How to make tax-effective business sales (includes free guide)

Capital gains tax can apply when a business owner sells shares, goodwill, commercial property or other business assets for more than their cost base. CGT is not a separate tax. The net capital gain is included in the taxable income of the individual or entity that made the gain and is taxed under the relevant taxation rules from the Australian Tax Office (ATO).

The final business capital gains tax outcome depends on factors such as:

• which assets are sold
• who legally owns those assets
• how long each asset has been held
• the owner’s business structure and tax rate
• available capital losses
• eligibility for the general CGT discount
• whether the small business CGT concessions apply

CGT treatment can also differ from that for trading stock, depreciating assets, and privately held property. This makes it important to assess each component of the arrangement rather than applying a single tax strategy to the entire sale.

How capital gains tax is calculated

A capital gain is generally calculated by subtracting an asset’s cost base from the capital proceeds received when it is sold:

Capital proceeds − cost base = capital gain

The cost base may include more than the original amount paid to acquire the asset. Depending on the circumstances, it can include certain legal, accounting, and transaction costs, as well as capital expenditures incurred to establish, preserve, or increase the asset’s value.

The calculation generally follows these steps:

1. Identify each CGT asset: Separate goodwill, shares, business property and other assets included in the sale arrangement.
2. Determine the capital proceeds: Establish how much of the sale price is allocated to each asset.
3. Confirm the cost base: Review acquisition costs, eligible transaction expenses and relevant capital expenditure.
4. Apply capital losses: Current-year and carried-forward capital losses may reduce capital gains, but they cannot generally be used to reduce ordinary income.
5. Apply the general CGT discount where eligible: Under current rules, eligible individuals and trusts may reduce gains by 50% on assets held for at least 12 months. From 1 July 2027, this will be replaced by inflation-adjusted cost-base indexation and a minimum 30% tax on real capital gains.
6. Apply eligible small business CGT concessions: The remaining gain may qualify for further relief through the 15-year exemption, active asset reduction, retirement exemption or small business rollover.
7. Include the net capital gain in taxable income: The remaining amount is taxed according to the rate that applies to the relevant taxpayer.

Example calculation:

A business owner sells qualifying shares for $1.4 million. The shares have a cost base of $200,000, resulting in an initial capital gain of $1.2 million.

If the owner is an eligible Australian resident individual who has held the shares for more than 12 months, the general 50% CGT discount may reduce the gain to $600,000 before any eligible small business CGT concessions are considered.

Planning note: This example reflects the CGT rules applying before 1 July 2027. For gains accruing from 1 July 2027, the general 50% CGT discount will be replaced by inflation-adjusted cost-base indexation and a minimum 30% tax rate on real capital gains for individuals, trusts and partnerships. Transitional rules apply to assets held across the commencement date.

This is a simplified example. The real outcome may change based on the sale structure, capital losses, ownership history, connected entities and the allocation of value between assets.

How your business structure affects the tax you pay

The entity that owns and sells the business asset determines who realises the gain, which tax rate applies, and which concessions are available.

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The legal structure alone does not guarantee access to tax concessions. For the four small business CGT concessions, an entity generally needs to satisfy the basic conditions, including the active asset test and either the relevant small business entity test or the maximum net asset value test. The ATO currently states that the CGT small business entity test uses aggregated turnover of less than $2 million, while the maximum net asset value limit is $6 million.

Additional conditions can apply when the asset is a share in a company or an interest in a trust. A change in structure immediately before sale may also trigger tax, duty, commercial or legal consequences rather than automatically producing a lower tax outcome.

Important distinction: A company that sells its business assets cannot apply the general 50% CGT discount. However, an eligible individual or trust selling shares in that company may be able to apply the discount if the shares were owned for at least 12 months. This distinction is one reason the tax implications of an asset sale versus a share sale should be modelled before negotiations are finalised.

A business sale can be structured as either a share sale or an asset sale. The difference affects what the buyer acquires, which liabilities transfer and how the proceeds are taxed.

In a share sale, the buyer acquires ownership of the company itself. In an asset sale, the buyer acquires selected business assets, such as goodwill, equipment, stock, contracts or intellectual property. The preferred structure often differs for buyers and sellers, so the commercial and after-tax outcomes should be modelled before the terms are finalised.

How does a business share sale work?

A share sale occurs when the owner sells some or all of their shares in a company to the buyer. The company continues to own and operate the business, but control of the company passes to the new shareholder.

Because the legal entity remains in place, its assets, contracts, employees and liabilities generally remain within the company. This may make the transfer a more straightforward operation, although the buyer will usually complete detailed due diligence before agreeing to acquire the shares.

