Small business concessions
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There are four CGT concessions available to small business. These concessions may apply to CGT events (for example, the disposal of a CGT asset) that happen after 11.45am on 21 September 1999. Any capital gain that results from a CGT event may be reduced or disregarded under the small business concessions if you satisfy certain conditions. The four concessions are:
- The small business 15-year exemption
This concession provides a total exemption of a capital gain if you have continuously owned the CGT asset for at least 15 years and the relevant individual is 55 years old, or older, and retiring, or is permanently incapacitated.
- The small business 50% active asset reduction
This concession provides a 50% reduction of a capital gain for a business (active) asset.
- The small business retirement exemption
This concession provides an exemption of capital gains up to a lifetime limit of $500,000. If you are under 55 years old just before you make the choice, the amount must be paid into a complying superannuation fund or a retirement savings account (RSA).
- The small business rollover
This concession allows you to defer a capital gain from the disposal of a business asset for a minimum of two years. If you acquire a replacement asset or make a capital improvement to an existing asset, you can defer the capital gain for longer, until you
- dispose of the replacement or improved asset
- change its use in particular ways.
Either will cause the deferred capital gain to crystallise. This means you would make a capital gain equal to the deferred gain at the time of the disposal or change in use, in addition to any capital gain made on the disposal of the replacement or capital improved asset.
How the CGT concessions work
To be eligible for any of the concessions, you must first meet several basic conditions.
You must then meet any additional conditions that apply specifically to the individual concessions.
You can apply as many concessions as you are entitled to until the capital gain is reduced to nil. This choice allows you to achieve the best tax result for your circumstances.
There are rules about the order you apply:
- the CGT small business concessions
- any current year or prior year capital losses
- the CGT discount.
You may be able to apply either or both of the following to each capital gain:
- more than one of the four concessions if you meet the conditions for each
- the CGT discount if it also applies.
If the small business 15-year exemption applies, you can disregard the entire capital gain and therefore, you do not need to apply any further concessions.
Throughout this guide we use the scenario of Lana, a sole trader, to illustrate how you can apply losses and the CGT concessions to a capital gain made by a small business.
Example: Sole trader scenario
Lana operates a small manufacturing business as a sole trader. The net value of her CGT assets and those of other relevant entities is less than $6 million.
Her husband Max carries on his own florist business, which is unrelated to Lana’s manufacturing business.
Max owns the land and building from which Lana conducts her manufacturing business and leases it to her.
Max owns 100% of the shares in Maxaco Pty Ltd and Lana has no involvement in this company.
Max and Lana regularly consult with each other in relation to their respective businesses and act according to the other’s directions or wishes in relation to their respective businesses.
Lana has also owned a small parcel of nearby land for three years and has used it in her business for the last two years. She decides to sell the land and makes a capital gain of $17,000 when she disposes of it.
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