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Selling Your Business Part 4 - Minimising Tax

Selling Your Business Part 4 - Minimising Tax

Olivier Barbeau, Hans Hillermann, Kai Reuning

Maximising the proceeds from your business sale can be tricky. SARS expects you to share your good fortune with them, and there are many traps for the unwary. Fortunately, there are legitimate ways to minimise, defer or even eliminate your tax bill. The amount you save depends on your age, business structure, length of ownership and much more. The rules are complex, confusing, and constantly changing. But with some careful planning, you can save enough money to make the difference between achieving your dream lifestyle - or not.
 
Review your business structure
 
As discussed in Part 3, it is smart to target synergistic buyers. To attract them and to minimise tax, you may have to reconsider your business structure and sale strategy.
 
A common dilemma is whether to offer an asset sale (selling the underlying business assets out of your business) or a share sale (selling your shares in the company). Purchasers favour asset sales as they are less risky, but legislative changes have made share sales more common due to seller tax advantages.
 
Get smart about Capital Gains Tax (CGT)
 
When you sell your business, CGT applies to the gain – the difference between the capital proceeds (sale price for the business) and the CGT cost base (what you paid for the business and the associated costs of acquisition).
 
The after-tax proceeds represent the culmination of years of hard work, so minimising CGT should be a priority.
 
Structure impacts your tax minimisation options
 
Severe financial penalties could be added to the original amount due if SARS decides you have tried to avoid CGT - ignorance is no defence. To avoid a nasty shock, keep relevant documents for at least five years and always seek professional advice.
 
Get your records in order
 
To avoid delays, your financial records must be complete, accurate and readily available. A lack of organisation and preparedness, when it comes to record-keeping, can provide the purchaser with an opportunity to force the price down or decide your business is too risky to buy.
 
SARS payment details, records of tax advice, company tax returns – they all prove to the buyer that your business has met its tax obligations and made robust decisions about tax strategies. Being well prepared and organised when it comes to your tax affairs also signals to the buyer that your business is well run and managed.
 
The more complex your business, the more diligent you must be. If you acquired another business, is the paperwork in order? Have you maintained accurate wear and tear registers for your assets?
 
Selling your business is a tax minefield. To protect your future:
 
  • keep iron-clad records
  • optimise the sale structure
  • seek expert advice well before the sale
Now you know about minimising tax, what about maximising value? Learn more in Part five.