Why Your Business Sale Contract Might Be Silent on Goodwill

One of the more persistent myths in Australian business sales is that you must allocate part of the purchase price to goodwill in the Contract of Sale. It sounds logical, especially given goodwill's role in capital gains tax calculations. But here's the truth: you don’t have to.

According to the ATO’s Tax Determination TD 98/24, there is no legal requirement under the tax laws to allocate the purchase price across goodwill and other assets in the sale agreement. Clause 5 of that determination makes it clear: if the parties don’t allocate specific amounts, the Commissioner will simply apply a "reasonable apportionment" for tax purposes.

So, what does that mean in practice?

Silence is Strategic — Sometimes

Many business sale contracts in Australia are intentionally silent on how much of the total price goes to goodwill versus plant, stock, or other assets. This isn’t laziness or oversight. It’s often deliberate — especially when:

The seller and buyer have different tax positions (e.g., one gets CGT concessions, the other wants depreciation deductions).

Agreeing on exact allocations could derail negotiations or create unnecessary complexity.

Valuation evidence is limited, and the parties want flexibility in how they each treat the deal in their own tax affairs.

When the contract is silent, each party can apply their own reasonable apportionment in their tax return, as long as it's defendable. Typically, this is based on independent valuation advice or market evidence. But beware: if the ATO thinks one party has engineered an outcome to gain a tax advantage (like over-allocating to depreciable assets), they may intervene.

Should You Include an Allocation Anyway?

Sometimes, yes. Especially when:

You want to avoid future disputes with the ATO or the other party.

You’ve agreed to specific tax treatments as part of the deal.

There’s stock or plant involved that needs a clear value for inventory or depreciation purposes.

But if your accountant or solicitor suggests the contract stay silent — it’s probably for a good reason.

The Bottom Line

It’s a common misconception that goodwill must be carved out in the contract. It doesn’t. Not under current tax law. And many well-structured SME sales across Australia omit this allocation entirely.

Final Reminder

This article is general information only and was written by an AI. It’s not legal or financial advice. Business sales are complex, and every situation is different. Always speak to your qualified accountant, solicitor, or tax advisor before making any decisions.

You wouldn’t trust a robot with your legal structure — so don’t trust one with your tax outcomes either.