Selling a capital asset can be a daunting task for any business let alone the tax burden that may come when a gain has been made on the disposal of the asset.
In September 1999, the Small Business Capital Gains Tax (CGT) Concessions were introduced for eligible business owners who were either retiring, selling active assets or selling an asset to acquire another asset.
Over the last decade there have been a range of changes introduced in an attempt to simplify and tighten the concessions to certain types of taxpayers and transactions. In reality, the eligibility requirements and subsequent application of the concessions are embedded with complexities and a space that the Australian Taxation Office scrutinize given the benefits taxpayers can obtain in applying the concessions.
Below is a brief summary of the eligibility requirements and the various concessions available. Should you be considering a business sale and are hoping to apply these concessions to reduce your tax liability, care should be taken to ensure you obtain the right advice before you proceed with the transaction.
Basic eligibility requirements
In order to gain access to the Small Business CGT Concessions, there are some basic conditions that must be satisfied. These include:
- Active Asset Test – the asset must be used in the course of carrying on a business by the taxpayer or an entity connected with the taxpayer; and
- Small Business Entity Test – the taxpayer must carry on a business and have an aggregated turnover of less than $2 million or;
- Net Asset Value Test – the taxpayer and all connected entities must have an aggregated net asset value of less than $6 million.
- Shares or Units being sold – there are further conditions that must be met subject to the type of asset being sold. Please contact us for further information on these conditions.
- Type of concessions being used – there are further conditions subject to the type of concession being applied. Please contact us for further information on these conditions.
The four Small Business CGT Concessions available to apply to a relevant CGT Event are:
- 15-year exemption – A taxpayer may disregard a capital gain arising from a CGT event if the CGT assets was owned by the taxpayer for at least 15 years
- 50% Active Asset Reduction – A reduction of 50% of the capital gain realized on an active asset can be applied, leaving 50% of the gain assessable.
- Retirement Exemption – A taxpayer may disregard a capital gain, up to a lifetime limit of $500,000, if the capital proceeds are used in connection with retirement. If under the age of 55, the capital gain from a CGT event happening must be rolled over to a complying Superannuation fund or similar fund. If over the age of 55, the capital gain from a CGT event happening can be received personally.
- Asset Roll-over – A taxpayer may choose to defer the capital gain realized should they use the proceeds to acquire another activity asset.
The use of these concessions can result in significant taxation savings and in some cases, reduce the expected tax liability to nil. If applied incorrectly they can also trigger costly mistakes and that is why it is important that you speak to the right people to ensure you receive the correct advice.
Kylie McEwan, a Tax and Business Services Director and Taxation Consultant specialises in the use and application of the Small Business CGT Concessions and can provide you with expert advice should you need assistance. Kylie can meet with you at one of our convenient office locations; Geelong or Torquay. To make an appointment or speak to Kylie, please call our office on 5221 6399 or email Kylie at firstname.lastname@example.org.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.