Question

On 1 July 2019, Micah Wong, a resident taxpayer aged 58, sold his mortgage broking business for $2,675,000 and retired (he was a sole trader). The proceeds are entirely for goodwill and the cost base for this asset consists solely of second element costs on disposal of $35,000.

Micah commenced business in 2008 and does not have any other current or prior year capital gains or losses. His business satisfies the requirements of Subdivision 152-C.
A) What types (not amounts) of discount, reductions and concessions is Micah entitled to on the capital gain?
B) How would Micah declare the net capital gain to the ATO, and how would it be taxed.

Answer 1

Micah Wong is entitled to various CGT concessions such as the 15-year exemption, 50% active asset reduction, the retirement exemption, and the small business restructure rollover upon the sale of his business. He will declare the remaining net capital gain on his tax return, which will be taxed at his marginal tax rate after applying the concessions and any potential discounts.

Step-by-step explanation:

Regarding Micah Wong’s sale of his mortgage broking business, several types of capital gains tax (CGT) concessions could apply due to the fulfillment of Subdivision 152-C requirements. Since Micah is a small business owner and the proceeds are solely for goodwill, the following types of CGT concessions may be available:

• 15-year exemption: Given that the business has been owned for more than 15 years and Micah is over 55 and retiring, he may be eligible to disregard the entire capital gain.
• 50% active asset reduction: This can apply to reduce the capital gain on an active asset by 50%.
• Retirement exemption: Capital gains from the sale of business assets may be exempt up to a lifetime limit of $500,000, if the proceeds are used to support retirement.
• Small business restructure rollover: It allows deferral of a capital gain from the sale of business assets when a business is restructured.

After applying the relevant concessions, Micah would declare any remaining net capital gain on his tax return. The net capital gain is determined by subtracting any capital losses, the CGT discount, and small business CGT concessions from the total capital gains for the year. This net gain would then be subject to tax at Micah's marginal tax rate.

It should be noted that as Micah is not a company, he is not entitled to the 50% CGT discount if he acquired the asset before 21 September 1999. However, his entitlement could be affected by whether the concessions are applied before or after the discount and whether the concessions are stacked or applied concurrently. For accurate and tailored advice, Micah should consult with a tax professional who can provide guidance based on his specific situation.