Capital Gains Tax On Sale Of Business Re Liabilities Assumed By Purchaser

What is the capital proceeds where liabilities are assumed on sale of a business? 

The capital gains that is subject to tax to the vendor when the purchaser takes over liabilities is the grossed up amount including the liabilities as explained below.

What is the capital proceeds from a CGT event where the purchaser of a business assumes long service leave, annual leave and sick leave liabilities on the purchase of a business and the purchase price is reduced accordingly. For example, a vendor agrees to sell a business to a purchaser for $1.3 million subject to any adjustments for outstanding long service leave, annual leave and sick leave at settlement. At settlement the final price paid is $1.1 million due to outstanding entitlements for leave in the order of $200,000. Are the capital proceeds from the CGT event $1.3 million or $1.1 million?

It is seems that the capital proceeds from the CGT event are $1.1 million.

However, It Is The Gross Amount That Is Subject To Capital Gains Tax

For CGT purposes, capital proceeds are defined as money or property you have received or are entitled to receive in relation to a CGT event.

The amount the purchaser agrees to pay to creditors of the business is money that has or will be applied for the benefit of the vendor. For liabilities that are, and remain, the personal liabilities of the vendor, it is part of the purchase price that is paid at the direction of the vendor to a third party.

For business liabilities that will transfer from the vendor to the purchaser, it is part of the purchase price that has been applied for the benefit of vendor because the purchaser has taken over those liabilities. Even though the liabilities may be transferred to the purchaser, it is only by virtue of the purchaser acquiring the business that the vendor becomes freed of the liability.

Accordingly, the capital proceeds from the CGT event is the gross amount.