Navigating Small Business Capital Gains Tax (CGT) Concessions to Save TA
For businesses that qualify as “CGT small businesses”, the importance of accessing CGT small business concessions under Division 152 ITAA 97 becomes a crucial aspect in choosing the right structure. Let’s simplify these concessions without being too technical and include the four essential conditions:
Qualifying for CGT Small Business Concessions:
To be eligible for CGT small business concessions, consider the following conditions:
- Experience a CGT event with an asset you own, which would have resulted in a gain.
- The disposed asset must qualify as an “active asset,” typically those used in your day-to-day business operations.
- At least one of the following four conditions must apply:
- You are a “CGT small business entity” for the income year, meaning your aggregated turnover for the year is less than $2 million.
- You satisfy the maximum net asset value test, where the maximum net value of assets for the business and its related entities is less than $6 million.
- You are a partner in a partnership that is a CGT small business entity for the income year, and the CGT asset is an interest in an asset of the partnership.
- The rules regarding passively held assets of affiliates, connected entities, or partnerships are satisfied in relation to the CGT asset in the income year.
Understanding CGT Small Business Concessions:
- 15-Year Exemption (Subdiv 152-B):
- Capital gains from disposing of an active asset held for at least 15 years are exempt from tax if you’re 55 or older, or permanently incapacitated during the CGT event.
- 50% Small Business Reduction (152-C):
- Qualifying entities benefit from a 50% reduction in the capital gain on disposing of an active asset, in addition to the general 50% CGT discount and other CGT small business concessions.
- Retirement Concession (152-D):
- Small business taxpayers can opt to disregard capital gains on active assets up to a $500,000 lifetime limit. If under 55, proceeds must be directed into a complying superannuation fund.
- Small Business Rollover Relief (152-E):
- CGT small business entities can defer capital gains on disposing of active assets if replacement assets are acquired within two years.
A Friendly Reminder: Should you contemplate selling an asset or require advice, don’t hesitate to connect with us. These concessions are designed to support businesses like yours and understanding them can profoundly influence your tax position and financial decisions.
