Hi all,

Whilst not specifically relating to web hosting, I thought I'd ask this question as no doubt some of you have had some dealings/experience with what I'm asking.

Basically I am in the process of valuing our business and preparing it for sale. When it is sold, lets say for $X, how does that affect our tax? Being in a partnership, we've discussed our personal percentages. We're both receiving the sale money directly, not through the partnership.

I know I'll have to pay tax on the income - does it just happen at the time when I lodge my 08/09 tax return?

I'll be double checking this with my accountant within the next month, but thought I'd ask here to see if you had any tips!

Cheers all,

Andrew

Definitely ask an accountant/lawyer, but you'll probably find you'll be looking at capital gains tax (possible profit from the sale of asset) rather than income tax. It would be counted in the year the transaction took place.

Thanks for the reply Donna.

It's something that I was a tad curious about. How can a CGT event transpire if no tangible assets are being sold? I'm only selling client loyalty.

No physical assets will be sold, no equipment, nothing. The clients are the only saleable item.

I've received a few PMs - this isn't a hosting company btw.

A business is an asset and usually makes up more than the physical items. The client base is the income generating asset and even though it's not physical, it has a value. The value is whatever a buyer will pay you for it.
One could argue that it is physical because the customer list is held on a spreadsheet or some other electronic or printed format that you'll transfer at time of sale.

The business is an asset, yes. What about the clients though? We're going to transfer the clients to the other company and change agreements, etc.

Would that change how they're dealt with? The trading name and equipment would stand under the current owners. No 'assets' as such are being sold.

Don't you have to give the buyer a list of the customers being transferred? That is the asset being sold.

I think that's a little extreme. I'm selling my client's goodwill.

I could ring the new company and tell them all the details to overcome that issue..

The medium that you give them the list in doesn't matter.

It's the fact that your transfering an income generating asset that the ATO cares about, no matter what format it's in, tangible or not.

http://www.ato.gov.au/individuals/co...age=1#P36_3127

Gives us a better answer

Many years ago when I looked into purchasing a business (not internet related) I consulted a recommended & trusted Financial Advisor (also an ex bank manager) a fair percentage of the value of the business for sale was calculated on existing customers "goodwill".... I was advised not to purchase the business as you can not sell, buy or rely on "goodwill".

It was good advice and I'm glad I listened as 2 months later that business went bust. The owner couldn't find a buyer and once existing customers found out he was selling they simply went elsewhere, so much for a customers goodwill...

Was that a retail shop, or similar?

Hi Andrew,

no it wasn't a retail shop, it was a car detailing business which operated from the premises of a car dealership in Sydney, it had operated successfully for years yet had no real assets hence why he was trying to sell "goodwill"

Cheers
Ros

I think the foundations of nearly any profitable business for sale is its customers. They pay the bills. So "Good Will" is kind of granted.. We all know what we're paying for.

Regardless sale price - if you are contemplating selling a business, then you having a business setup in the right manner prior to sale is really important to minimise tax.

I found that out when I found a new accountant who was asking me all these questions about things that might come up in the future, including an exit strategy - and investing in structure that protects my ass(ets) so to speak as well as reducing the amount of tax paid (legally of course) Not that I want to sell at the moment, but it was a bit of an eye opener for me.

Have you spoken with an accountant to discuss due diligence. The reason most companies sell 'goodwill' and not the business name is that you if you buy the company and the name, I think you also buy the debts and liabilities that come with it.. I'm not 100% sure but I think that is how it works. But I'm not an accountant.... it's just from memory.

i think the current method to value a business is 1 years net + equipment and stock

in a partnership the funds are divided between the partners each individual in the partnership has the responsibility to do his/her own tax + i think a business/partnership tax return, not sure.

any profits from the sale of a business are subject to capital gains wich i think is 48.5% at the moment and is a real ***** obviuosly there are ways to minimize this but you gotta talk to an accountant