Free Consultation
Book a Free Consultation
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Market values for each test that stands between a Melbourne owner and the Division 152 concessions, dated to the moment before the CGT event and prepared while the facts can still be documented, not rebuilt after the ATO asks.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
Division 152 can reduce or remove the capital gain on selling a business, but the concessions depend on market value: the $6 million maximum net asset value test, the active asset test and, for shares or trust units, the 80 per cent test. A valuation dated just before the CGT event is the evidence each test is applied to.
For most Melbourne owners selling a business they built, Division 152 of the Income Tax Assessment Act 1997 is worth more than any other line in the tax calculation. Used fully, the four concessions can reduce a multi-million dollar gain to nothing. Claimed on weak evidence, they can be withdrawn on review long after the sale proceeds have been reinvested, distributed or spent.
Access depends on clearing a threshold. The aggregated turnover limit for these concessions is $2 million, lower than the $10 million used for other small business measures, so many profitable businesses miss it. The alternative is the maximum net asset value test, under which the net market value of the CGT assets held by the taxpayer, connected entities and affiliates must be no more than $6 million just before the CGT event. Selling shares or trust units adds the 80 per cent active asset test, which needs every asset of the entity valued and classified, goodwill included.
The $6 million limit is a fixed dollar amount, while property and business values do not stand still. An owner with a trading company, a warehouse in Truganina held in the family trust and an interest in a spouse's Box Hill practice can be much nearer the limit than the accounts suggest. Overstating the group risks giving up a concession you were entitled to. Understating it risks the ATO denying the concessions, assessing the full gain and adding shortfall interest and penalties.
Victorian property in the group raises a second set of questions. If assets are reorganised before the sale, State Revenue Office Victoria may assess land transfer or landholder duty on those moves, and a buyer of shares in a company that holds Victorian land may face landholder duty that changes the price they offer. We value the business and its goodwill, the property inside the group and the classification of each asset. Your tax adviser applies the law to those figures, and the valuation is what their conclusion rests on if the ATO asks.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Once the basic conditions are satisfied, Division 152 offers four concessions in a set order. The 15-year exemption disregards the entire gain where the asset has been held continuously for 15 years and the owner is 55 or older and retiring, or is permanently incapacitated. Failing that, the 50 per cent active asset reduction applies after the general CGT discount, the retirement exemption can shelter up to $500,000 of gains across an individual's lifetime, and the small business rollover defers the gain while a replacement active asset is acquired.
There must be a CGT event and a capital gain, and the taxpayer must pass either the $2 million aggregated turnover test or the $6 million maximum net asset value test, or one of the partnership and passively held asset variations. The asset must then satisfy the active asset test. Fail any one of these and none of the four concessions is available.
Market value less the liabilities attached to the assets, including provisions for leave, unearned income and tax, totalled across the taxpayer, connected entities (broadly where there is control of 40 per cent or more) and affiliates. The main residence, superannuation and personal use assets are left out. The test date is just before the CGT event, not the balance date and not settlement.
The asset must have been active for at least half of the ownership period, or for at least 7.5 years if it was owned for more than 15 years. Assets used mainly to earn rent are excluded unless the tenant is an affiliate or connected entity running a business from them, which makes mixed-use premises, storage and serviced offices difficult cases.
At least 80 per cent of the market value of the entity's assets must be active assets, counted together with cash and financial instruments inherently connected with the business. The taxpayer must also be a CGT concession stakeholder, which needs a significant individual with a participation percentage of at least 20 per cent, and where an entity is interposed, stakeholders must hold at least 90 per cent of it.
When a discretionary trust holds the shares, participation percentages are worked out from the distributions it actually made in the relevant income year. If nothing was distributed, or income was spread in small amounts across many beneficiaries, the trust may have no significant individual, and the concessions fail whatever the values show. Your tax adviser should check this long before a contract is signed, because it cannot be fixed by valuation.
Market value for Division 152 means what the ATO means elsewhere in the tax law: the price a willing but not anxious buyer and seller, both properly informed and dealing at arm's length, would agree. Book values do not meet that standard. A factory carried at what it cost two decades ago, or a company recorded at the net assets in its accounts, understates the group in one place and leaves goodwill out altogether in another.
The trading business is valued with the income approach leading. We normalise owner salaries, related-party rent and non-recurring items, capitalise the maintainable earnings, and test the outcome against comparable sales using the market approach. The earnings-based value is what brings goodwill into the 80 per cent test, and goodwill is often the item that moves a company from failing on book values to passing with room to spare. Property, plant and surplus assets are valued under the asset approach, supported by a registered property valuer's evidence where the amounts are significant.
What you receive is a schedule rather than a single figure: each entity in the group, each asset it holds, its market value at the test date, any liability attached and whether it is active or excluded, with the facts behind that classification. Your tax adviser applies the aggregation rules and the exclusions to that schedule and forms the conclusion.
The concessions are lost on facts and timing far more often than on the law, and nearly every item below could have been corrected before the contract was signed.
The ATO can examine a Division 152 claim several years after the sale, so the report has to carry its own support. A Summary report is usually enough where the group sits well inside the thresholds. Where it is close to $6 million, where the 80 per cent test is tight, or where the ATO has already raised questions, another expert needs to be able to follow and repeat the reasoning.
The report records the valuation date, the standard of value and the information relied on, then works through each entity and asset. Goodwill is built from a normalisation schedule and a capitalisation rate that are both explained, each property value is tied to identified sales evidence, and every active or excluded classification states the facts behind it. The reconciliation sets out in plain words why one approach carried more weight than another.
A certified valuer signs the report and will defend it: to your tax adviser while the sale is being planned, to the ATO in a review or objection, and if necessary before the Administrative Review Tribunal or the Federal Court of Australia. Where the group holds Victorian land, we keep the land values consistent with any figure given to State Revenue Office Victoria, so the evidence lodged with one revenue authority does not undercut what was given to the other.
Picture an ATO review four years after settlement. Could you show, asset by asset, what the group was worth on the day before the contract, and who signed that opinion? If not, commission the valuation before you sign rather than after.
Talk your situation through with a certified valuer before you commit to anything, at no cost.