Accountants are often the first to hear when a client is planning to sell their business, transition ownership, or embark on succession planning. However, while financial readiness may be front of mind, legal structuring is too often an afterthought. This can result in unnecessary tax consequences, avoidable risks, or even failed deals.
At M+E, we work closely with accountants to ensure clients are not just financially sale-ready, but legally sale-optimised.
Here’s how early legal input can protect value and ensure smooth exits for your SME clients:
- Get Ahead of the CGT Rules
Australia’s Capital Gains Tax (CGT) concessions can significantly reduce tax on the sale of a business, but only if the client is properly structured and meets strict eligibility criteria.
Key small business concessions under the Income Tax Assessment Act 1997 (Cth) include:
- 50% Active Asset Reduction: Cuts capital gains in half if eligibility under Subdiv 152-A and 152-C is met.
- Retirement Exemption: Up to $500,000 of gain per individual may be excluded when applied towards retirement (Subdiv 152-D).
- 15-Year Exemption: Provides total CGT relief for long-held businesses where the owner is retiring or permanently incapacitated (Subdiv 152-B).
Eligibility for these concessions often turns on the maximum net asset value test and active asset test. These details that can be buried in a group structure or balance sheet. However, through early collaboration with legal advisors, you can identify and preserve entitlement to these concessions.
- Choose the Right Sale Structure
Whether a business is sold via share sale or asset sale will affect tax outcomes, legal exposure, and operational complexity.
- Share Sale: Simpler and often preferred by sellers. The buyer acquires the company (and all its assets and liabilities), usually avoiding the need for contract novation.
- Asset Sale: Lets the buyer “cherry-pick” desired assets and avoid unwanted liabilities but involves more detailed contract work and operational disruption.
Accountants play a critical role in shaping the early strategy of a business sale. By modelling the tax implications of different sale structures, such as share versus asset sale, accountants can help identify the most efficient path forward. From there, timely engagement with legal advisers ensures the transaction is documented appropriately, with the structure, risk allocation, and compliance requirements all aligned from the outset.
- Documentation & Timing
Two cases from the Administrative Appeals Tribunal highlight just how much hinges on documentation and timing:
- Confidential and Commissioner of Taxation [2013]:[1] Underlined the importance of formalised, dated agreements to trigger CGT events. Timing is critical to access concessions.
- Taxpayer and Commissioner of Taxation [2010]:[2] Demonstrated how failing to satisfy net asset or active asset tests due to structural issues cost the taxpayer CGT relief.
Legal clarity in deal documentation, especially around timing of disposal and agreement terms, can significantly impact tax outcomes and deal success.
- Ownership Structure Drives Deal Readiness
A clean, transparent structure facilitates a smoother, more valuable sale. Messy structures do the opposite.
Questions to consider:
- Is the business held via company, trust, or partnership?
- Are there outdated trust deeds or missing shareholder agreements?
- Is IP (such as trademarks or domain names) held in the correct entity?
- Are there loans between entities or unrecorded arrangements?
Our encouraged best practice is to structure reviews 12–24 months before a planned exit. That gives enough time to address red flags without deal pressure.
- Where Accountants Add Value and When to Call Legal
By getting involved early, you can:
- Flag CGT eligibility issues across the group
- Identify restructuring opportunities
- Coordinate with legal to align tax and legal documentation strategies
When a client begins discussing plans to sell their business, it’s important to initiate a legal review of their ownership structure, CGT strategy, and key documentation. This step is especially crucial where the business involves complex elements such as trust structures, multiple shareholders, or private lending arrangements, as these can significantly impact both the sale process and tax outcomes.
Final Word
“Sale-ready” means more than strong EBITDA. It means being legally and structurally prepared to move without delays, disputes, or unnecessary tax liabilities. By working in partnership, accountants and lawyers can unlock value and deliver seamless transitions for clients. Our team works alongside accountants to support SME clients through succession, restructure, and sale. Reach out to Ersel (ersel@morganenglish.com.au) and our Corporate + Commercial team today.
[1] Confidential and Commissioner of Taxation [2013] AATA 76.
[2] Taxpayer and Commissioner of Taxation [2010] AATA 455.
