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Selling your business (Part 4)

By: Olivier Barbeau – regular contributor

In the fourth part of this six-part series on selling your business, we look at minimising tax

Keep the South African Revenue Service (SARS) happy but take advantage of generous concessions by thinking ahead.

Hanging on to as much of the proceeds as possible when you sell your business 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 (July edition), 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 (sell the actual assets) or a share sale (sell shares in the company or units in the trust holding the assets). Asset sales are favoured by purchasers 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 seek professional advice.

Read the full article on page 81 of the August 2015 issue of RACA Journal.

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