A share sale may offer the seller several potential advantages:

• eligible individuals and trusts may be able to apply the general 50% CGT discount where the shares have been held for at least 12 months
• the sale may qualify for the small business CGT concessions where the relevant conditions are met
• the seller may avoid having to transfer each business asset separately
• the company can continue operating under the same legal entity

However, the buyer also acquires the company’s historical risks and obligations. These may include taxation liabilities, employee entitlements, contractual disputes or other issues that arose before settlement. As a result, buyers often seek warranties, indemnities or a lower purchase price to reflect that risk.

How does a business asset sale work?

An asset sale occurs when the buyer purchases selected assets from the business's owner. These assets may include:

• goodwill
• plant and equipment
• stock
• customer lists
• intellectual property
• licences
• business names
• commercial property
• selected contracts

The buyer and seller agree on which assets and liabilities will transfer. This gives the buyer more control over what is acquired and can help limit exposure to historical business risks.

For the seller, the taxation treatment depends on the type of asset being sold. Goodwill, shares and commercial property may create capital gains tax consequences, while trading stock and depreciating assets may receive different tax treatment. GST may also apply unless the transaction qualifies as the sale of a going concern.

An asset sale can create additional administrative work because contracts, licences, leases and employee arrangements may need to be transferred or replaced. If the assets are sold by a company, the company may first pay tax on the sale, and further tax consequences may arise when the remaining proceeds are distributed to shareholders.

Comparing the after-tax outcomes of each sale structure

The highest sale price does not always produce the strongest after-tax result. The seller should compare the amount retained after company tax, capital gains tax, transaction costs and any tax payable when proceeds are distributed.

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Assume a business is sold for $2 million.

Under a share sale, an eligible individual shareholder may realise a capital gain on the shares and potentially apply the general CGT discount and small business CGT concessions.

Under an asset sale, the company may incur tax on gains from the sale of goodwill and other assets. The shareholders may then face additional tax when the remaining proceeds are distributed from the company.

The actual result depends on the cost base, asset allocation, available tax concessions, company franking credits and the seller’s wider circumstances. A side-by-side tax model should be prepared before agreeing to either structure.

Eligible small business owners in Australia may be able to reduce, disregard or defer a capital gain using the general CGT discount and the four small business CGT concessions.

These concessions are subject to detailed conditions, and they do not apply automatically. The order in which they are used can also affect the final tax outcome, so each concession should be modelled as part of the broader sale strategy.

Eligibility for the small business CGT concessions

A small business owner may be eligible where:

• the sale produces a capital gain
• the relevant asset satisfies the active asset test
• aggregated turnover is less than $2 million, or net CGT assets do not exceed $6 million
• the seller meets any extra conditions for shares or trust interests
• the specific requirements of the chosen concession are satisfied

From 1 July 2027: The aggregated turnover threshold for accessing the 50% active asset reduction will increase from $2 million to $10 million. Other eligibility requirements may still apply, so business owners should confirm which concessions are available based on the timing and circumstances of their sale.

The general CGT discount and upcoming changes

Under current rules, the general CGT discount is separate from the small business CGT concessions. It may allow an eligible Australian resident individual or trust to reduce a capital gain by 50% where the asset has been owned for at least 12 months. Companies cannot apply the general 50% CGT discount, while a complying superannuation fund may generally receive a 33.33% discount where the relevant conditions are met.

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced for gains accruing from that date by inflation-adjusted cost-base indexation, with a minimum 30% tax rate applying to real capital gains. Transitional rules apply to assets held as of 1 July 2027, meaning the timing of a future business sale should form part of your tax planning.

Capital losses are ordinarily applied before the general discount. The small-business concessions may further reduce the remaining gain, provided the seller is eligible. The 15-year exemption is treated differently because a qualifying gain is disregarded in full before the other concessions are considered. The four small business CGT concessions will continue under the new CGT rules, subject to their relevant eligibility requirements.

A tax-effective sale rarely begins when a buyer makes an offer. Planning early gives you time to confirm concession eligibility, resolve ownership or record-keeping issues and compare different sale dates and structures.

It can also prevent last-minute changes that create new tax, legal or commercial consequences without improving the amount you retain after settlement.

Review your business and ownership structure

Before going to market, identify:

• the legal owner of the business
• the owner of each asset being sold
• any assets held privately or by related entities
• the shareholders, beneficiaries and significant individuals
• loans and balances between related entities
• how sale proceeds will move from the selling entity to the owners

Planning note: A structure that worked during the growth stage may not produce the strongest outcome at exit. Any proposed change should be reviewed well before the sale rather than introduced after a deal has been negotiated.

Confirm the cost base and ownership of your assets

Confirming the cost base early reduces the risk of relying on incomplete records once negotiations are underway. Review ownership documents, acquisition costs, capital improvements and transaction expenses for each asset, then reconcile these records with the proposed sale agreement and asset allocation.

Consider the timing of the sale and available capital losses

The timing of a business sale can affect when the capital gain is recognised and how it interacts with the seller’s wider tax position. These factors should be reviewed before the contract is signed, alongside the commercial risks of changing the transaction timetable.