Capital Gains Tax Small Business Concessions

Capital Gains Tax Small Business Concessions

The Capital Gains Tax small business concessions apply to provide a measure of CGT relief on the disposal of certain assets by eligible small business taxpayers. This relief applies in addition to any CGT discounting relief the taxpayer may be entitled to.

What Capital Gains Tax small business concessions are available?Capital Gains Tax small business concessions

The CGT small business concessions available include:

  • Where you are over 55 and retiring, a total exemption of the gain on “active assets” held for 15 years,
  • A 50 per cent discount for active assets (in addition to the general individual 50 per cent discount),
  • A deferral of the capital gain if a replacement asset is acquired, and
  • An exemption of up to $500,000 of capital gains under the “CGT retirement exemption”.

Who is eligible for the Capital Gains Tax small business concessions?

To be eligible for the Capital Gains Tax small business concessions, the following three basic conditions need to be satisfied:

  • A capital gain must arise on disposal of the asset,
  • Either your business turnover is less than $2 million, or the net value of your assets and the assets of entities connected with you is less than $6 million (this excludes personal use assets) and
  • The asset disposed must be an “active asset”.

If the asset being disposed is a share in a company or an interest in a trust, you must be a “significant individual” or the spouse of a significant individual and have some ownership interest. Basically, a significant individual is a person who owns at least 20 per cent of the company or trust.

What is an active asset?

An “active asset” is an asset that is used or held ready for use in the course of carrying on the business, and can include goodwill. However, an asset which is used to derive passive income, such as rent, does not qualify as an active asset. The asset must have been an ‘active asset’ for at least half the time you have owned it, or for 7½ years, whichever is less.

How do the Capital Gains Tax small business concessions work?

Below is a description of each of the four available concessions. Before any of these concessions can be applied, you must satisfy the basic conditions.

1. The 15 year Exemption

If you (or your company/trust) have owned the business, or an asset of the business for 15 years, and you are aged at least 55 and retiring, or you are permanently incapacitated, the entire capital gain can be disregarded under the 15 year exemption. To apply the exemption the asset must have been used in the business for at least 7½ years during the total period that you owned it.

Once the 15 year exemption is applied, the capital gain is disregarded entirely and you therefore do not apply any further concessions.

Subject to meeting certain conditions, you can then contribute up to $1 million of the sale proceeds to superannuation under the CGT contributions cap.

2. The 50 per cent Active Asset Reduction

If the 15 year exemption does not apply, then the capital gain remaining after applying any normal CGT discounting may be reduced by a further 50 per cent. This 50 per cent reduction is available for individuals, trusts and companies. It is an optional concession, meaning that you do not have to apply it.

The 50 per cent active asset reduction is available where you meet the basic conditions (see above).

3. The Small Business Rollover

If a replacement asset is purchased within two years of the active asset disposal, you may be eligible to defer the capital gain until the replacement asset is subsequently disposed. Again, the basic conditions for the small business concessions must be met first.

4. The CGT Retirement Exemption

The remaining capital gain, after applying the general 50 per cent discount and the optional 50 per cent active asset reduction, can often be eliminated by applying the CGT retirement exemption. There is a lifetime limit of $500,000 per person available under this concession.

If you are under age 55 when the capital gain occurs, you must contribute an amount equal to the remaining capital gain into superannuation. This amount will be preserved in super until you meet a condition of release.

If you are over age 55 when you apply the exemption, there is no requirement to contribute the gain into superannuation. You simply elect to disregard the gain, up to a maximum of $500,000 when you complete your tax return.

The small business CGT concession rules are extremely complex and you should consult your taxation adviser to determine if the concessions are available to you.

By |2016-12-14T12:04:11+00:00August 27, 2009|Tax, Wealth Management|6 Comments

About the Author:

After 28 years as an accountant in public practice Eric commenced his work in the financial planning industry in October 2000. During his career, Eric has advised clients on a wide range of financial and general investment matters, whilst providing strategic business services to entrepreneurs and senior managers.

6 Comments

  1. Godfrey March 23, 2015 at 8:38 pm - Reply

    thank you: wondering if you could tell me if at 62yrs old, having owned my cleaning business for 15 yrs,earning over $100000 py,if I sold it for $110000, would I pay CGTAX or any tax? May still work part time in future.
    Any advise would be appreciated: G……

    • Eric Walters March 24, 2015 at 6:15 pm - Reply

      G: thanks for the question. I’ll reply directly because of the personal nature of the matter – and the fact that more information will be required before an informed answer can be given. [Eric, ContinuumFP]

  2. Hemmy Timotius July 15, 2016 at 12:43 am - Reply

    Hi Mr Walters, great article, thank you for the insight. I have owned a taxi service license since 2007. I received a CGT when i sold the TSL in 2015. The sale of the TSL is with the vehicle and the meter as a sale of going concern. My question is: am i eligible for CGT exemption since it is a sale of a going concern?

    Thank you kindly

    • Eric Walters July 15, 2016 at 10:02 am - Reply

      Hi Hemmy: thank you for your expression of appreciation of the article. With regard to the question you pose, regrettably we are not authorised to provide taxation advice in respect of specific circumstances: you will need to seek the answer from your accountant (presumably, a registered tax agent). A situation you could have considered at the relevant time (within the financial year at least), was the possibility of a rollover of at least some of the gain into your superannuation account. EW, ContinuumFP.

  3. Jennifer October 29, 2018 at 6:22 am - Reply

    Hi Mr Walters,
    I sold shares have capital gain ,can i use small business reduction 50%.I hold share 6 month.
    Thanks
    Jennifer

    • Eric Walters October 31, 2018 at 8:53 am - Reply

      Thank you for your enquiry Jennifer: whilst there is little likelihood that your shares could be subject to the CGTSB concession, a full understanding of your position, particularly in relation to the shares held would need to be reviewed. Whilst I could provide some guidance as to the eligibility, it appears from your enquiry that you should consult with a tax professional. Please use our website Contact Us form if you would like to engage further on this matter. Best wishes.

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