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  • Applying the CGT concessions to a capital gain from a small business asset

    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

    The flowchart below shows the order in which you apply capital losses and the CGT concessions to each capital gain made after 11.45am on 21 September 1999.

    You don't necessarily have to go through each step. For example, if you qualify for the small business 15-year exemption, you can disregard the entire capital gain and therefore don't need to complete the remaining steps.

    Also, you can choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover.

    Throughout this guide we use the example of Lana, a sole trader, to illustrate how losses and the CGT concessions can be applied to a capital gain made by a small business.

    Example: Lana - a sole trader

    Lana operates a small manufacturing business as a sole trader. The net value of her CGT assets and those of related entities doesn't exceed $5 million.

    Her husband Max carries on his own florist business, which is unrelated to Lana's manufacturing business.

    Max owns the land and building from which Lana's manufacturing business is conducted (apart from a small parcel of nearby land owned by Lana that is also used in her business) and leases it to Lana.

    Lana has owned the small parcel of land for three years and used it in her business for the last two years. She decides to sell the land and makes a capital gain of $17,000 when she disposes of it.

    In the same year as Lana makes the $17,000 capital gain on the sale of the land, she also makes a capital loss of $3,000 from the sale of another asset.

    End of example

    Flowchart

    Capital gains made during an income year

    You make a capital gain from a depreciating asset only to the extent you have used the depreciating asset for a non-taxable purpose.

    Questions
    1. Determine whether you satisfy the basic conditions for the small business CGT concessions

    Yes

    Read on from question 2

    No

    Read answer 1

    1. Determine whether you qualify for the small business 15-year exemption (not relevant to the capital gains from depreciating assets).

    Yes

    Read answer 2

    No

    Read on from question 3

    1. Offset any capital losses against the capital gain. Continue to question 4.
    2. Determine whether you are eligible for the CGT discount. If so, reduce the remaining capital gain. Continue to question 5.
    3. Determine whether the capital gain is from a depreciating asset used at least partly for a non-taxable purpose. If so, you are not eligible for any other concessions and can’t reduce your capital gain any further. Continue to question 6.
    4. Determine whether you qualify for the small business 50% active asset reduction (if you answered yes to question 1 you will qualify). If so, reduce the remaining capital gain.

      Note: You can choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover in question 7.

      Continue to question 7.
    5. Determine whether you qualify for the small business retirement exemption or rollover. If so, reduce the remaining capital gain. Continue to answer 3.
    Answers
    1. You don't qualify for any of the small business CGT concessions. You may b e eligible for the CGT discount.
    2. Disregard the entire capital gain. You don't need to apply any of the other CGT concessions.
    3. Amount remaining equals the net capital gain to be included in your assessable income for the year

    Capital gains made during an income year flowchart

    Last modified: 14 Jul 2020QC 17086