Tax on the Sale of a Business: How Structure Decided Years Ago Changes the Bill

The tax on a business sale isn't decided when you sign the contract. It's decided by choices made years earlier: whether you set up as a sole trader, a company or a trust, and how the business has been run since. By the time a buyer is at the table, most of what determines your after-tax result is already locked in.

Sellers frequently focus their energy on negotiating the price and leave the tax conversation until after terms are agreed. That order of operations can cost more than the negotiation ever saved.

Why the Sale Contract Isn't the First Document That Matters

By the time lawyers are drafting a sale contract, the tax position is largely set by facts that already exist: how the business is structured, how long assets have been held, what the business is actually worth for tax purposes, and who owns what. The contract records the deal. It doesn't create the tax outcome. The structure does.

Asset Sale vs Share Sale: Different Tax Outcomes

A buyer can purchase either the assets of the business (its equipment, goodwill, contracts, stock) or the shares or units in the entity that owns it. These are not interchangeable choices dressed up differently:

• An asset sale is often what buyers prefer: they choose what they take on and generally avoid inheriting the seller's historical liabilities. For the seller, it can mean tax at both the entity level and again when proceeds are distributed to you personally, depending on structure.
• A share or unit sale transfers ownership of the entity itself, liabilities and all. Depending on your structure, this can sometimes produce a cleaner tax outcome for the seller, but buyers often resist it, or price the risk of inherited liability into their offer.

Which structure you're selling out of substantially determines which of these paths is realistically available to you, and what it costs.

Small Business CGT Concessions: Are You Even Eligible?

The small business capital gains tax concessions can meaningfully reduce, or in some cases eliminate, the tax on a business sale. They are not automatic. Eligibility turns on tests including the size of your business, how the asset being sold has been used, and ownership and control requirements that need to be satisfied before the sale, not arranged afterwards.

We regularly see business owners assume they'll qualify because they're "a small business" in the everyday sense, only to find a technical requirement wasn't met, often something that could have been fixed easily if it had been checked twelve months earlier.

Where Trust and Company Structures Change the Result

If the business is held in a discretionary trust, how the capital gain can be distributed (and to whom, and how efficiently) depends on the trust deed, the beneficiaries available, and their own tax positions in the year of sale. If it's held in a company, the gain is taxed at the company level first, and getting the proceeds to you personally is a second, separate tax event that needs its own plan.

Neither of these is something to work out after the sale has settled. A structure that served the business well for a decade of trading isn't automatically the most tax-effective one to sell out of.

Timing the Sale Around the Financial Year

Which financial year a sale completes in can change what other income or losses it sits alongside, and some concessions and thresholds are tested on a financial-year basis. Settlement dates are usually negotiable within a deal. Raising the tax conversation before a settlement date is locked in, rather than after, is often the difference between a date that suits your tax position and one that simply suited the buyer's timeline.

How Phan Campbell & Associates Can Help

At Phan Campbell & Associates in Footscray, our accounting team models the tax outcome of a sale before you sign anything, checks your eligibility for available concessions, and works alongside our commercial lawyers on the structure and contract of the transaction itself. One firm across both the numbers and the paperwork means nothing gets decided in isolation.

If you're planning a sale, get the tax question answered before the price question is finalised.

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Frequently Asked Questions

1. Is it better to sell the business assets or sell the shares?
It depends on who you ask. Buyers often prefer an asset sale because they can choose what they take on and avoid inheriting historical liabilities. Sellers operating through a company often prefer a share sale because it can be simpler and may access different tax treatment. The right answer depends on your structure, your history, and what the buyer will accept: it is a negotiation point, not a formality.

2. What are the small business CGT concessions?
They are a set of concessions that can significantly reduce or eliminate capital gains tax on the sale of an eligible small business, including a 15-year exemption, a 50% active asset reduction, a retirement exemption and a rollover. Eligibility depends on factors including your turnover or the net value of assets, and how the asset was used in the business. Whether you qualify needs to be checked well before you sign anything, not after.

3. Does selling through a trust or company change the tax outcome?
Yes, significantly. How a capital gain is taxed, and to whom, depends on whether the selling entity is a sole trader, a company or a discretionary trust, and how profits are able to be distributed. A structure that made sense when the business started may no longer be the most tax-effective one to sell through. This is worth reviewing well ahead of any sale.

4. Does the timing of a sale matter for tax?
Often, yes. Which financial year a sale completes in can affect what other income or losses it is taxed alongside, and some concessions and thresholds are assessed on a financial-year basis. Settlement timing is frequently negotiable within a deal, and getting tax advice before agreeing a settlement date can make a real difference to the after-tax result.