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  • Step 7 Determine whether you qualify for the small business retirement exemption or rollover

    Attention

    Warning:

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

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    You may choose the small business retirement exemption or the small business rollover for the remaining amount of capital gain if you satisfy the conditions. Alternatively, you may choose both concessions for different parts of the remaining capital gain.

    Small business retirement exemption

    The small business retirement exemption can be used to disregard all or part of a capital gain. You can choose to apply the retirement exemption to any amount of capital gain remaining after the other concessions have been applied or before any other concessions. The amount you choose to disregard is called the exempt amount.

    Do you qualify?
    Individuals in business

    If you are an individual in business, you can use the small business retirement exemption to disregard all or part of a capital gain remaining after other concessions have applied if:

    • you satisfy the basic conditions (see step 1)
    • you keep a written record of the amount you have chosen to disregard (the exempt amount), and
    • where you were less than 55 years old just before you made the choice to use the retirement exemption, a payment of an amount exempted must be made to a superannuation fund. (If you were 55 or more there's no requirement to pay any amount to a superannuation fund even though you may have been under 55 years when the capital proceeds were received.)

    The amount you choose to disregard under this concession must not exceed your CGT retirement exemption limit. This is a lifetime limit of $500,000.

    Companies and trusts

    If you are a company or trust (other than a public entity), you can also use the small business retirement exemption to disregard all or part of a capital gain remaining after other concessions have applied if you:

    • satisfy the basic conditions (see step 1)
    • satisfy the significant individual test
    • keep a written record of the amount you have chosen to disregard (the exempt amount) and, where there is more than one CGT concession stakeholder, of each stakeholder's percentage of the exempt amount (one may be nil, but together they must add up to 100%)
    • make a payment to each of your CGT concession stakeholders based on each individual's percentage of the exempt amount. The payment must be made by the end of seven days after the company or trust chooses to disregard the capital gain or receives an amount of capital proceeds from the CGT event, whichever occurs later, and
    • where a stakeholder is less than 55 years old just before receiving the payment, that amount must be contributed to a complying superannuation fund or retirement savings account (RSA).

    The exempt amount mustn't exceed the $500,000 CGT retirement exemption limit of each individual receiving an eligible termination payment. As this is a lifetime limit, any previous retirement exemption payments must be taken into account to ensure the limit is not exceeded.

    Choosing the retirement exemption for a capital gain (subject to the $500,000 limit) without first applying the 50% active asset reduction might allow a company or trust to make larger tax-free payments to the CGT concession stakeholders of the company or trust.

    Example: small business retirement exemption

    After offsetting her capital losses and applying the CGT discount and the small business 50% active asset reduction, Lana has a capital gain of $3,500.

    Lana could choose the small business retirement exemption but, as she is under 55 years of age, she would need to pay the amount into a superannuation (or similar) fund.

    Lana decides she needs the funds to reinvest in the business and so doesn't choose the retirement exemption.

    End of example

    Small business rollover

    The small business rollover allows you to defer all or part of a capital gain for two years, or longer if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset. There are roll-over conditions that must be met to defer the gain for longer than two years.

    If you apply the small business rollover after the small business 50% active asset reduction, you apply it to the remaining 50% of the gain. If the CGT discount has also applied, you apply the rollover to the remaining 25% of the capital gain.

    This concession may be used for any gain remaining before or after any other concessions have been applied.

    Do you qualify?

    Your business qualifies to roll over a capital gain if you satisfy the basic conditions (see step 1). There are roll-over conditions that must also be met by the end of the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover.

    Last modified: 13 Jul 2020QC 21900