To David: on CGT

yingwei..suoyi

Hi David,

Starting a new thread on CGT, which we last discussed, as it is easier i guess.

Ok, here'e the scenario:

Original business traded under A's name. A then sells the business to her husband B for a token sum of $1. B then enter into a new shareholder agreement, and form a new company with the same trading name with investor C.

Investor C pays $X into the new company in return for 50% share, while B only transfer goodwill into the new company but still gets the remaining 50%.

In this case, will CGT be incurred? Will CGT concession play its part? Is there any way to avoid the CGT?

PS: My current accountant just told me leave it to him, he will sort it out and make sure that no CGT issue will happen here. He said it is too complicated to explain, and it involves some re-structuring. Will that be possible?

shuangchao

Hi Suoyi

First of all, Husband can not sale business to wife for $1.00. Sales between associates are deemed at market value. Have the disposal already happened?
To do it correctly, you husband sales the business to you at market value, if there is a capital gain. he will be entitled to a 50% general discount, a 50% small business concession discount may also be available to you. bring the gain to 25% only. You may choose to put the rest into superfund to get the superfund rollover gain. That way, no tax is payable on the capital gain. and it is done correctly.
When you sale the business you acquired from your husband, there are two stages to it:
Day 1. you set up a company with you being the sole shareholder. this way, you may do a rollover election as per S122-A. and no Capital gain is triggered when you rolled the business from your own name to the company
Day 2. Issue additionals shares to the third party, till you only hold 50%.
However, the value shifting rule may applied in this case depend on how much the business is worth. The value shifting rule is designed to capture the people not paying capital gain tax when selling business of significant value.

Overall, you can possibly reduce your capital gain tax to NIL by doing everything legally.
and i don't think its complicated, consult with your accountant again. He should explain  what he is planning to do for you.

shuangchao

Note, i've made the assumption that it is a small busines, your husband has operated for over 12 months, but less than 15 years in the above comments