• CGT concessions you can claim

    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

    Step 2 – Work out whether you qualify for the 15-year exemption

    If you qualify for the small business 15-year exemption, you can disregard the capital gain entirely and you do not need to apply any further concessions. There is no need to apply capital losses before you apply the 15-year exemption. This means you may use these capital losses to offset other capital gains.

    If the capital gain is from a depreciating asset, you cannot use the 15-year exemption.

    Do you qualify?

    You qualify for the small business 15-year exemption if you:

    • meet the basic conditions for the small business CGT concessions, including the active asset test (in this case the asset must have been an active asset for at least 7.5 years during your period of ownership)
    • continuously owned the CGT asset for the 15-year period ending just before the CGT event, where you are
      • an individual in business and at the time of the CGT event you were 55 years old or older and the event was connected with your retirement, or you were permanently incapacitated
      • an individual in business and your CGT asset is a share in a company or an interest in a trust and the company or trust had a significant individual, for periods totalling at least 15 years, during which the individual owned the shares or trust interests (not necessarily the same individual for the whole period), or
      • a company or trust and the company or trust had a significant individual for at least 15 of the years they owned the asset (not necessarily the same individual for the whole period) and at the time of the CGT event, the significant individual was 55 years old or older and the event was connected with their retirement, or they were permanently incapacitated.
       

    For CGT assets acquired or transferred under the rollover provisions relating to assets compulsorily acquired, lost or destroyed, or those relating to marriage breakdown, there are modified rules about the requirement that the asset be continuously owned for at least 15 years.

    Superannuation consequences

    From 1 July 2007, if you are contributing a 15-year exemption amount to a superannuation fund or retirement savings account (RSA), the amount is generally a non-concessional contribution. To exclude the amount from your non-concessional contributions cap and have it count towards your superannuation CGT cap instead ($1.255m for 2012-13), you must notify the fund on the Capital gains tax cap election (NAT 71161). You must complete this election by no later than the time you make the contribution.

    Further information

    For more information about the superannuation contributions caps, see Super contributions – too much super can mean extra tax.

    End of further information

    Example: small business 15-year exemption

    Lana does not qualify for the small business 15-year exemption as she has owned the land for only three years. However, she does have a capital loss and may qualify for the CGT discount and one or more of the other small business CGT concessions.

    On the other hand, Lana’s friends Ruth and Geoff do qualify for the exemption. They are partners in a partnership that conducts a farming business on land they purchased in 1994 and have owned continuously since that time. The net value of their CGT assets for the purpose of the maximum net asset value test is less than $6 million.

    Ruth and Geoff decide to retire as they are both over 60. They sell the land (the major asset of the farming business) in 2011 for a total capital gain of $100,000.

    As Ruth and Geoff qualify for the small business 15-year exemption for the capital gain, they can disregard the entire gain. They do not need to apply any other concessions.

    End of example

    If you make a capital loss from the CGT event, you can use the loss to reduce other capital gains.

    Step 3 – Work out whether you have any capital losses

    If you have any capital losses for the current year or losses carried forward from a previous year, you must use them to reduce the capital gain before applying any of the remaining concessions.

    Example: capital losses

    In the same year as Lana made the $17,000 capital gain on the sale of land, she also made 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, as follows:

    $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

    Step 4 – Work out whether you may claim the CGT discount

    The CGT discount allows individuals (including partners in partnerships) and trusts to reduce their capital gain by 50%. Superannuation funds can reduce their gain by 33.33%. There are more rules for beneficiaries who are entitled to a share of a trust capital gain. Companies are not eligible for the CGT discount.

    The discount is not limited to small business capital gains, but can also be applied to personal capital gains.

    Capital gains and depreciating assets

    You make a capital gain from a depreciating asset only to the extent you have used the depreciating asset for a non-taxable purpose (for example, for private purposes). Such a gain may be eligible for the CGT discount.

    Are you eligible?

    To be eligible for the CGT discount you must meet both of the following:

    • be an individual, trust or complying superannuation fund
    • have owned the asset involved for at least 12 months.

    Certain CGT events, such as where new assets are created, do not qualify for the CGT discount because the 12-month rule would not be satisfied.

    If you are eligible for the CGT discount, reduce the capital gain by 50% (or 33.33% for complying superannuation funds).

    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%, as follows:

    $14,000 – (50% x $14,000) = $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

    Step 5 – Work out whether the gain is from a depreciating asset

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

    Example: depreciating assets

    The land that Lana disposed of was not a depreciating asset, so she can use the remaining small business CGT concessions to reduce her capital gain if she meets the relevant conditions.

