The CGT Test Includes Commission Liability after CGT event.
In a recent decision, the majority of the Full Federal Court held that for the purposes of accessing the small business capital gains tax (CGT) concessions, a real estate agent commission incurred on the sale of a business could be included as a liability for the purposes of the maximum net asset value test. This was the case even though the taxpayer was invoiced for the commission after entering the contract of disposal.
The court examined closely the documentation and made its judgement based upon its view of the timing of the legal obligation. A different set of documentation can give an opposite outcome.
Clients need to work very closely with all their advisers if expecting the best outcome.
Small businesses can access a range of tax concessions to reduce CGT on the sale of certain assets if certain conditions are met. One of the conditions is that the taxpayer must satisfy the “maximum net asset value” test. To pass the test, the net value of all the CGT assets of the taxpayer (including affiliates and connected entities) must not exceed $6 million.
The rules are complex, with recent court cases showing that the Australian Taxation Office often win a dispute.