Basic conditions
To qualify for any of the small business CGT concessions, you must first meet one of the four following basic conditions.
- You are a small business.
- You do not carry on business, but your asset is used in a business carried on by a small business that is your affiliate or an entity connected with you (passively-held asset).
- You are a partner in a partnership that is a small business, and the CGT asset is one of the following
- your interest in a partnership asset (partnership assets)
- an asset you own that is not your interest in a partnership asset (partner's assets).
- You meet the maximum net asset value test.
Also, the asset must meet the active asset test.
There are more basic conditions if the CGT asset is a share in a company or an interest in a trust.
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In the 2008 federal Budget, the Government announced that it would increase access to the small business capital gains tax (CGT) concessions for businesses with aggregated turnover less than $2 million via the small business entity test, for:
- taxpayers owning a CGT asset used in the business of a related (affiliate or connected) entity
- partners owning a CGT asset used in the partnership business.
The main changes are now law and apply from the 2007-08 income year. Other minor changes apply for various years from 2006-07 to 2008-09. For more information refer to Small business entity concessions - home.
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For more information refer to:
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There are four CGT concessions you can use. You can use as many concessions as you want to until any capital gain you make is reduced to nil. However, you must meet the conditions of each concession before you can use it.
There are rules about the order you can apply in:
- the CGT small business concessions
- any current year or prior year capital losses
- the CGT discount.
The CGT discount may be available as well as the small business concessions if you have held the asset for at least 12 months.
Small business 15-year exemption
Any capital gain you make from disposing of a business asset is exempt from CGT if you:
- have owned the asset for 15 years, and
- are either of the following
- aged 55 years or over and retiring
- permanently incapacitated.
If you contribute the proceeds of the disposal to your super fund, you may be able to elect to have the contributions excluded from your non-concessional contributions cap.
Small business 50% active asset reduction
If you have owned an asset that you have used in your business, your capital gain is reduced by 50% when you dispose of the asset.
Small business retirement exemption
Any capital gain you make from disposing of a business asset when you retire is exempt from CGT up to a lifetime limit of $500,000. If you are under 55, the capital gain is only exempt from CGT if you pay it into a complying super fund or a retirement savings account.
If you contribute the capital gain or other proceeds of the disposal to your super fund, you may be able to elect to have the contributions excluded from your non-concessional contributions cap.
Small business rollover
You can use this concession to defer a capital gain from disposing of a business asset for two years or longer if you do either of the following:
- purchase or acquire a replacement asset
- make a capital improvement to an existing asset.
While the rollover lets you defer a capital gain to a later income year, you may be able to use other CGT small business concessions to exempt or reduce your capital gain.
The maximum net asset value test
To pass this test, the total net value of your CGT assets must not exceed $6 million. Use the aggregation rules to work out which businesses you must include when working out if you meet this test.
The net value of your CGT assets is their total market value, less any liabilities you owe relating to those assets - for example, a business loan to purchase the asset. Some assets are excluded from the test.
The active asset test
An asset must meet certain conditions to qualify as an active asset.
Your asset must be used or held ready for use in, or inherently connected with, one of the following:
A share in a company or an interest in a trust can also be an active asset under certain circumstances.
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Certain CGT assets cannot be active assets - for example, assets whose main use is to derive rent. As such, a rental property generally does not qualify as an active asset. There are some exceptions where a property is taken not to have the main use of deriving rent.
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In addition, your CGT asset must be active for one of the following:
- 7 ½ years, if you have owned it for more than 15 years
- half of the total period you have owned it, if you have owned it for less than 15 years.
These time rules are modified for CGT assets you purchased or acquired under the rollover provisions relating to assets you compulsorily acquired, lost or destroyed.
The time rules are also modified where you have transferred a CGT asset under the rollover provisions relating to marriage breakdown.
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For more information refer to:
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Sections within The small business concessions
Last Modified: Tuesday, 3 July 2012