How small business CGT concessions work

Small business capital gains tax concessions provide an opportunity for small business owners to reduce the amount of tax they owe on the sale of business assets. One of the key CGT concessions is the CGT exemption, which can be a significant tax-saving opportunity for small business owners.

In this guide, we’ll explore the small business CGT concessions available and how they can help you save money on taxes.

What is the CGT exemption?

The CGT exemption allows eligible small business owners to disregard or exempt capital gains from the sale of certain business assets.

These assets may include shares in a qualifying small business, business property, and other assets used in the business for at least 15 years. The CGT exemption can be used to reduce or completely eliminate the amount of capital gains tax owed on the sale of these assets.

What is the basic condition for the small business CGT concessions?

To be eligible for the small business CGT concessions in Australia, there are certain basic conditions that must be met, including:

1. The business must be an active small business entity, which means it must be carrying on a business or a part of a business.
2. The business must have an aggregated turnover of less than $2 million or the business’s net assets must be less than $6 million.
3. The asset being sold must have been owned for at least 12 months and used in the business for at least half of the ownership period (unless it is a qualifying small business asset).
4. If the CGT asset is a share in a company or interest in a trust, the business must satisfy the 90% test, which means that 90% or more of the company or trust’s assets must be active assets.
5. The individual selling the asset must be a small business entity, a partner in a partnership that is a small business entity, or a beneficiary of a trust that is a small business entity.

Who is eligible for the CGT exemption?

To be eligible for the CGT exemption, you must meet certain criteria:

1. Be a small business entity, which means that the business has an aggregated turnover of less than $2 million. This test must be met at the time of the CGT event.
2. Not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets such as land used in a farming business.
3. A partner in a partnership that is a small business entity, and the asset is either
   1. an interest in a partnership asset (partnership assets)
   2. an asset you own that is not an interest in a partnership asset (partner’s assets) but is used in the business of the partnership.
4. You satisfy the maximum net asset value test.

Active Asset Test

The asset sold must be an active asset, which means that the asset must have been used or held for use in the business. The asset must have been used or held for use for at least half of the ownership period.

Ownership Period Test

The asset must have been owned for at least 12 months before the CGT event occurred.

How do I apply for the CGT exemption?

To apply for the CGT exemption, you must complete and lodge the necessary forms with the Australian Taxation Office (ATO). The forms required will depend on the type of asset being sold and the type of entity that owns the asset. 

The CGT exemption can be a valuable tool for small business owners, but navigating the application process can be complex.

Luckily, our team at creditte chartered accountants & advisors is here to help. We provide detailed information and guidance to help you understand the requirements and successfully apply for the CGT exemption.

Let us take the stress out of the process and help you secure the exemption you’re eligible for. Contact us today to get started.

What are the 4 small business CGT concessions?

1. CGT Exemption: This concession allows eligible small business owners to disregard or exempt capital gains from the sale of certain business assets.
2. 50% Active Asset Reduction: This concession allows eligible small business owners to reduce the capital gain on the sale of an active asset by 50%.
3. Retirement Exemption: This concession provides an opportunity for small business owners who are retiring to receive an additional CGT exemption of up to $500,000.
4. Rollover Relief: This concession allows eligible small business owners to defer paying tax on a capital gain if the proceeds are invested in another active asset.

Do small business CGT concessions apply to companies?

Yes, small business CGT concessions can apply to companies in Australia if they meet the eligibility criteria. To be eligible for the concessions, a company must satisfy the following basic conditions: 

1. Be a small business entity, which means that it carries on a business with an aggregated turnover of less than $2 million or the value of its net assets is less than $6 million.
2. The CGT asset being sold must have been used in the business for at least half of the ownership period or satisfy the active asset test.
3. The individual shareholder selling the asset must satisfy the significant individual test, which means that they must own at least 20% of the shares in the company, be a CGT concession stakeholder, or have a small business participation percentage of at least 90%.

Final CGT concession advice

Unlock the potential of small business CGT concessions. Speak to a qualified accountant and tax professional at creditte chartered accountants & advisors. We can guide you through the process and help you take advantage of these concessions.