What tax do I pay when I sell my business in Australia?

Owners tend to focus on the sale price. Buyers negotiate the sale price. But the number that ends up in your account is the sale price less tax, less debt payout, less costs, and the tax part is frequently the largest of the three.

What follows is background so you can have a better conversation with your accountant. It is not advice and it is not a substitute for getting your own.

Why this belongs with your accountant early

Most of the levers that affect the tax outcome of a sale are pulled well before the sale. Who owns the shares. Whether assets sit inside the trading entity or outside it. How long things have been held. Whether a spouse or a trust is in the structure and what percentage they hold.

By the time a contract is in front of you, most of those are locked. That is the single practical point in this whole article. If you are within a few years of selling, the conversation with your accountant is worth having now, not at settlement.

The general shape of it

A business sale usually triggers a capital gains tax event. The gain is broadly the proceeds attributable to the asset less its cost base, and that is where it starts rather than where it ends.

Australia has four small business capital gains tax concessions available to eligible taxpayers. They are the fifteen year exemption, the fifty per cent active asset reduction, the retirement exemption and the small business rollover. They share a set of basic eligibility conditions and then each has its own tests, and they are applied in a set order rather than picked at will.

The conditions are genuinely intricate. They turn on aggregated turnover, maximum net asset value, whether the asset is an active asset, how long it has been held, whether there is a significant individual, and how connected entities and affiliates are counted. The Australian Taxation Office publishes the tests for each concession and they are the authority on it.

What I can tell you as a broker is that owners are regularly surprised in both directions. Some assume they will qualify and find a structural detail in the way. Others assume they will pay full freight and find a concession that changes the whole picture. Neither assumption is worth making without checking.

GST and the going concern question

A sale can be GST free where it qualifies as the supply of a going concern. Broadly that requires the seller to supply everything necessary for the continued operation of the business, to carry it on until the day of the sale, and for both parties to agree in writing that it is a going concern supply.

It comes up in almost every contract and it needs to be dealt with properly in the drafting, because getting it wrong is expensive and it is the kind of error that surfaces later.

Asset sale or share sale

This is negotiated in most transactions because the consequences differ for each side.

A share sale transfers the entity itself, which means contracts, licences and registrations generally stay in place, and so does the history. Buyers often resist share sales for exactly that reason, or price the risk, or want indemnities and a retention.

An asset sale transfers selected assets and the buyer starts fresh. Contracts and leases need assigning or renegotiating, licences may need to be reapplied for, and employee entitlements have to be dealt with under the transfer of business provisions.

There is no general answer to which is better. There is only an answer for your structure and their structure, and both sides need their own advice before it is settled.

What I would do in your position

Three things, in this order.

Ask your accountant what your position looks like if you sold today, and what would change it. Ask specifically about eligibility for the concessions and what in your structure helps or hinders.

Ask what the answer would be in two years, and whether anything worth doing needs doing now.

Then get an appraisal so you know what number you are running the tax question against. A market appraisal is free and confidential and commits you to nothing, and it makes the accountant conversation far more concrete than a hypothetical.

Selling a business badly to catch a tax outcome usually costs more than the tax saved. Preparation drives price a lot harder than timing drives tax.