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Sale of a going concern

Information on selling a going concern.

Last updated 11 July 2023

What is a going concern

A going concern is a business that is operating and making a profit. No GST is payable on the sale of a going concern if certain conditions are met. However, as the seller, you may be able to claim input tax credits for GST you paid on expenses relating to the sale.

To work out whether the sale of your business meets these requirements, refer to GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST free.

Financial supply sale

The sale is a financial supply if your business is a:

  • company, and you sell its shares
  • trust or partnership, and you sell the underlying interests in the trust or partnership.

These types of sales are 'input taxed' if you exceed the financial acquisitions threshold.

An input-taxed supply means no GST is payable. You cannot claim input tax credits for GST expenses relating to the sale.

To work out whether you exceed the threshold, refer to GSTR 2003/9 Goods and services tax: financial acquisitions threshold.

Input taxed sale

If the sale of your business is input taxed, you may need to apportion the amount of input tax credits you can claim.

If you don't exceed the financial acquisitions threshold, the sale is treated as if it was GST free and you will be entitled to full input tax credits.

For guidance on apportionment methods, refer to GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies.

Capital gains tax

Capital gains tax (CGT) arises when you sell or dispose of assets you acquired on or after 19 September 1985 (post-CGT assets), minus any capital losses.

Under certain circumstances, pre-CGT shares in a company or trust may become subject to CGT.

You need to consider your CGT liability when selling any asset.

Small business concessions

There are various CGT concessions available to small business owners. Correctly applying these concessions may reduce your CGT liability when selling a business.

Specific concessions include the:

  • 15-year exemption – that may exempt a capital gain from a business asset you have owned for at least 15 years
  • 50% active asset reduction – that allows you to reduce the capital gain arising from the sale of a business asset
  • retirement exemption – that allows you to receive relief from CGT if you sell assets called active assets used in your business – the exemption does not apply to gains made from passive (investment) assets
  • rollover – that allows you to defer a capital gain from the disposal of a business asset for 2 years (you can defer the capital gain for longer than 2 years if you acquire a replacement asset or make a capital improvement to an existing asset).


Broadly, an earnout is an arrangement where you:

  • sell an income-producing asset – for example, a business
  • agree to receive additional payments based on the future performance of the asset.

For tax purposes, you can use the look-through treatment for earn out rights or you can treat an earnout as a separate asset that may have separate CGT implications (including the small business CGT concessions).

Buy or sell agreements

A buy or sell agreement sets out an arrangement designed to protect the interests of the departing owners and the remaining owners, while preserving the business itself.

There are 2 key features to a buy or sell agreement:

  • the transfer aspects of the transaction
  • the funding arrangements.

The features of the buy or sell agreement may raise additional tax issues, such as CGT.

For more information, read:

  • ATO ID 2004/668 Income tax – Capital gains tax: buy-sell agreement - time of CGT event A1
  • ATO ID 2003/1190 Income tax – Capital gains tax: business succession agreement - put and call options CGT event D2.

Cap election

You need to complete the Capital gains tax cap election form if contributions have been made to your super fund during the financial year, from the disposal of certain small business assets.

This is important if you:

  • want to exclude these contributions from the non-concessional contributions cap
  • have not reached your CGT cap amount (this amount is indexed on an annual basis and rounded down to the nearest $5,000).

Rollover statement

Under tax law, you must provide certain information to a super fund when an individual (including a sole trader or partner in a partnership), company or trust rolls over an eligible termination payment consisting of a CGT-exempt component to a super fund.

You do not have to use the Capital gains tax cap election form, but it can help you:

  • with record keeping
  • facilitate the rollover process.

A CGT-exempt component is made up of the proceeds of the sale of certain small business assets in connection with retirement.

Division 7A

If you are a private company owner, under tax law you must treat your private expenses separately from your company expenses.

When buying or selling a private company, you must treat any advances, loans and other payments or credits to shareholders (or their associates) correctly.

Payments, loans and debts forgiven by a private company to shareholders and their associates may be treated as dividends under Division 7A of Part III of the Income Tax Assessment Act 1936.

Debt forgiveness

Division 7A also applies to debt forgiveness.

If a private company forgives all or part of a debt owed by you when you are a shareholder or an associate of a shareholder, the debt may be treated as dividends under Division 7A.

Also, the rules are designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate. This is by creating a present entitlement to an amount of net income in favour of a private company without paying it, and then distributing the underlying cash to a shareholder (or their associate) of the company.

For more information, see Debt forgiveness and CGT.

Calculator and decision tool

Use the Division 7A calculator and decision tool to:

  • work out whether a direct transaction by a private company to a shareholder or their associate will be deemed a dividend
  • calculate the minimum yearly repayment required on a loan to avoid a deemed dividend arising under Division 7A
  • calculate the amount of the loan not repaid by the end of an income year.