    End of example

    Step 6 – Work out whether you may claim the 50% active asset reduction

    You may choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover.

    To qualify for the small business 50% active asset reduction on a capital gain, you need to meet only the basic conditions (see step 1).

    This means that, if you meet the basic conditions, you may reduce the capital gain by 50% after applying in the following order, any:

    • current year capital losses
    • unapplied net capital losses from a previous year.

    If you are an individual or trust and both the CGT discount and the small business 50% active asset reduction apply, you reduce the capital gain by 50%, then 50% of the remainder, that is, a total of 75%.

    Example: small business 50% active asset reduction

    Lana qualifies for the small business 50% reduction because she meets the basic conditions. Therefore, she can reduce her capital gain by a further 50%, as follows:

    $7,000 – (50% x $7,000) = $3,500

    Lana may be able to reduce her capital gain further using the small business retirement exemption or the small business rollover.

    End of example

    Step 7 – Work out whether you qualify for the small business retirement exemption or rollover

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

    Small business retirement exemption

    You can use your small business retirement exemption 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 you have applied the other concessions or before any other concessions.

    The amount you choose to disregard is called the exempt amount. The amount of any capital gain that exceeds the CGT exempt amount does not qualify for this exemption. The exempt amount must not exceed your CGT retirement exemption limit. This is a lifetime limit of $500,000.

    Working out whether 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 you have applied the other concessions if:

    • you meet the basic conditions (see step 1)
    • you keep a written record of the amount you have chosen to disregard (the exempt amount)
    • where you were less than 55 years old just before you made the choice to use the retirement exemption, you made a payment equal to the exempt amount to a complying superannuation fund or retirement savings account (RSA).

    You must make the contribution to a complying superannuation fund or RSA when:

    • you make the choice to use the retirement exemption or when you received the proceeds (whichever is later), or
    • you made the choice to use the retirement exemption if the relevant event is CGT event J2, J5 or J6.

    If you are 55 years old or older when you make the choice to access the retirement exemption, you do not have to pay any amount to a complying superannuation fund or RSA, even though you may have been under 55 years old when you received the capital proceeds.

    If you receive the capital proceeds in instalments, the requirement to contribute an amount by a particular date applies to each instalment (up to the asset’s CGT exempt amount).

    If you make the gain as a result of CGT events J5 or J6, you can choose the retirement exemption for those gains without having to meet the basic conditions again. This is because you would have already met the basic conditions at the time you chose the rollover.

    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 you have applied the other concessions, if all of the following are met:

    • you meet the basic conditions (see step 1)
    • you meet the significant individual test
    • you 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%)
    • you make a payment to at least one of your CGT concession stakeholders
    • the payments to CGT concession stakeholders are equal to the exempt amount or the amount of capital proceeds, whichever is less
    • where you receive the capital proceeds in instalments, you make a payment to a CGT concession stakeholder for each instalment in succession (up to the asset’s CGT exempt amount).

    Where you make a payment to more than one CGT concession stakeholder, you work out the amount by referring to each individual’s percentage of the exempt amount.

    • You must make your payment by either of the following:
    • seven days after you choose to disregard the capital gain if you choose the retirement exemption for a J2, J5 or J6 event
    • in any other case, by the later of seven days after you
      • choose to disregard the capital gain, or
      • receive the capital proceeds from the CGT event.
       

    Where a stakeholder is under 55 years old just before receiving the payment, you must immediately contribute that amount to a complying superannuation fund or retirement savings account (RSA) and advise the trustee of the fund or the RSA that a contribution has been in accordance with the relevant section.

    If you made your gain because of CGT events J5 or J6 happening, you can choose the retirement exemption for those gains without having to meet the basic conditions again. This is because you would have already satisfied the basic conditions at the time you chose the rollover.

    The exempt amount must not exceed the $500,000 CGT retirement exemption limit of each individual receiving a payment. As this is a lifetime limit, you must consider any previous retirement exemption payments to make sure you do not exceed the limit.

    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 younger than 55 years old, she would need to pay the amount into a complying superannuation fund or a retirement savings account.
    • Lana decides she needs the funds to reinvest in the business and so does not choose the retirement exemption.
    End of example

    Termination of employment not required

    If you choose the retirement exemption, you do not have to:

    • end any activity
    • wind up your business.

    Where you are a company or trust and you make payments to a CGT concession stakeholder, the stakeholder does not have to end any activity or office holding.

    Further information

    For more information, see the Advanced guide to capital gains tax concessions for small business 2012–13.

    End of further information

    Consequences of choosing the exemption

    If you choose this exemption, you disregard the amount of the capital gain you have chosen as the CGT exempt amount.

