The Small Business CGT (Capital Gains Tax) Concessions in Australia provide tax relief for eligible small businesses when selling active assets. These concessions can significantly reduce or eliminate CGT on the sale of assets, particularly when planning for retirement or business succession.

Eligibility Criteria

To qualify for the small business CGT concessions, your business must meet either the:

1. Small Business Entity Test – Your business has an aggregated turnover of less than $2 million.
2. Maximum Net Asset Value Test – Your net assets (excluding personal assets like your home and superannuation) are less than $6 million.
3. Active Asset Test – The asset being sold must have been used in the business for at least 50% of its ownership period or 7.5 years if held for more than 15 years.

Types of Concessions

1. 15-Year Exemption

• If you are aged 55 or over and retiring (or permanently incapacitated), and you’ve owned the asset for at least 15 years, you do not pay any CGT.

2. 50% Active Asset Reduction

• A 50% reduction in the capital gain, in addition to the general 50% CGT discount if the asset was held for over 12 months.

3. Retirement Exemption

• Up to $500,000 of capital gains can be tax-free.
• If under 55, the exempt amount must be contributed to a superannuation fund.

4. Rollover Concession

• Allows you to defer CGT for two years or longer if you reinvest in another active asset.

Example

A small business owner sells an asset for a $1 million gain and meets all eligibility requirements:

1. 15-Year Exemption: No CGT if conditions met.
2. 50% Active Asset Reduction: Gain reduces to $500,000.
3. Retirement Exemption: Owner under 55, contributes $500,000 to super = $0 CGT payable.

Key Takeaways

• These concessions can significantly reduce or eliminate CGT.
• Planning is crucial to ensure eligibility.
• Consider consulting a tax professional for the best strategy.

Would you like help applying this?  Waterhouse Lawyers can provide expert assistance