Maximizing Your Gains: Why an Independent Business Valuation is Crucial for Capital Gains Tax

Selling your business can be a profitable venture, but it also comes with the responsibility of capital gains tax (CGT). Calculating the correct amount of CGT can be complicated, especially when there are various factors affecting a company’s value. This is where an independent business valuation comes in- to keep shareholders tax compliant and avoid leaving excess money on the table.

What is Capital Gains Tax?

Capital gains tax is a tax levied on the profit from the sale of a business that has increased in value over time. If an owner sells an asset for more than they paid for it, they will be subject to capital gains tax. CGT would typically apply to profits earned from transfers/exchanges of:

·       Share ownership in a company

·       Business real estate

·       Stocks, bonds, and other securities, etc.

Why get an Independent Valuation for CGT?

CGT is calculated based on the difference between the original share cost and the market value of the shares. As such, an independent business valuation is crucial in getting an accurate assessment of the share value at those relevant points in time. This valuation helps determine the capital increase/decrease on your shareholding and ensures that you do not pay more taxes than you are liable for. Seeking a professional valuation can be more reliable than other methods, as an independent valuator will consider a range of unique factors affecting your share value. An independent valuator can also identify whether your business qualifies for any exemptions that may reduce your capital gains tax liability.  

Our team at Portage M&A provide business and asset valuation services to support you in selling your business and getting the best results with your CGT assessments. As merger & acquisitions professionals, we are also able to advise on preferred sales timings and payment structures that may help further reduce your capital gains tax liability.

Laryssa Rollo, CPA, CA, CBV
Senior Manager | Portage M&A Advisory