Who says you can't get excited about CGT Concessions for small business???
October 7, 2014
Capital Gains Tax (CGT) Concessions for Small Business
The Government introduced a number of concessions to small businesses in relation to the sale of assets used in their businesses, as they recognised that many business owners invest in their businesses and aim to sell them or the assets to fund their retirement. However as they have often worked in the business for a long time, large capital gains may have accrued.
CGT Concessions for Small Business
There are four small business concessions. You are able to apply as many concessions as you are entitled to, which in some cases will result in no capital gains tax being payable. You do not have to apply all of the concessions that you are entitled to, as you may want to contribute a larger amount into superannuation and may be subject to capital gains tax (CGT).
In some cases you are also able to apply the general 50% capital gains tax discount available to individuals who have held an asset for more than twelve months.
There are rules about the order you apply the CGT small business concessions, any current year or prior year capital losses and the CGT discount.
You must first satisfy the basic conditions that apply to all the CGT concessions for small business. You must then satisfy any additional conditions that apply specifically to the individual concessions.
Small business 15-year exemption
If you are aged 55 years or more, and are retiring (or if you are permanently incapacitated), and your business has owned an asset for fifteen years or more then the capital gain on the sale of that asset is disregarded.
You are able to contribute up to the lifetime limit of $1,355,000 (which was increased from $1,315,000 for the 2014/2015 financial year to account for indexation) of the sale proceeds into superannuation as a CGT contribution cap. This will not count against your personal concessional or non-concessional contributions caps.
The $1,355,000 lifetime limit does not have to be used all at once. You may sell a number of assets over a period of years before you reach the $1,355,000 lifetime limit.
Small business 50% active asset reduction
You can reduce the capital gain on a business (active) asset by 50%.
Small business retirement exemption
If you sell a business asset then the capital gain will be exempt up to a lifetime limit of $500,000. If you are under 55 years of age then the exempt amount must be paid into a complying superannuation fund in order to obtain the exemption.
The $500,000 lifetime limit does not have to be used all at once. You may sell a number of assets over a period of years before you reach the $500,000 lifetime limit.
Small business roll-over
If you sell a small business asset, you can defer your capital gain until a later year. The purpose behind this exemption is that you use the sale proceeds to purchase another asset for your business. When you eventually sell the replacement asset then all or part of the gain that you deferred becomes assessable.
If you don’t purchase a replacement asset within the required period then all or part of the gain that you deferred becomes assessable.
For more information please refer to the tax office website at http://www.ato.gov.au/businesses. In particular you may find the Guide to Capital Gains Tax Concessions for Small Business helpful which can be found at the ATO website.
For more information about exciting ways you can ensure your getting the best bang out of the sale of your business please call us on 9935 5233 to set an appointment to meet at our Little Collins Street office in Melbournme CBD.