Choosing small business concessions
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 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 have not 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 allowed by the Commissioner.
The way you prepare your income tax return is generally sufficient evidence of the choice you have made. However, the retirement exemption requires you to keep a written record of the amount you choose to disregard.
Distributions out of concession amounts: tax consequences
Where a company or trust chooses a concession and then distributes an amount out of the capital gain to a shareholder or beneficiary, there are varying tax consequences for the shareholder or beneficiary, depending on which concession the company or trust chooses. For some concessions, the amounts received by the individuals are exempt, while for other concessions the amounts are not exempt.
If a company or trust chooses the 15-year exemption and satisfies certain further conditions relating to the distribution of the exempt amount, the amount received by the shareholder or beneficiary is not included in their assessable income.
50% active asset reduction
The tax consequences for distributions made out of 50% active asset reduction amounts will depend on, among other things, the type of entity involved. A distribution by a fixed trust could give rise to a capital gain (after firstly reducing the cost base of the beneficiary's interest in the trust to nil). However, there are no such consequences for distributions by non-fixed trusts.
A distribution by a company out of a 50% active asset reduction amount is likely to be assessable to the shareholder as an unfranked dividend.
If a company or trust chooses the retirement exemption and satisfies the requirements for the retirement exemption, the payment received by the shareholder or beneficiary is not included in their assessable income.
If a company or trust chooses the rollover for a capital gain and then distributes an amount out of the gain to a shareholder or beneficiary, the distribution is not exempt – that is, the concession does not flow through to the individuals. The consequences of such distributions are similar to those noted above for the 50% active asset reduction.
Last modified: 30 Mar 2021QC 44192