Non-Concessional Contributions: Though they don’t reduce taxable income, these contributions allow you to hold assets in a superannuation fund, where earnings and capital gains are taxed at a maximum of 15%—a significant reduction compared to higher rates in other structures.
The Impact of an Inefficient Business Structure
Overlooking business structure alignment with your long term goals can lead to significant challenges, both financially and operationally:
- Financial Strain: An inefficient structure can result in escalating costs, particularly when it comes to tax and stamp duty implications. The longer you wait to make adjustments, the more expensive it can become to sell your business or undertake a business restructure.
- Missed Opportunities: Without a structure that supports your succession plans, you might not be eligible for the valuable superannuation benefits designed specifically for small business owners. This could mean more money goes to tax and less is retained in for your own financial security.
- Succession Hurdles: An unsuitable structure can create obstacles in passing your business to the next generation. For example, a family trust that doesn’t allow for ownership transition, or a complex setup with intricate tax issues, can make succession costly and challenging. Addressing these issues early can save you from significant complications down the road and instead have your business succession ready.
Next Steps: Prepare for a Better Future
If you’re planning to build a business worth selling, now is the time to seek professional advice. Ensuring you have the right business structure in place will not only facilitate a smooth transition but also allow you to capitalise on the tax concessions available, particularly through superannuation contributions. Start planning today to secure a better financial future tomorrow.
For more information, please contact James Marshall for a 20-minute, no-obligation discussion. You can call James at +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.
To learn more about James, visit this link.
Resources Unearthed is a solutions hub that connects senior executives, established professionals, and business owners in mining and resources with proven specialist advisers.
