Capital Gains Tax (CGT) concessions provide an opportunity for small businesses in Australia to reduce, disregard or defer some, or all of the capital gains from a business asset. It is important to understand these concessions and how they can impact your business’s bottom line.
In this article, we will delve into the key aspects of CGT concessions for small businesses in Australia and explain CGT concessions and eligibility.
Overview of CGT concessions for small business
Capital Gains Tax is a tax on the profit made from the sale of an asset. However, as a small business, you can get specific concessions to reduce the burden of CGT. These concessions can be reinvested back into the business to support new projects and growth.
Eligibility criteria
To access CGT concessions, a small business must meet certain eligibility criteria:
- The business must have an aggregated annual turnover of less than $2 million.
- You must be a small business entity, or a partner in a partnership that is a small business entity.
- The business must satisfy the “active asset test“, ensuring that a significant portion of its assets are actively used in the business on a regular basis.
The 4 main CGT Concessions for small business
1. The 15-year exemption
One of the most significant CGT concessions for small businesses is the 15-year exemption. This concession allows business owners to disregard any capital gain made on an asset if it has been continuously owned for at least 15 years and be contributed to superannuation or other investments.
2. 50% active asset reduction
Small business owners may also be eligible for a 50% reduction on the capital gain made from the sale of an active asset. To qualify, the asset must have been owned for at least 12 months, and the business must meet the active asset test.
3. Retirement exemption
If you’re retiring soon, the retirement exemption offers a significant advantage. Eligible individuals or trust beneficiaries can disregard up to $500,000 of the capital gain made on the sale of active business assets over their lifetime. This concession aims to facilitate a smooth transition into retirement and encourages business owners to reinvest in their retirement savings.
4. Small business rollover
The small business rollover concession provides relief for businesses looking to restructure or change their legal structure. This concession allows the deferral of capital gains tax liability when selling a business asset and using the proceeds to acquire another business asset. This encourages small businesses to grow and evolve without facing immediate tax implications.
Concessions for CGT assets
Apart from business assets, CGT concessions also apply to other capital gains assets, such as shares in a company or units in a trust. The same eligibility criteria and tests apply, providing small business owners with flexibility in managing their investments and assets.
Take care when assessing CGT concessions
While CGT concessions offer significant benefits, it’s crucial for small business owners to navigate the process carefully. Common mistakes include not meeting the eligibility criteria, improper documentation, and overlooking specific tests.
Call the team at Colledges to find out more about how your business can benefit from CGT concessions
Capital Gains Tax concessions can provide your business financial relief and incentives to support growth and change. By understanding the eligibility criteria and various concessions available, you’ll be able to strategically manage your assets, invest for the long term, and plan for a tax-efficient future. If your business is set up as a trust, there are special rules for trust beneficiaries.
Please give us a call on 03 9851 6500 or email us at hello@colledges.com.au for experienced advice and guidance on how your small business can benefit from CGT concessions.
