Overview
The small business Capital Gains Tax (CGT) concessions in Australia provide significant tax relief for eligible business owners when selling business assets. These concessions can reduce or even eliminate CGT, particularly in situations involving retirement or business succession planning.
Who is eligible?
To access the small business CGT concessions, a business must satisfy certain conditions. The main tests include:
- Small Business Entity Test: aggregated turnover is less than $2 million
- Maximum Net Asset Value Test: net assets are under $6 million (excluding personal assets like a home or superannuation)
- Active Asset Test: the asset must have been used in the business for at least:
- 50% of ownership period, or
- 7.5 years if held for more than 15 years
Types of CGT concessions
If eligibility is met, several concessions may apply:
- 15-Year Exemption: Complete CGT exemption if the asset has been owned for at least 15 years and the owner is 55 or over and retiring (or permanently incapacitated).
- 50% Active Asset Reduction: Reduces the capital gain by 50% (in addition to the general CGT discount if applicable).
- Retirement Exemption: Allows up to $500,000 of capital gains to be exempt. If the owner is under 55, the amount must be contributed to superannuation.
- Rollover Relief: Defers CGT liability when proceeds are reinvested into another active business asset.
Key takeaway
The small business CGT concessions can provide substantial tax savings, but eligibility rules are detailed and strictly applied. Careful planning is essential to ensure the business and asset structure meets the requirements before a sale occurs.
Professional advice is often necessary to maximise available concessions and avoid unexpected tax outcomes.