The small business CGT (capital gain tax) concessions are designed to allow you to disregard, reduce or even defer some, all of a capital gain from any active asset that is used in small business. In other words, CGT helps to reduce the burden of tax on small business taxpayers.
These concessions are available if you dispose of your active asset and also meet all the eligibility requirements as well. Therefore, small business taxpayers could trigger CGT, for e.g.:
- A trust, partnership, or company selling its business (that includes goodwill);
- A company’s shareholder selling their shares; or
- In a unit trust, a unitholder sells their units.
If small business taxpayers have to pay less CGT, they can get the following gains:
- Boost their savings kept for retirement purposes; and/or
- Keep a good amount of their hard-earned money.
The 4 Types of small business CGT concessions
There are mainly 4 types of CGT (capital gains tax) concessions. Taxpayers of small businesses can be eligible for one or even more, as outlined below.
- 15-year exemption for small business
The 15-year exemption offers a complete for the full capital gain. This kind of small business CGT concessions is applicable where among a few other things:
- The business has been running for at least 15 years;
- You have owned the asset continuously for at least 15 years;
- A significant stakeholder in an entity or the person carrying on a small business, that who runs a small business is of minimum 55 years old; and
- The occurrence of disposal is in connection with their retirement, or they are incapacitated permanently.
It is even possible to use such small business CGT concession to get superannuation benefits as well.
- 50% active asset reduction for small business
When the 15-year exemption is not there, a small business taxpayer could apply the 50% reduction of an active asset that reduces 50% capital gain.
This 50% active asset reduction would apply in addition to a general 50% CGT discount (wherever available) for a net value of 70% reduction in capital gain.
- Retirement exemption for small business
Unlike the 15-year exemption, and besides its name, retirement exemption for small businesses does not need that a relevant person retires actually. You might be able to use money from the retirement exemption for small businesses as contributions for your super fund, without even affecting your non-concessional contribution limits.
- Small business rollover
This allows taxpayers of small businesses to:
- Defer the tax that is payable on the original capital gain; and
- Using of funds that are sheltered from tax for acquiring replacement assets (like a new business) within a particular period up to 2 years after original disposal.
Wherever small business rollover is applied, the original gain tax is deferred generally until the proper disposal of the replacement asset.
Note that the small business CGT concessions are also subject to some common basic conditions, with specific concessions with additional concessions along with or over these common requirements.
If you need any further information on small business CGT concessions 2021, contact Mosaic Tax Legal, as they are experts in common law or in ATO small business CGT concessions.