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  • Overview of the CGT concessions for small business

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Proposed changes

    The government has announced proposed changes to some of the rules concerning the small business CGT concessions. Refer to the Treasurer's Press Release No. 38 of 2006, dated 9 May 2006, for more detail.

    If you made a capital gain from a CGT event (such as the disposal of a CGT asset) that happened after 11.45am on 21 September 1999, you may be able to reduce the capital gain using:

    • the CGT discount, and/or
    • one or more of the four CGT concessions available for small business.

    CGT discount

    You may be eligible to use the CGT discount to calculate your capital gain if:

    • the CGT event giving rise to the capital gain happened after 11.45am on 21 September 1999, and
    • you owned the asset involved for at least 12 months.

    The CGT discount isn't limited to capital gains from business assets.

    The discount allows individuals (including partners in partnerships) and trusts to reduce their capital gain by 50%. There are further rules for beneficiaries who are entitled to a share of a trust capital gain. Companies can't use the CGT discount.

    When to apply the CGT discount

    You apply the CGT discount after offsetting your capital losses against your capital gains, but before applying the small business CGT concessions (apart from the small business 15-year exemption).

    Small business CGT concessions

    The following four CGT concessions are available only for small business.

    1. The small business 15-year exemption provides a total exemption for a capital gain on a CGT asset if you have continuously owned the asset for at least 15 years and the relevant individual is 55 or over and retiring, or is permanently incapacitated.
    2. The small business 50% active asset reduction provides a 50% reduction of a capital gain.
    3. The small business retirement exemption provides an exemption for capital gains up to a lifetime limit of $500,000. If the recipient is under 55, the amount must be paid into a superannuation (or similar) fund.
    4. The small business rollover provides a deferral of a capital gain if a replacement asset is acquired. However, you may make a capital gain equal to the deferred gain if the replacement asset is disposed of or its use changes in particular ways. In this case, the deferred capital gain is in addition to any capital gain made when the replacement asset is disposed of.

    How the CGT concessions work

    To be eligible for any of the concessions, you must first satisfy several basic conditions, which are outlined in step 1.

    Note:

    • more than one of the four concessions may apply to the same capital gain if the conditions for each are satisfied
    • they may apply in addition to the CGT discount if it also applies
    • if the small business 15-year exemption applies, you can disregard the entire capital gain and therefore don't need to apply any further concessions
    • with the exception of the small business 15-year exemption, you apply the small business concessions after reducing any capital gains by all available capital losses
    • if you have more than one capital gain, you can choose the order in which to reduce capital gains by capital losses, and
    • the small business CGT concessions don't apply to gains from depreciating assets.
    Last modified: 14 Jul 2020QC 17086