Small Business CGT Concessions Explained

Are you aware that the Capital Gains Tax (CGT) concessions designed for small businesses serve a greater purpose beyond just selling your business? These concessions offer valuable opportunities in various scenarios, ranging from retirement planning to business restructuring and succession preparation.

Qualifying for Small Business CGT Concessions

To be eligible for these concessions, certain criteria must be met by your business:

1. Turnover/Assets Test: Your business turnover must be below 2millionperyearorhavecombinednetassetsoflessthan2millionperyearorhavecombinednetassetsoflessthan6 million among the business and related entities.
2. Asset Use Test: The assets considered must be actively utilized in the business operations, like business property or goodwill.
3. Connected Assets: Even assets not directly owned by the business may qualify if they are used by a small business entity connected to you.

If you meet these requirements, you may be entitled to one or more of the following CGT concessions. While the criteria have been summarized for clarity, it is recommended to seek professional advice before utilizing these concessions due to their intricate nature.

The Four Small Business CGT Concessions

1. 15-Year Exemption

• If you have owned your business for a minimum of 15 years and are aged 55 or above, you could potentially disregard 100% of the capital gain.
• This exemption is advantageous for retirement planning or scaling back due to permanent incapacity.
• You may also be able to contribute a portion of the profits to superannuation, which does not count towards standard contribution limits.

1. 50% Active Asset Reduction

• This concession permits a 50% reduction in the capital gain realized from an active business asset.
• It applies to most business assets, with additional conditions applicable if the asset is a share or interest in a trust.

1. Retirement Exemption

• You have the option to exclude up to $500,000 of capital gains over your lifetime using this exemption.
• If you are under 55, the proceeds must be directed to a superannuation fund. If you are 55 or older, the funds can be paid directly to eligible individuals.

1. Rollover Concession

• Rather than immediately paying CGT, you can defer it by rolling the capital gain into another eligible business asset.

Utilizing Small Business CGT Concessions Effectively

Although these concessions are commonly linked with business sales, they can be strategically employed in other ways to support your objectives.

• Approaching the $2 Million Turnover Threshold: Restructuring your business before exceeding the turnover threshold can be beneficial if your current structure is suboptimal.
• Retirement Planning: The 15-Year Exemption and Retirement Exemption are especially valuable for individuals planning to scale back or retire.

• Restructuring: Use concessions to refinance personal debts or establish a new business structure for growth or succession planning.

Professional Guidance for Optimal Utilization

Timing and strategy play pivotal roles in leveraging these CGT concessions effectively. Understanding which concession to apply and when can significantly impact your outcomes. Seek expert guidance to navigate these concessions successfully and make informed decisions tailored to your circumstances.

Tax Lawyers has assisted many clients with leveraging the small business CGT concessions effectively.