Retiring When You Own a Business

Retirement is a significant milestone in anyone’s life, but for business owners, the transition can be particularly complex. Exiting the workforce isn’t just about stepping away from day-to-day operations — it’s also about how you structure the exit, manage tax consequences, use superannuation effectively, and create a sustainable income stream in retirement.

Below is a case study example illustrating how one couple navigated their business exit. While all clients have unique needs and goals, there are common lessons that may be relevant for many business owners. The following discussion is general in nature and does not constitute financial product advice.

1. Structure Matters — Plan Ahead

This couple owned a business operated through a company structure for nearly 30 years, each holding 50% of the shares. When they sold, the purchasers acquired the assets of the business rather than the company shares. As a result, the $2.5 million sale proceeds remained within the company, rather than passing directly to the individuals.

Accessing the proceeds would have resulted in a material tax liability — estimated at nearly $490,000 if taken as a lump sum dividend. Alternative ownership structures, such as a discretionary trust or unit trust, may have offered greater flexibility and potential tax efficiencies. However, restructuring at the time of sale is rarely feasible without triggering other tax consequences.

Compliance Tip: Business structure decisions should ideally be reviewed well in advance of a planned sale, as changes made close to a transaction may be ineffective or result in adverse tax consequences. Advice on structuring should always be tailored and take into account taxation, CGT concessions, and legal implications — and must be provided in accordance with the adviser’s authorisation and the scope of advice agreed with the client.

Takeaway: If you’re within 5 to 10 years of retirement, reviewing your business and ownership structure with professional advisers is a prudent step.

2. Don’t Overlook Super — Even if You're Self-Employed

Business owners sometimes prioritise reinvesting in their business over contributing to superannuation. However, in this scenario, each individual had accumulated around $1 million in super by the time of retirement — an asset that became a cornerstone of their retirement income strategy.

At retirement age (65), they moved their super into the pension phase, enabling tax-free income through account-based pensions. This allowed them to generate approximately $125,000 per year in tax-free income, reducing the need to draw on business sale proceeds.

They also made ongoing concessional contributions of $30,000 per person per year up to age 67, taking advantage of available contribution caps and deductions. Over time, non-concessional contributions were used to transition further capital from the company into the tax-effective super environment.

Compliance Tip: Advisers must ensure contribution strategies align with legislative contribution caps, the client’s age, and eligibility. For retirement-related strategies, ASIC Regulatory Guide 175 requires appropriate projections, warnings about changing legislation, and modelling that uses reasonable assumptions.

Takeaway: Super remains one of the most tax-effective vehicles available for retirement savings, even for self-employed clients. Contributions should be planned and implemented strategically.

3. Draw Income Gradually to Manage Tax

While some business owners consider withdrawing proceeds immediately after a sale, this approach can trigger significant tax consequences. In this case, withdrawing $2 million as a dividend from the company would have created a substantial tax bill.

Instead, the couple opted to leave the funds within the company, investing via a corporate investment account. They drew fully franked dividends of $120,000 each per year, which — combined with their super income — provided them with an income stream of approximately $365,000 per annum.

This strategy allowed for tax-effective income while enabling a staged drawdown of funds and facilitating future contributions into superannuation.

Compliance Tip: Advisers must avoid implying a tax outcome without appropriate qualifications. Where advice includes dividend or drawdown strategies, disclosures about dividend imputation, personal tax implications, and the need for tax advice should be included. General information must not be interpreted as tax advice unless the adviser is registered with the Tax Practitioners Board.

Takeaway: Staggering access to business sale proceeds may help reduce tax exposure and support long-term retirement planning.

4. Advice is Not a One-Off — It’s an Ongoing Process

The couple engaged their adviser on an ongoing basis following retirement. With superannuation, corporate investment structures, tax considerations, and a significant asset base to manage, the complexity warranted regular reviews.

Their adviser provided strategic advice around investment management, ongoing contribution strategies, and tax-effective income structuring. The advice fee of $28,600 p.a. was fixed, representing less than 1% of total wealth and partially deductible via their SMSF and corporate entities (subject to the sole purpose test and deductibility rules).

Compliance Tip: Where ongoing service arrangements are in place, advisers must meet obligations under FASEA Standards and annual FDS/consent obligations. Services delivered must match those agreed to in the client’s ongoing service agreement, and annual reviews must be documented in accordance with licensee policy.

Takeaway: Ongoing advice can help maintain compliance, adjust strategies over time, and provide peace of mind — particularly when managing complex financial structures.

Final Thoughts

Retiring as a business owner involves more than just a business sale — it’s about converting business capital into personal wealth and tax-effective income. The strategies outlined above highlight the importance of timing, structure, and professional advice.

Remember: This blog post is general in nature and does not consider your personal objectives, financial situation, or needs. Financial strategies, tax legislation, and superannuation rules are subject to change. Before acting on any information here, you should seek advice from a licensed financial adviser or tax professional. Ensure you read the relevant Product Disclosure Statements (PDS) before making any decisions about financial products.