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Selling a Port Kembla engineering business, a Fairy Meadow practice or a share in a family holiday letting company at Kiama? The 15-year exemption, the 50 per cent reduction, the retirement exemption and the rollover all turn on market values. We value each entity and asset in your group as at the moment before the CGT event, while the records and the people who remember the facts are still close at hand.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
The small business CGT concessions in Division 152 are available only if the group's net assets were $6 million or less, the asset sold was an active asset and, for shares or units, the 80 per cent test was passed. Every one of those tests runs on market value, so a dated valuation is what proves the claim.
Many Illawarra owners built their businesses in the 1980s and 1990s and are now thinking about stepping back: the fabrication supplier in the Unanderra or Port Kembla industrial areas, the accounting firm on Crown Street, the physiotherapy clinic in Fairy Meadow, the family that runs holiday accommodation near Kiama. For most of them the four concessions in Division 152 of the Income Tax Assessment Act 1997 are worth more than any other item in the tax calculation, and they can bring a large gain down to nothing. The ATO may also review a claim long after the money has been reinvested or passed to the family, so the evidence has to outlive the sale.
Entry is where claims are won or lost. Division 152 still applies a $2 million aggregated turnover limit while most other small business measures moved to $10 million, so an established business with steady sales is often too large on turnover alone. The alternative is the maximum net asset value test, which caps at $6 million the net market value of the CGT assets owned by you, your connected entities and your affiliates, measured just before the CGT event. If you are selling shares or units, the 80 per cent test comes next, and it requires every asset in the company or trust to be valued and classed as active or not, including self-built goodwill that never shows in the accounts.
Long ownership is exactly what pushes a group towards the limit. The $6 million cap is a fixed dollar figure while property and goodwill keep growing, so a trading company, a Dapto workshop held by the family trust and leased back, and a spouse's interest in a North Wollongong clinic can add up to far more than any one balance sheet suggests. Overstate the total and you might give up relief the law allowed; understate it and the ATO can deny the concessions altogether, tax the whole gain and add shortfall interest and penalties.
Land in New South Wales brings Revenue NSW into the picture too. Moving property or a business into a different entity ahead of a sale can have duty consequences under the Duties Act 1997 (NSW), and a buyer acquiring an entity that owns land may face landholder duty questions of its own when it prices the deal. We value the business, its goodwill and the property across the group and record how each asset is used; your tax adviser applies Division 152 to those values and points to our report if the ATO asks how they were reached.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
After the basic conditions are met, Division 152 provides four concessions applied in a set order. The 15-year exemption comes first and wipes out the whole gain where the asset was held continuously for 15 years and the owner is 55 or older and retiring, or permanently incapacitated. Where it does not apply, the 50 per cent active asset reduction follows the general discount, the retirement exemption can shelter gains up to a lifetime limit of $500,000, and the rollover postpones whatever remains while a replacement active asset is acquired.
Add up the market value of the CGT assets owned by the taxpayer, each connected entity (broadly, one controlled at 40 per cent or more) and each affiliate. Take off liabilities that relate to those assets, such as employee leave provisions, income received in advance and tax payable. Superannuation, personal use assets and the main residence are excluded. The measuring point is just before the CGT event, not the latest balance date or settlement.
There has to be a capital gain from a CGT event, and the taxpayer must pass the $2 million aggregated turnover test or the $6 million net asset test, or fit the variations for partners and for passively held assets used in a related party's business. The asset must also pass the active asset test. If any one condition fails, none of the four concessions is open.
The entity's active assets, together with cash and financial instruments inherently connected with its business, must make up at least 80 per cent of the market value of all its assets. The seller must also be a CGT concession stakeholder, which requires a significant individual with a participation percentage of 20 per cent or more, and where another entity sits between the seller and the business, stakeholders must between them hold at least 90 per cent of it.
The asset must have been used in carrying on a business for at least half of the period it was owned, or for at least 7.5 years where it was owned for more than 15 years. An asset whose main use is to earn rent is excluded unless the tenant is a connected entity or affiliate operating its own business there, so part-let premises, storage facilities and serviced offices call for careful records of the facts.
Where a discretionary trust holds the shares, participation percentages follow the distributions the trustee actually made in the relevant income year. If nothing was distributed, or small amounts went to many beneficiaries, the trust may have no significant individual at all, and no valuation can fix that. Ask your tax adviser to read several years of distribution minutes before a buyer is brought in.
The ATO treats market value as the price a knowledgeable, willing but not anxious buyer and seller would agree at arm's length, and Division 152 uses the same meaning. Cost and book equity rarely match it. A Port Kembla warehouse still carried at its 1990s cost makes the group look smaller than it is, and a company valued at the net assets on its balance sheet leaves out goodwill entirely.
The income approach normally leads for the trading business. We adjust owner salaries, related-party rent and one-off items, capitalise the maintainable earnings that remain, and test the result against comparable sales through the market approach. That earnings-based value is how goodwill enters the 80 per cent test, and it can turn a company that seems to fail on book figures into one that passes comfortably. Real property, plant and surplus assets are valued under the asset approach, with evidence from a registered property valuer where amounts are material.
You receive a schedule, not a single total. It lists each entity in the group, the assets it holds, their market value at the test date, any related liability and whether each asset is active or excluded, along with the facts behind each label. Your tax adviser applies the aggregation and exclusion rules to the schedule and draws the tax conclusion.
Few claims fail on a contested point of law. Most fail because a fact was never recorded or a value was struck at the wrong date, and almost all of those gaps could have been closed before the contract was signed.
A Division 152 claim can be reviewed years after settlement, when the people involved have moved on and the report has to speak for itself. When the group sits comfortably inside the limits, a Summary report usually supports the claim. When the margin under $6 million is thin, the 80 per cent test is close or the ATO has already asked questions, the analysis should be set out in enough detail for a second expert to check every step.
The report states the valuation date, the standard of value and the documents relied on, then works through the group one entity and one asset at a time. Goodwill rests on a normalisation schedule and a capitalisation rate, each explained; every property value ties back to named sales; and each active or excluded label is supported by the facts that justify it. A closing reconciliation explains in plain language why the approaches were weighted as they were.
The certified valuer who signs it stays available to defend it: beside your adviser while the sale is being structured, with the ATO in a review or objection, and before the Administrative Review Tribunal or the Federal Court of Australia if matters go further. If the sale later turns into a dispute between buyer and seller in the Supreme Court of New South Wales, the report is written with the Expert Witness Code of Conduct in the court rules in mind. Where the group owns New South Wales land, our values agree with anything lodged with Revenue NSW, so the evidence given to the state and federal revenue authorities tells a single consistent story.
Picture an ATO letter arriving years after settlement. Could you hand over a signed, asset-by-asset opinion of the group's worth on the day before you signed? If you cannot, order it before the contract rather than after the letter.
Talk your situation through with a certified valuer before you commit to anything, at no cost.