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  • #994967
    Webedge
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    Hi all

    I’m in negotiations to sell one of my businesses (online store, sole trader) and the buyer has requested a breakdown of assets compared to goodwill etc.

    My understanding was that as a vendor, the goodwill is still subject to CGT as it is treated like an asset. Is this correct?

    As far as tax implications for me (the vendor), does it matter how I apportion the sale value to each asset/goodwill?

    #1199365
    Taxopia
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    Webedge, post: 235982, member: 27174 wrote:
    Hi all

    I’m in negotiations to sell one of my businesses (online store, sole trader) and the buyer has requested a breakdown of assets compared to goodwill etc.

    My understanding was that as a vendor, the goodwill is still subject to CGT as it is treated like an asset. Is this correct?

    As far as tax implications for me (the vendor), does it matter how I apportion the sale value to each asset/goodwill?

    It depends on a few things

    1. Is there a cost base to the goodwill that you are now selling?
    Generally, this occurs when you are selling a business that you previously purchased with goodwill in it (which would include a capital franchise buy in fee). If it’s just a case that you started the business from scratch with no purchased goodwill, then your cost base for that asset will likely be zero.
    2. What is your current tax written down value of the fixed assets you are selling? If they have been fully written off the tax written down value will be nil.

    Given that you may be eligible for a range of capital gains tax concessions including the 50% general discount (owner the assets for more than 12 months) and the small business entity CGT concessions – you may reduce the taxable capital gain all the way to nil (yes pay no tax). However, if you structure the sale price as more relating to the fixed assets some of the gain may not be considered a capital gain and therefore subject to higher tax.

    So yes the way you allocate the consideration in the contract can affect your tax considerably AND it can also effect the buyer. If 100% of the price was documented as goodwill, then they get no tax deductions (goodwill is a capital expenditure and cannot be amortised or claimed for tax). Alternatively, if 100% was fixed assets then they can depreciate over the useful life (or maybe write off under SBE depreciation).
    So as per usual. Get an accountant and save yourself a few thousand in tax.
    Regards
    Alex

    #1199366
    Webedge
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    Thanks Alex – appreciate the response and feedback.

    It is a business I started from nothing.

    I would be selling all Intellectual property, as well as website, domains, customer base, social media accounts, etc etc, some stock, very few physical assets (no property or vehicles).

    I do not have any fixed assets, save for a few small items which would make up an extremely small % of the sale price.

    #1199367
    Taxopia
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    Ok. So if its mostly goodwill value then you may be eligible for various CGT concessions. Have you considered those and how that may effect any tax?

    #1199368
    Webedge
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    Yes I believe I would be eligible for the 12 months concession, as well as being under $2m threshold.

    Clearly I need to have an accountant work all this out for me, just wanted to get a basic understanding of tax implications of goodwill vs assets, from a vendor perspective.

    As a sole trader, does the sale price also need to be added onto my taxable income for the financial year?

    #1199369
    Taxopia
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    Webedge, post: 235986, member: 27174 wrote:
    Yes I believe I would be eligible for the 12 months concession, as well as being under $2m threshold.

    Clearly I need to have an accountant work all this out for me, just wanted to get a basic understanding of tax implications of goodwill vs assets, from a vendor perspective.

    As a sole trader, does the sale price also need to be added onto my taxable income for the financial year?

    Any net capital gain (after concessions) will be added to your personal assessable income and taxed at your marginal tax rates. The time of the CGT event normally being the time of signing the sale contract NOT settlement / completion date.

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