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Selling a Burleigh Heads cafe group, a Bundall accounting practice or a business in the Coomera marine precinct can leave a capital gain that Division 152 reduces or removes, provided the market values hold up. We value each entity and asset in your group at the moment before the CGT event, while the paperwork is still on file.
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Division 152 of the ITAA 1997 offers four concessions that can reduce a business sale gain to nil, yet the entry tests all depend on market value: group net assets of $6 million or less, assets that qualify as active and, on a share or unit sale, the 80 per cent test. Dated valuation evidence supports it.
Gold Coast owners often build wealth in two places at once: the business and the property around it. A Southport law practice, a Varsity Lakes physiotherapy clinic or a boat builder at Coomera can produce a sizeable gain on sale, and Division 152 of the Income Tax Assessment Act 1997 is usually the largest lever in the tax outcome. Used properly, the four concessions can remove most or all of that gain. Claimed on weak numbers, they can be reversed by the ATO long after the proceeds have been spent on a new venture, a house or the children.
Most sellers on the Coast reach the concessions through the net asset door rather than the turnover one. Division 152 keeps its own aggregated turnover limit of $2 million, well below the $10 million used for many other small business rules, so a busy Broadbeach restaurant or a trade business with a full order book usually exceeds it. What remains is the maximum net asset value test, which caps the net market value of the CGT assets held by the seller, connected entities and affiliates at $6 million just before the CGT event. Where shares or units are sold, the 80 per cent test must also be met, which means valuing every asset inside the entity, including goodwill the accounts never record.
Property is the usual reason a coastal group creeps towards the limit unnoticed, because the $6 million cap does not move while land values do. Picture a company running a fabrication business at Molendinar, a unit in the Burleigh industrial estate owned by the family trust and leased back to it, and a partner's interest in a Robina medical practice. Together they can sit much nearer the threshold than the last set of accounts suggests. Overstate the total and you may walk away from relief you were entitled to; understate it and the ATO can deny every concession, assess the full gain and add shortfall interest and penalties.
Where Queensland land sits anywhere in the structure, state duty belongs in the planning conversation. Moving a property or a business between related entities before the sale can trigger transfer duty assessed by the Queensland Revenue Office, and a buyer acquiring a significant interest in a company or unit trust that holds land may face landholder duty, a cost that tends to reappear in their offer. We value the business, its goodwill and the group's property and label each asset as active or not; your tax adviser applies Division 152 to those numbers and can rely on our report if the ATO reviews the claim.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
The four concessions in Division 152 are applied in a set order once the basic conditions are satisfied. The 15-year exemption comes first and removes the entire gain if the asset has been held continuously for 15 years and the owner is 55 or older and retiring, or is permanently incapacitated. If it is not available, the 50 per cent active asset reduction is taken after the general discount, the retirement exemption can then shelter gains up to a lifetime limit of $500,000, and the rollover defers any balance while the owner acquires a replacement active asset.
Total the market value of the CGT assets held by the taxpayer, by every connected entity (in broad terms, one controlled at 40 per cent or more) and by every affiliate. Deduct the liabilities tied to those assets, such as leave provisions, income received in advance and tax. The calculation excludes superannuation, personal use assets and the main residence. The measurement date is just before the CGT event, not balance date and not settlement.
There has to be a CGT event that produces a capital gain. The taxpayer then needs to pass either the $2 million aggregated turnover test or the $6 million net asset test, or fit one of the variations for partners and for passively held assets used in a related business. The asset itself has to satisfy the active asset test. Failing any one of these steps removes all four concessions at once.
At least 80 per cent of the market value of the entity's assets must be active assets, counting cash and financial instruments inherently connected with the business. The seller also has to be a CGT concession stakeholder, which needs a significant individual with a participation percentage of 20 per cent or more; where an interposed entity sits between them, stakeholders need to hold at least 90 per cent of it.
The asset needs to have been used in the business for at least half of the ownership period, or for at least 7.5 years if it was owned for more than 15 years. Property mainly used to earn rent is excluded unless a connected entity or affiliate runs its business from it, which is why holiday letting, storage units and mixed-use premises along the coast need their facts set down carefully.
If a discretionary trust holds the shares, participation percentages are worked out from the distributions the trust actually made in the relevant income year. A year with no distributions, or one where small amounts were spread across many beneficiaries, can leave nobody qualifying as a significant individual, and that is a problem a valuation cannot fix. Have your tax adviser review the trust's distribution record well before heads of agreement.
For Division 152 the ATO applies the market value standard it uses throughout the tax law: the price an informed and willing, but not anxious, buyer and seller would agree at arm's length. Book figures and historical cost seldom meet it. A Nerang workshop still recorded at what it cost twenty years ago understates the group, and a company carried at the net assets in its accounts leaves goodwill out altogether.
The income approach leads for the trading business. We normalise owner salaries, related-party rent and non-recurring items, capitalise maintainable earnings, then test the result against comparable sales using the market approach. That earnings-based value is how goodwill enters the 80 per cent test, and it often converts what looks like a failure on book figures into a comfortable pass. Land, buildings, plant and surplus assets are dealt with under the asset approach, using evidence from a registered property valuer where the sums are material.
What you receive is a schedule rather than a single figure. Each entity in the group is listed with the assets it holds, their market value at the test date, any related liability and an active or excluded label, together with the facts behind each label. Your tax adviser applies the aggregation and exclusion rules to that schedule and draws the conclusion.
Claims rarely fail on a contested point of law. They fail on missing facts or the wrong date, and nearly every one of those gaps could have been closed before the contract was signed.
The ATO can look at a Division 152 claim several years after settlement, and by then the report has to speak for itself. A Summary report usually supports a group that sits well inside the thresholds. If the margin below $6 million is narrow, the 80 per cent test could tip either way or the ATO has already begun asking questions, the reasoning needs to be laid out in enough depth for another expert to check it.
Every report records the valuation date, the standard of value and the information relied on, then works through the group one entity and one asset at a time. Goodwill is supported by a normalisation schedule and an explained capitalisation rate, property values are tied to identified sales, and each active or excluded label is backed by the relevant facts. A closing reconciliation sets out in plain language why one approach carried more weight than the others.
The certified valuer who signs it will defend it: alongside your adviser while the sale is being planned, with the ATO through a review or objection, and at the Administrative Review Tribunal or the Federal Court of Australia if the matter goes further. Should the sale later turn into a dispute between buyer and seller in the Supreme Court of Queensland, or in the District Court of Queensland sitting at the Southport courthouse, the report is written with the expert evidence requirements of the Uniform Civil Procedure Rules 1999 (Qld) in mind. Where Queensland land is involved, the values we use line up with anything lodged with the Queensland Revenue Office, so the evidence given to the state and to the ATO tells one consistent story.
Imagine an ATO letter arriving four years after settlement. Could you produce a signed opinion, asset by asset, of what the group was worth the day before the contract was signed? If not, now is the time to obtain one.
Talk your situation through with a certified valuer before you commit to anything, at no cost.