CGT on the Sale of a Medical Practice in Melbourne

Selling a medical practice is one of the largest financial events most Melbourne doctors will experience. The proceeds from a practice sale — particularly when goodwill is involved — can be significant, and so can the tax if the transaction isn’t structured carefully. Getting the CGT treatment right requires planning that ideally begins years before the sale, not in the weeks leading up to settlement.

We’ve worked through a number of Melbourne practice sales and acquisitions. The key insight is that the tax outcome on exit is largely determined by decisions made at the beginning — how the practice was structured, who held the goodwill, and how long those interests were held.

What creates a CGT event in a practice sale

Goodwill — the intangible value of the practice (patient list, reputation, location, billing history) — is a capital asset. If held for more than 12 months, the 50% CGT discount reduces the taxable gain by half before your marginal tax rate applies.

Practice shares or trust units. If your practice interest is held as shares in a company or units in a trust, the disposal of those interests is a CGT event. The 50% discount applies if held more than 12 months personally.

Plant, equipment, and fit-out. Proceeds from selling practice assets may be subject to depreciation recapture (taxed as ordinary income) rather than CGT. This distinction affects which tax rules apply.

Earn-out arrangements. An earn-out payment (where you receive additional consideration over time based on practice performance post-sale) has specific CGT treatment that requires care.

The small business CGT concessions

For eligible practices, the small business CGT concessions can reduce or eliminate CGT on a practice sale. These are available to businesses with aggregated annual turnover under $2 million or net assets under $6 million (excluding personal use assets and super). Medical practices often qualify.

The four concessions are: the 15-year exemption (the capital gain may be entirely exempt if you’ve held the asset continuously for at least 15 years and are 55 or over), the 50% active asset reduction (the taxable gain is reduced by 50% in addition to the 50% CGT discount — potentially reducing the taxable gain to 25% of the original), the retirement exemption (up to $500,000 of capital gain can be exempt if the proceeds are contributed to superannuation), and the rollover (the gain can be deferred if you’re reinvesting in a new active business asset).

Why structure at the beginning matters

The small business concessions have specific requirements about who holds the asset and in what form. Goodwill held personally, as shares in a company, or as units in a trust all qualify, but the calculation differs. Planning which entity holds the goodwill — and for how long — before a sale becomes realistic significantly affects the available concessions.

We strongly recommend raising the topic of an eventual exit with us at your annual review, even if a sale is 10 years away. The decisions made now shape the tax outcome when it happens.

Related services

• Accounting and tax for doctors — full overview
• Practice entity structuring for doctors
• Retirement and wealth planning for physicians
• Multi-doctor practice accounting

Frequently asked questions

Can I avoid CGT entirely when selling my Melbourne medical practice?
In some cases, yes — the 15-year small business CGT exemption can produce a zero CGT outcome for eligible practices. More commonly, the combination of the 50% CGT discount, the 50% active asset reduction, and the retirement exemption significantly reduces the liability. Each case depends on the specific facts of your situation.

The buyer wants to buy the assets, not the shares — what does that mean for tax?
An asset sale and a share sale have different tax outcomes for both buyer and seller. Sellers typically prefer share sales (taxed as CGT, with the 50% discount available). Buyers typically prefer asset sales because they can fully depreciate the assets they acquire. Negotiating this and structuring the transaction correctly — ideally with your legal advisers — is something we work through before contracts are signed.

How do the small business CGT concessions work for medical practices?
The small business CGT concessions are available to businesses with aggregated annual turnover under $2 million or net assets under $6 million. Medical practices commonly qualify. Each concession has specific conditions, and applying the right combination can significantly reduce or eliminate CGT on a practice sale.

How far in advance should I think about the tax on a practice sale?
Ideally, at least five to ten years before you plan to sell. Planning which entity holds the goodwill before a sale becomes realistic significantly affects the available concessions.

Contact us on 1300 212 663 or at our Melbourne CBD office.