What is the small business capital gains tax concession in Australia?
The Small Business Capital Gains Tax (CGT) concessions in Australia allow eligible small businesses to reduce or disregard capital gains from active assets, helping to lower their tax liability when selling a business or asset.
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How it works in practice
Purpose of the Concessions
The Small Business Capital Gains Tax (CGT) concessions are a set of tax relief measures designed by the Australian government to support small businesses. Their primary goal is to reduce the tax burden when small business owners sell eligible active assets, allowing them to reinvest in their business, save for retirement, or manage transitions more effectively.
Eligibility Criteria
To qualify for these concessions, a business must first meet specific eligibility criteria. Generally, this involves either having an aggregated turnover of less than $2 million or a maximum net asset value of $6 million or less. The asset being sold must also be an 'active asset,' meaning it was used in carrying on a business. There are four main concessions: the 15-year exemption, the 50% active asset reduction, the retirement exemption, and the rollover relief. Each has its own specific conditions and benefits, which can significantly reduce or even eliminate CGT payable.
Important exceptions
The concessions are not universally applicable. You must satisfy the basic eligibility conditions, such as the maximum net asset value test or the $2 million aggregated turnover test. The asset must be an 'active asset,' and there are specific rules for each of the four concessions. For instance, the 15-year exemption requires you to be 55 or older and retiring, or permanently incapacitated. The retirement exemption has a lifetime limit, and rollover relief requires reinvestment in another active asset. Different rules also apply to trusts and companies compared to individuals.
What you should do now
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Determine if your business meets the aggregated turnover test (under $2 million) or the maximum net asset value test (under $6 million).
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Confirm that the asset you are selling qualifies as an 'active asset' that has been used in your business.
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Identify which of the four small business CGT concessions (15-year exemption, 50% active asset reduction, retirement exemption, or rollover) you may be eligible for.
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Gather all necessary financial records and documentation related to the asset and your business structure.
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Consult a qualified tax professional or accountant to ensure correct application and maximise your eligible concessions.
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