Small Business Capital Gains Tax Concessions

What is a Small Business Capital Gains Tax Concession?

When selling small business assets, concessions are available to reduce the capital gains tax payable. This is a complex area of tax to navigate. Here you will find an explanation of what these concessions are, and the general criteria to qualify. You should seek professional tax advice to investigate these options further, to determine what is appropriate and if your small business asset/s qualify.

How does it work?

The asset sale must qualify for basic conditions for the concessions to apply. The capital gains tax (CGT) asset sale would have resulted in a capital gain, and one of the following applies:

• You are a CGT small business entity.
• You are a partner in the partnership of a small business entity (and the asset qualifies).
• You don't carry on business but your CGT asset is used in a business carried on by a small business entity that is connected to you.
• The net value of the assets of the business are $6 million or less.

The asset must also be an "active" asset in the business. If these basic conditions are met, you should look to further requirements within each of the available concessions. There are four main CGT concessions available to small businesses.

The small business 15-year exemption

This exemption means you can contribute to super, the full proceeds of the sale of an asset, up to the lifetime CGT cap when:

1. The asset has been continuously held for the 15 years in the lead up to the CGT event.
2. You are 55 years of age or older and the sale of the asset is in preparation for retirement or you are permanently incapacitated.
3. If the sale is company shares or units in a trust, there must have been a ‘significant individual’ as defined by law, in the business for a total of 15 years within the asset’s life.

The small business 50% active asset reduction

This means the capital gain of your small business active asset may be reduced by 50%. If other reductions to the capital gain are applied, the 50% reduction can be applied after this.

The small business retirement exemption

This alows an you as an individual, or stakeholder in a trust or company, to disregard the capital gain on a CGT asset up to the lifetime limit of $500,000. If you are under 55, the exempt amount must be contributed to super.

The small business rollover

This allows the capital gain to rollover into a new, replacement asset or to improve an existing one, and can be deferred for a period of time to allow the transfer to occur. This concession can also be applied after the 50% active asset reduction and retirement exemption concessions have been applied.

Lifetime CGT cap

The lifetime CGT cap is currently $1.650 million and covers contributions under the 15-year exemption rule and retirement exemption rule. This is indexed each year. To find out more, we suggest you visit the ATO website or speak to a qualified accountant tax agent.

What are the benefits?

• Applying one of the small business CGT concessions mean you reduce the tax you pay.
• You can invest the proceeds directly into super to increase your savings for retirement.
• As a super contribution, it will form part of your tax-free component. This means that it will be tax-free on withdrawal, it will form part of the tax-free component of any pension payments and, it will be received tax-free by beneficiaries upon death.
• Superannuation is not means tested for Centrelink payments until you reach Age Pension age.
  

What should I be thinking about?

• You must submit a CGT election form to claim a contribution under the lifetime CGT cap.
• Due to the complexities in these options and further considerations around your business, we strongly recommend you seek specialist and professional tax advice prior to selling your business asset/s. There are also stringent rules around "notification of intent" for these small business CGT concessions.
• Contributions to super that exceed the caps for these concessions will count towards your non-concessional cap. Conditions apply for non-concessional contributions.
• You must be eligible to contribute and satisfy the work test.
• You will not be able to access this money until you meet a condition of release such as retirement.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.

Published: September 2022.

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