    Payments you make to a CGT concession stakeholder

    If you are a CGT concession stakeholder, a payment you receive from a company or trust to meet the retirement exemption requirements is not:

    • assessable income, or
    • exempt income.

    If you are a company or trust making the payment, you cannot deduct this amount from your assessable income.

    Superannuation consequences

    From 1 July 2007, if you are contributing a retirement exemption amount to a superannuation fund or RSA, the amount is generally a non-concessional contribution. To exclude the amount from your non-concessional contributions cap and have it count towards your superannuation CGT cap instead ($1.255m for 2012-13), you must notify the fund on Capital gains tax cap election. You must complete this form by no later than the time you make the contribution.

    Further information

    For more information about the superannuation contributions caps, see Super contributions – too much super can mean extra tax.

    End of further information

    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 meet the following conditions:

    • you acquire a replacement asset or
    • you incur expenditure on making capital improvements to an existing asset.

    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 you have also applied the CGT discount, you apply the rollover to the remaining 25% of the capital gain.

    You can use this concession for any gain remaining before or after you have applied any other concessions.

    Do you qualify?

    Your business qualifies to roll over a capital gain if you meet the basic conditions (see step 1). To defer the gain for more than two years, you must also meet further conditions 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.

    Further conditions

    To defer the gain for more than two years, the following conditions must be met by the end of the replacement asset period:

    • you must acquire a replacement asset or make a capital improvement to an existing asset, or do both, within the replacement asset period
    • the replacement asset must be an active asset by the end of the replacement asset period
    • if the replacement asset is a share in a company or an interest in a trust, by the end of the replacement asset period
      • you or an entity connected with you must be a CGT concession stakeholder in that company or trust, or
      • CGT concession stakeholders in the company or trust must have a small business participation percentage in you of at least 90%
       
    • the cost of the replacement asset or capital improvement must be equal to or greater than the gain you deferred.

    You can choose the rollover even if you have not yet acquired a replacement asset or made a capital improvement to an existing asset, but a new capital gain will arise if the any of the following happens:

    • you do not acquire an active asset, or make a capital improvement to an existing active asset by the end of the replacement asset period
    • by the end of the replacement asset period the cost of the replacement active asset or capital improvement (including incidental costs) is less than the amount of the capital gain that you disregarded
    • a change happens to the replacement (or capital improved) asset after the replacement asset period (for example, you sell it or stop using it in your business).

    If a new capital gain arises because you have not met the further conditions by the end of the replacement asset period (two years) you can choose the retirement exemption instead. For those gains you do not need to meet the basic conditions again but you must meet the retirement exemption conditions.

    Example: small business rollover

    Instead of choosing the retirement exemption, Lana decides that she will search for a suitable replacement asset to use in her business. As she meets all basic conditions, she qualifies for the small business rollover.

    This means she can reduce her capital gain remaining after all other concessions have applied ($3,500) to nil.

    After six months, Lana acquires another small parcel of land immediately adjoining the main business premises to use in her business. The replacement land costs $10,000, and it was her active asset before the end of the replacement asset period, so she meets the further conditions.

    End of example

    The $3,500 remaining capital gain disregarded under the small business rollover is only a deferral of the capital gain. This deferred capital gain may later become assessable if Lana:

    • sells the land
    • stops using it in her business.

    However, she could then choose a further small business rollover if she acquired another replacement active asset. Alternatively, Lana could choose the retirement exemption.

    Definitions

    Active asset

    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
      • you
      • 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
      • you
      • 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.

    Affiliate
    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
    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.

    Assessable income
    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.

    Capital gain
    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.

    Capital loss
    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
    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 asset
    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.

    CGT discount
    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.

    CGT event
    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.

    Connected with
    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.

    Depreciating asset
    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.

    NAT number
    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 entity
    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.

    Significant individual
    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:

    • acquire a replacement asset
    • make an improvement to an existing asset and meet certain conditions.

    More information

    Websites

    Go to:

    • ato.gov.au/sbconcessions to find out more about all the concessions available to small business entities
    • ato.gov.au/businesscgt to find out more about the CGT concessions for small business entities
    • ato.gov.au/onlineservices to find out about our range of online services, including the Business Portal
    • business.gov.auExternal Link
    • for easy access to business information, services and transactions with government. There are links to ATO applications to
      • register for an Australian business number (ABN)
      • register for goods and services tax (GST)
      • apply for a tax file number.
       

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    Publications

    For more publications about how capital gains tax works, see:

    For further information about market valuation, read Market valuation for tax purposes.

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      Last modified: 16 Sep 2014QC 28214