• Choosing and applying the concessions

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    Applying capital losses

    If the small business 15-year exemption applies, you don't reduce the capital gain by any capital losses before you apply that concession.

    In all other cases, you apply the CGT discount and the small business concessions to the capital gain after the capital gain has been reduced by any current and prior year capital losses.

    If you have more than one capital gain, you can choose the order in which your capital gains are reduced by your capital losses.

    Example: Capital losses

    Lana has owned a 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.

    In the same year she also makes a capital loss of $3,000 from the sale of another asset.

    She must offset the loss against the gain before applying any of the remaining concessions:

    $17,000 − $3,000 = $14,000

    Lana may be able to reduce her capital gain further using the CGT discount and one or more of the other small business CGT concessions.

    End of example

    Order to apply the discount and concessions

    The small business 15-year exemption takes priority over the other small business concessions and the CGT discount. If the small business 15-year exemption applies, you entirely disregard the capital gain so there's no need to apply any further concessions.

    If the 15-year exemption doesn't apply, you apply the CGT discount (if applicable) to the capital gain before applying the remaining small business concessions.

    Example: CGT discount

    After offsetting her $3,000 capital losses against her $17,000 capital gain, Lana is left with a capital gain of $14,000. As she is eligible for the CGT discount, she can reduce the remaining capital gain by 50%:

    $14,000 × 50% = $7,000

    Lana may be able to reduce her capital gain further using one or more of the other small business CGT concessions.

    End of example

    If the capital gain is from a depreciating asset, you can't use any of the remaining small business CGT concessions. If it's not from a depreciating asset, you may be able to reduce your capital gain further under the remaining small business CGT concessions.

    If you satisfy the conditions for more than one of the remaining small business concessions, you can apply each of those concessions to different parts of the capital gain.

    After applying any capital losses, individuals and trusts eligible for both the CGT discount and the small business 50% active asset reduction can reduce a capital gain by 75%, that is, by 50%, then 50% of the remainder.

    Example

    Ken is a small business operator who sells an active asset that he has owned for more than 12 months. He makes a capital gain of $20,000. Ken also has a separate capital loss of $4,000. Assuming he satisfies all the conditions for the CGT discount and the small business 50% active asset reduction, Ken calculates his net capital gain as follows:

    Capital gain

    $20,000

    Capital loss

    $4,000

    Take the loss away from the gain

    $16,000

    Apply 50% CGT discount ($16,000 × 50%)

    $8,000

    Apply 50% small business active asset reduction ($8,000 × 50%)

    $4,000

    Reduced capital gain

    $4,000

    Ken may be able to further reduce his $4,000 (reduced) capital gain by using the small business retirement exemption and small business rollover if he satisfies the conditions for those concessions.

    End of example

    Step-by-step: Order to apply the discount and concessions

    Work through the following steps to determine how to apply the discount and concessions to capital gains you've made during the income year.

    Remember that for a depreciating asset, you make a capital gain only to the extent you've used the depreciating asset for a non-taxable purpose.

    • Step 1: Do you satisfy the basic conditions for the small business CGT concessions?  
      • Yes: Go to step 2.
      • No: You don't qualify for any of the small business CGT concessions. You may be eligible for the CGT discount.
       
    • Step 2: Do you qualify for the small business 15-year exemption? (Not relevant to capital gains from depreciating assets.)  
      • Yes: Disregard the entire capital gain. You don't need to apply any of the other CGT concessions.
      • No: Go to step 3.
       
    • Step 3: Offset any capital losses against the capital gain.
    • Step 4: If you are eligible for the CGT discount, reduce the remaining capital gain.
    • Step 5: Is the capital gain from a depreciating asset (used at least partly for a non-taxable purpose)?  
      • Yes: You're not eligible for any other concessions and can't reduce your capital gain any further.
      • No: Go to step 6.
       
    • Step 6: Apply the 50% active asset reduction to reduce the remaining capital gain. (You can choose not to apply the reduction and go straight to the small business retirement exemption or rollover at step 7.)
    • Step 7: If you qualify for the small business retirement exemption or rollover, reduce the remaining capital gain.

    The amount remaining is the net capital gain to be included in your assessable income for the year.

    Choosing small business concessions

    You must choose the 15-year exemption, the retirement exemption, and the rollover for those concessions to apply. However, the 50% active asset reduction applies automatically if the basic conditions are satisfied and you haven't specifically chosen that it not apply.

    Generally, you need to make your choice by the latest of:

    • the day you lodge your income tax return for the income year in which the relevant CGT event happened
    • a later day that we allow.

    The way you prepare your income tax return is generally sufficient evidence of the choice you've made. However, the retirement exemption requires you to keep a written record of the amount you choose to disregard.

    See also:

    Last modified: 17 Jul 2017QC 52287