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Capital Gains Tax (CGT) is a tax on the profit made from selling an asset, including commercial and investment properties. For business property owners, understanding CGT is crucial when selling offices, retail spaces, warehouses, or industrial sites.

Unlike personal residences, business properties generally do not qualify for the main residence exemption. This means that any profit — the difference between selling price and cost base (purchase price plus improvements and costs) — is potentially subject to taxation under Australian law.

The Australian Taxation Office (ATO) provides detailed guidance on capital gains for property.

Steps to Determine Capital Gains on Business Property

1. Calculate the Cost Base of the Property

The cost base includes:

• Purchase price of the property
• Legal fees, stamp duty, and conveyancing costs
• Costs of improvements or renovations
• Certain holding costs, like interest on loans used for the property (depending on circumstances)

Subtracting this cost base from the selling price gives the capital gain.

Example:
If you bought a warehouse for $800,000, spent $100,000 on improvements, and sold it for $1.2 million, your capital gain is:

$1,200,000 – ($800,000 + $100,000) = $300,000

2. Identify Eligible CGT Concessions

Business property owners may qualify for CGT concessions under the ATO’s rules for small businesses, including:

• 15-year exemption – If the business asset is held for 15+ years and you’re aged 55+, the gain may be fully exempt.
• 50% active asset reduction – Reduces CGT by 50% if the asset is actively used in business.
• Retirement exemption – Allows a lifetime CGT exemption up to a certain limit when retiring.
• Rollover relief – Defers CGT if you reinvest proceeds in another active business asset.

More details are available in the ATO Small Business CGT Concessions guide.

3. Apply Any Rollovers or Timing Adjustments

If you are selling multiple business properties or restructuring your business, CGT rollovers may allow you to:

• Defer CGT to a later year
• Offset gains with prior-year capital losses
• Minimise tax by timing the sale for lower-income years

Professional advice is crucial here, as misapplication can trigger substantial ATO penalties.

4. Account for Depreciation Recapture

For commercial property, depreciation claimed on the building and plant & equipment may need to be added back to the capital gain upon sale.

This ensures that tax deductions previously claimed are recaptured by the ATO, increasing taxable gains.

A depreciation schedule prepared by a qualified quantity surveyor or valuation professional can help accurately calculate recapture amounts, reducing errors and audit risk.

5. Convert the Capital Gain to Taxable Income

Once you have the net capital gain, it is added to your assessable income for the year of sale.

• If the property is owned by a company, the gain is taxed at the corporate tax rate (currently 30%).
• If owned by an individual or trust, the gain may be eligible for the 50% CGT discount if held for at least 12 months.

For example, a $300,000 capital gain for an individual held over 12 months may result in $150,000 taxable gain, which is then taxed at the owner’s marginal rate.

Importance of Professional Valuation

Accurately determining capital gains on business property requires:

• Independent valuation to confirm market value at sale
• Verification of cost base components and improvement records
• Assessment of eligible concessions and discounts

At WA Business Valuations, we provide professional business property valuations that align with ATO compliance, helping clients determine capital gains accurately and plan for tax effectively.

Common Mistakes Business Owners Make

• Misreporting the cost base – Omitting purchase costs or improvements increases CGT liability.
• Ignoring CGT concessions – Many small businesses miss out on exemptions or discounts.
• Failing to account for depreciation recapture – This can result in unexpected tax bills.
• Incorrect ownership structures – Selling through the wrong entity can increase tax exposure.

Professional advice from valuers and accountants can prevent these errors and maximise tax efficiency.

How WA Business Valuations Can Help

Our team assists business property owners with:

• Valuation of commercial assets for CGT purposes
• Calculating cost base and capital gains for compliance
• Advice on CGT concessions, rollovers, and discounts
• Integrating depreciation schedules to minimise recapture impact

Learn more about our Business Valuations Services or Contact Us to accurately determine capital gains and plan for a tax-efficient property sale.

FAQs — Determine Capital Gains on Business Property

Q: Do I have to pay CGT on all business property sales?
A: Most sales of commercial property generate a capital gain unless an exemption or concession applies.

Q: What is the difference between active and passive assets?
A: Active assets are used in running your business and may qualify for small business CGT concessions; passive assets do not.

Q: Can depreciation claimed be deducted from CGT?
A: Depreciation previously claimed must generally be recaptured, adding to the capital gain.

Q: How long do I need to hold the property to qualify for the 50% discount?
A: For individuals and trusts, you must hold the property for at least 12 months.

Q: Does selling through a company change CGT?
A: Yes. Companies do not get the 50% discount and pay corporate tax rates on capital gains.

Key Takeaways

• Determining capital gains on business property is more complex than residential sales due to concessions, depreciation, and ownership structures.
• Accurate valuation and cost base analysis is essential for tax compliance.
• Small business owners can leverage CGT concessions and rollovers to minimise liability.
• WA Business Valuations provides expert services to help you determine capital gains accurately, optimise tax outcomes, and plan for a successful sale.