The decision to sell your business does not come lightly for business owners and often the next decision that follows is whether or not to sell the business premises too. There are substantial pros and cons to weigh up in whether to hold onto the property.
Some of the possible advantages and benefits of simultaneously selling your business along with your business premises – the pros:
- Improved liquidity of your investment portfolio – commercial property is not considered to be an asset that can easily be sold and converted to cash if required during retirement. The sale of a commercial property may be difficult especially if it is specifically designed for a particular business/industry or appeals to only a limited investment market. During retirement when cash is required to meet lifestyle needs it may be more appropriate for investments to be in liquid assets such as cash or shares.
- Avoid property management responsibilities and obligations – when you sell your business premises you are freeing yourself from the burden of having to look after the property and manage any issues with leases and/or new attracting new tenants if required in the future.
- Capital Gains Tax (CGT) may not be payable on the sale of the property – some business owners may be reluctant to sell their commercial property along with their business due to the perceived significant CGT issues. However, this may not always be the case. If access to the small business CGT concessions can be obtained, in some circumstances you may eliminate your CGT liability altogether on the sale of the business premises forming part of the business sale. Additionally, if the property is owned in a Self Managed Super Fund that is in pension phase, the sale would be CGT free. These tax laws are complex so it is important that you get the right advice before making a decision.
While there are some advantages and benefits to selling your commercial property along with your business, there are also arguments against it that you may want to consider before finally making a decision – the cons:
- Losing more potential buyers for your business premises – if you decide to sell your premises with the business then you limit the market of investors to those who are also looking to acquire your business only. Additionally, the purchase of your business may be a large investment in its own right and insisting the acquisition of the premises forms part of the business sale, will also limit the pool of business buyers. Instead a long-term lease back to the new business purchaser may be more appropriate.
Future sale of the property as a standalone investment will also generally open up the market of potential buyers who have adequate funds and are looking at the property on its individual investment merits.
- Overlooking continued revenue or additional profits after the sale – retaining ownership of the property enables you to look for future redevelopment opportunities. You can use your knowledge of the property and location to look for further opportunities such as the conversion of a warehouse to manufacturing facilities or to sell to a developer under upcoming re-zoning laws. These options may net you a substantially higher return in the future.
- Missing out on tax concessions or tax-free capital gains and rental – if the property is owned in your SMSF then it may be advantageous to defer selling the property until a later date to take advantage of a tax free sale once your superannuation benefits are in pension phase. This is an area that you should be speaking to your Accountant about.
As you can see there are lot of factors to consider when it comes to deciding whether to hold onto or sell your business premises with your business. If you need help in understanding your situation and potential tax implications, contact the team at MJJ Accounting and Business Solutions to discuss today.