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Independent market values for the tests that decide whether the small business CGT concessions apply, prepared before the CGT event rather than reconstructed for the ATO afterwards.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
The small business CGT concessions in Division 152 can reduce the tax on a business sale to nil, but every route to them turns on market value: the $6 million maximum net asset value test, the active asset test and, on a share or unit sale, the 80 per cent test. A valuation dated just before the CGT event is the evidence those tests rest on.
For an owner selling a business in Sydney, Division 152 of the Income Tax Assessment Act 1997 is usually the largest tax saving on the table. Applied in full, the four concessions can take a capital gain of several million dollars to nil. Applied badly, they can be denied on review years after the proceeds have been distributed and spent.
Every route in runs through a threshold that depends on value. The aggregated turnover test sits at $2 million, not the $10 million used for other small business measures, and many profitable owners fail it. The alternative is the maximum net asset value test: the net market value of the CGT assets of the taxpayer, their connected entities and their affiliates must not exceed $6 million at the moment just before the CGT event. On a share or unit sale a further layer applies, the 80 per cent active asset test, which needs the whole balance sheet valued and classified, goodwill included.
That $6 million figure has not moved while Sydney asset prices have. An owner with a trading business, a factory unit in Wetherill Park held in a related trust and a share of a spouse's company can sit far closer to the line than the book values suggest. Overstate the group and you may walk away from a concession you were entitled to. Understate it and the ATO can deny the concessions, assess the whole gain and add shortfall interest and penalties.
We provide the market values the tests are applied to: the business and its goodwill, property held inside the group, and the classification of each asset as active or excluded. Your tax adviser applies the law. The valuation is what their conclusion stands on if the ATO asks.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Division 152 offers four concessions, applied in a set order once the basic conditions are met. Under the 15-year exemption the whole gain is disregarded when the asset has been held continuously for at least 15 years and the owner is 55 or over and retiring, or is permanently incapacitated. Where it does not apply, the 50 per cent active asset reduction follows the general CGT discount, the retirement exemption can shelter gains up to $500,000 over an individual's lifetime, and the small business rollover defers the gain while a replacement active asset is acquired.
A CGT event, a capital gain, and either the $2 million aggregated turnover test or the $6 million maximum net asset value test, or the partnership and passively held asset variants of them. Then the asset itself must pass the active asset test. Miss one condition and no concession is available at all.
Market value less related liabilities, plus provisions for leave, unearned income and tax, across the taxpayer, connected entities (broadly a 40 per cent control interest) and affiliates. The main residence, superannuation and personal use assets are excluded. Measured just before the CGT event, not at year end and not on settlement day.
The asset must have been active for at least half the period it was owned, or for 7.5 years where it was owned longer than 15 years. An asset whose main use is earning rent is excluded unless the tenant is an affiliate or connected entity using it in a business, which puts mixed-use property, storage facilities and serviced offices in contested territory.
Active assets, together with cash and financial instruments that are inherently connected with the business, must make up at least 80 per cent of the market value of everything the entity owns. The taxpayer must also be a CGT concession stakeholder, which requires a significant individual holding a 20 per cent participation percentage, and stakeholders must hold at least 90 per cent of any interposed entity.
Where the shares are held by a family trust, participation percentages come from the distributions actually made in the relevant year. A year with no distribution, or distributions spread thinly across many beneficiaries, can leave the trust without a significant individual and defeat the concessions regardless of value. This is a structural check for your tax adviser, and it needs to happen well before a sale is signed.
Market value for Division 152 follows the general principle the ATO applies across the tax law: the price that would be struck between a knowledgeable buyer and seller who are willing but not compelled, dealing at arm's length. Book values do not satisfy it. A property carried at its 2009 cost, or a trading company shown at the net assets in its accounts, understates the group in one place and omits goodwill in another.
For the trading business itself the income approach leads. We capitalise future maintainable earnings after normalising owner remuneration, related-party rent and one-off items, and we test the result against comparable sales under the market approach. That earnings-based figure is what brings goodwill into the 80 per cent test, and goodwill is very often the item that turns a company from failing the test on book values to passing it comfortably. Property, plant and surplus assets are taken at market value under the asset approach, with independent property evidence where the amounts are material.
The output is a schedule, not a single number: each asset of each entity in the group, its market value at the test date, the liability attached to it, and its classification as active or excluded with the facts that support that classification. Your tax adviser then applies the aggregation rules and the exclusions to that schedule.
The concessions are usually lost on facts and timing rather than on the law, and most of these could have been fixed had they been found before the contract was signed.
Division 152 positions are reviewed by the ATO, sometimes years after the sale, so the report needs to carry its own evidence. Where the group sits comfortably inside the thresholds a Summary report is the usual instrument. Where it sits close to $6 million, where the 80 per cent test is finely balanced, or where a dispute with the ATO is already live, the reasoning needs to be replicable by another expert.
The report sets out the valuation date, the standard of value and the information relied on, then values each entity and asset in turn. Goodwill is derived from a normalisation schedule and a capitalisation rate that are both explained, property values are tied to identified evidence, and every classification decision states the facts it rests on. The reconciliation explains why one approach was weighted over another in words a reviewer can follow.
A certified valuer signs the report and will defend it to your tax adviser, to the ATO in a review or objection and, if it comes to that, before the Administrative Review Tribunal or a court. That willingness is the point of obtaining the valuation at the time rather than estimating and hoping.
If the ATO reviewed this sale in four years' time, could you show what every asset in the group was worth on the day before the contract, and who said so? If the honest answer is no, the valuation belongs before the contract, not after it.
Talk your situation through with a certified valuer before you commit to anything, at no cost.