Small business CGT concessions
The small business capital gains tax (CGT) concessions allow you to reduce, disregard or defer some or all of a capital gain from an active asset used in a small business.
The concessions are available when you dispose of an active asset and meet eligibility requirements.
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You must meet basic eligibility conditions common to all 4 concessions.
Step 1: You must be one of the following:
- a small business entity with an aggregated turnover of less than $2 million
- not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets)
- a partner in a partnership that is a small business entity, and the asset is either
- an interest in a partnership asset (partnership assets)
- an asset you own that is not an interest in a partnership asset (partner's assets) but is used in the business of the partnership
- you satisfy the maximum net asset value test.
Step 2: The asset satisfies the active asset test.
Step 3: If the asset is a share in a company or an interest in a trust, it must meet additional conditions.
Step 4: The eligibility condition in this step applies to a CGT event happening after 7.30pm AEDT on 8 May 2018 that involves the creation, transfer, variation or ending of your right or interest to either:
- an amount of income or capital of a partnership
- an amount calculated by reference to the entitlement of a partner in a partnership to an amount of the partnership's income or capital.
If the CGT event involved ending your right or interest, your right or interest must be a membership interest in the partnership immediately before the CGT event happens.
For all other cases, your right or interest must be a membership interest in the partnership immediately after the CGT event happens.
The 4 small business CGT concessions
All the concessions except for the small business 50% active asset reduction have additional requirements you must meet.
Small business 15-year exemption
You will not pay CGT when you dispose of an active asset if you meet both of the following additional requirements:
- you are aged 55 years or older and retiring, or are permanently incapacitated
- you have continuously owned the asset for at least 15 years.
You may be able to contribute amounts to your super fund from the small business 15-year exemption without affecting your non-concessional contributions limits.
Small business 50% active asset reduction
You will only pay tax on 50% of the capital gain when you dispose of an active asset.
The small business 50% active asset reduction applies if you meet the basic eligibility conditions. It applies in addition to the CGT discount.
You may choose not to apply the concession if you prefer.
Small business retirement exemption
Capital gains from the disposal of active assets are exempt from CGT up to a lifetime limit of $500,000.
If you are under 55, the exempt amount from the proceeds on disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
You may be able to use amounts from the small business retirement exemption as contributions to your super fund without affecting your non-concessional contributions limits.
Small business rollover
The small business rollover allows you to defer all or part of a capital gain made from a CGT event happening to an active asset.
For example, you can defer your capital gain until a later year if you buy a replacement asset or improve an existing active asset.
The replacement asset can be acquired one year before or up to 2 years after the last CGT event in the income year for which you choose the rollover.
Applying the small business CGT concessions
You can apply as many of the small business CGT concessions as you are eligible for until the capital gain is reduced to zero.
There are rules about the order you apply the concessions, any current year or prior year capital losses, and the CGT discount.
Small business CGT concessions allow you to reduce, disregard or defer some or all of a capital gain from an active asset used in a small business.