SMALL BUSINESS CAPITAL GAINS TAX CONCESSIONS
The CGT small business concessions can significantly reduce the CGT liability for small business owners upon the sale of their business or business assets. There are a number of concessions available to small businesses:
1. The 15 year ownership rule
If you qualify, the business can disregard the entire capital gain from the sale of an asset if:
• The asset has been continuously owned for 15 years or more; and
• The owner is 55 years or over and retiring, or is permanently disabled at the time of the sale
2. The 50% reduction for the sale of active assets
This test requires the CGT asset to be an active asset for:
• 7 ½ years if owned for more than 15 years; or
• Half the period of ownership if owned for less than 15 years
If a small business satisfies the active asset test, it can reduce its capital gain by a further 50%
3. Retirement exemption
This concession allows you to disregard a capital gain from a CGT event up to a lifetime limit of $500,000 per person if the capital proceeds are used in connection with funding retirement (see example below). If over 55 years of age then it doesn’t matter where the funds are kept. However if under 55 years of age the taxpayer must contribute an amount equivalent to the residual capital gain to a complying superannuation fund
4. Rollover concession
This concession allows you to defer all or part of a capital gain if it occurs in relation to a small business asset. Having made this election, you must then go on to acquire a replacement asset within two years of the original asset sale, or make a capital improvement to an existing asset and meet certain conditions
Example
Small business owner (52 years age) sells business and makes a gross capital gain of $200,000 after operating the business for 10 years
$200,000 Gross capital gain
Less $100,000 50% general CGT exemption for holding an asset for longer than 12 months
Equals $100,000 Net capital gain left, prior to application of small business CGT concessions
Less $50,000 50% active asset reduction assuming small business eligibility rules are met
Equals $50,000 Taxable capital gain
The taxpayer’s options are;
1. Pay the tax on the gain to the ATO as part of your next ITR
2. Make a $50,000 CGT retirement exemption superannuation contribution to a complying super fund. Provided these funds are drawn out of superannuation after retirement & over the age of 60 years the taxpayer will have no tax to pay on the gain. If the taxpayer was over 55 years of age and retiring they could use the retirement exemption to walk away tax free and not have to contribute any funds to superannuation
3. Buy a replacement business asset within two years of selling the business asset
If you are considering selling an asset be it a business or private asset you need to consider the CGT
implications before you put the asset on the market – give us a call to discuss further.
2014-12-23
