Common errors when applying CGT concessions
The ATO has noticed some common errors occurring when applying the small business CGT concessions, and has offered tips to tax agents to help avoid those errors. Correctly report earn-out arrangements The sale of a business often includes a clause for further payments to be made due to future earnings, otherwise referred to as earn-out rights. Earn-out rights must be included in the capital proceeds of a CGT event A1 and when calculating whether the client meets the maximum net asset value test. Satisfy the maximum net asset value test Just prior to the CGT event, the total net value of the client’s CGT assets cannot exceed $6 million. This includes the net value of the CGT assets of any entity that is connected with the client, is an affiliate of the client, or who is connected with the client’s affiliates. Determine the market value of a business or asset Where the market value is required, accepted valuation principles should be applied. Use the contract date, not settlement date The CGT event occurs at the time the contract is entered into, not at the settlement date. For disposals of assets (CGT event A1), the time of the CGT event is when the disposal contract is signed. Where contract and settlement dates cross over financial years, the capital gain or loss should be declared in the financial year in which the contract was signed.
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