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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A CGT asset is an active asset if you own it and it is:
- used or held ready for use in the course of carrying on a business (whether alone or in partnership) by any of the following
- your affiliate
- your spouse
- your child under 18
- an entity connected with you
- an intangible asset inherently connected with a business carried on (whether alone or in partnership) by
- your affiliate
- your spouse
- your child under 18
- an entity connected with you.
Goodwill is an example of an intangible asset.
Active asset test
This test requires the CGT asset to be an active asset for half a particular period. It is one of the tests you must pass to meet the basic conditions for the small business CGT concessions.
An affiliate is an individual or a company who, in relation to their own business affairs, acts or could reasonably be expected to act in either of the following ways:
- according to your directions or wishes
- in concert with you.
Aggregated turnover is your annual turnover plus the annual turnovers of any entities you are connected with or that are your affiliates. We call these ‘relevant’ entities.
This is all the income you have received that you must include in your income tax return. Generally, it does not include non-assessable payments from a unit trust, including a managed fund.
You may make a capital gain (or profit) as a result of a CGT event, for example, when you sell an asset for more than you paid for it. You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.
Capital gains tax
Capital gains tax (CGT) is the tax you pay on any capital gain you make and include in your annual income tax return. For example, when you sell (or otherwise dispose of) an asset, you may be subject to CGT.
Generally, you make a capital loss because of a CGT event if you sell an asset for less than you paid for it (including incidental costs).
Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be any of the following:
- the amount you receive from the purchaser
- the amount you receive from a liquidator
- the amount you receive on a merger or takeover
- their market value if you give them away.
CGT assets include shares, units in a unit trust, collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property).
CGT asset register
This is a register of information about your CGT assets that you have transferred from your CGT records (for example, invoices, receipts and contracts).
CGT concession stakeholder
A CGT concession stakeholder of a company or trust means either of the following:
- a significant individual in the company or trust
- the spouse of a significant individual, where the spouse has a small business participation percentage in the company or trust greater than zero.
The CGT discount allows eligible individuals (including partners in partnerships) and trusts to reduce their capital gain by 50%. There are more rules for beneficiaries who are entitled to a share of a trust capital gain. Companies cannot use the CGT discount.
A CGT event happens when a transaction takes place, such as the sale of a CGT asset. The result is usually a capital gain or capital loss.
A business is connected with you if either of the following apply:
- you control or are controlled by that entity
- both you and that entity are controlled by a third entity.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include computers, electric tools, furniture and motor vehicles.
Maximum net asset value test
To pass this test, you and certain other entities must not own assets with a total net value of more than $6 million just before the CGT event that results in the capital gain.
Most of our publications have a NAT number (our catalogue number), which we generally show in brackets after the title of the publication, for example, Tax basics for small business (NAT 1908).
Net capital gain
The net capital gain is the difference between your total capital gains for the year and your total capital losses (including net capital losses from prior years), less any CGT discount or other small business CGT concessions you are entitled to.
Net value of the CGT assets
The net value of the CGT assets of an entity is the total market value of its assets (whether positive, negative or nil), less any liabilities relating to those assets and certain provisions.
Relevant entities include any:
- of your affiliates
- entities connected with you.
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.
An individual is a significant individual in a company or trust if they have a small business participation percentage in the company or trust of at least 20%.
Small business entity
You are a small business entity if you are a sole trader, partnership, company or trust that meets both of the following:
- is carrying on a business
- has an aggregated turnover of less than $2 million.
Small business 15-year exemption
This is one of the CGT concessions available to small business. Generally, it allows you to disregard the capital gain you made on an asset you have owned for 15 years if you meet all the conditions.
Small business 50% reduction
This is one of the CGT concessions available to small business. Generally, it allows you to reduce your capital gain by 50% if you meet the basic conditions.
Small business retirement exemption
This is one of the CGT concessions available to small business. Generally, it provides an exemption of capital gains up to a lifetime limit of $500,000 if you meet all the conditions. If you are under 55 years old when you choose the exemption, you must pay the amount into a complying superannuation fund or a retirement savings account.
Small business rollover
This is one of the CGT concessions available to small business. Generally, it allows you to defer all or part of a capital gain from a CGT event that happens in relation to a small business asset for two years, or longer if you do one of the following:
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- acquire a replacement asset
- make an improvement to an existing asset and meet certain conditions.