The small business CGT (Capital Gains Tax) concessions in Australia provide eligible small businesses with significant tax relief on capital gains from the disposal of active assets. There are four main concessions under Division 152 of the Income Tax Assessment Act 1997:
- 15-year exemption: If the asset has been held for at least 15 years and certain conditions are met, the entire capital gain may be disregarded.
- 50% active asset reduction: Eligible businesses can reduce the capital gain on an active asset by 50%.
- Retirement exemption: Up to $500,000 of capital gains can be exempted if the proceeds are used in connection with retirement, subject to lifetime limits and superannuation contribution rules.
- Roll-over concession: Allows deferral of capital gains if a replacement active asset is acquired within a specified period.
How do I assess my eligibility for the small business CGT Concessions?
- A CGT event must occur in relation to a CGT asset in the income year.
- The asset must be an “active asset” (used in the business).
- The taxpayer must be a CGT small business entity (aggregated turnover less than $2 million) or satisfy the maximum net asset value test (net assets not exceeding $6 million) or meet special requirements for passively held assets or partnerships.
- Additional conditions may apply for specific concessions, such as the retirement exemption and roll-over.
How do I apply the small business CGT Concessions?
- If eligible for the 15-year exemption, apply it first (gain disregarded).
- Otherwise, apply capital losses, then the general CGT discount, then the small business concessions in sequence.
- Not all concessions must be applied. Taxpayers may choose which to use based on their circumstances.
- Certain amounts exempted under these concessions may be contributed to superannuation without counting towards non-concessional caps, subject to the CGT cap.
What’s the catch to small business CGT Concessions?
Beware! The conditions and eligibility criteria are not as simple as they seem. Given access to a small business CGT concession can provide substantial relief from tax, up to 100%, ATO scrutiny is high. It is imperative that the criteria and conditions are interrogated thoroughly with clear records of substantiation prepared to support the concession applied.
How can Moore Australia help?
If you are a small business owner who is considering, a sale-down or exit from your business, possible retirement or succession planning for the next generation, the small business CGT concessions may be available. For practical guidance on how the small business CGT concessions may apply to your situation, get in touch with your local Moore Australia office today.
