Small Business Capital Gains Tax (CGT) Concessions – The Basic Conditions

Small Business CGT concessions allow eligible small businesses to disregard or defer some or all of a capital gain resulting from the disposal of an active asset used in a small business. The small business CGT concessions are only available if certain conditions are met, with some of the concessions requiring further specific conditions to be met.

Available Small Business CGT Concessions include:

  • 15 year exemption
  • 50% active asset reduction
  • Retirement exemption
  • Rollover

The first basic condition to satisfy the Small Business CGT Concessions, is that you must meet one of the following:

  • You’re a Small Business Entity with an aggregated turnover of less than $2 million
  • If you don’t carry on a business, then your CGT asset is used in a business carried on by a Small Business Entity that is your CGT Affiliate
  • You’re a partner in a partnership that is a Small Business Entity and the CGT asset is: an interest in a partnership asset or an asset you own that is used in the business of the partnership
  • You satisfy the Maximum Net Asset Value test in that the total net value of CGT assets owned by you does not exceed $6 million just before the CGT event

Active Asset Test

The concessions are only available on the disposal of an active asset, which passes the Active Asset Test. An ‘Active Asset’ must be an asset used or held for use in the course of carrying on a business of the taxpayer, Connected Entity or CGT Affiliate.

The asset may be tangible or intangible but can’t be a: financial instrument or an asset used mainly (i.e. more than 50%) by the taxpayer to derive interest, annuity, royalty or foreign exchange gains.

The disposal of the asset must be taxed under the CGT rules and the Active Asset test must be passed by the taxpayer that owned the asset.

The asset must also have been an active asset for at least half of the ‘relevant period’ (the period from acquisition to the CGT event) or for at least 7 1/2 years if the asset has been held for more than 15 years.

If the asset is a share in a company or an interest in a trust there are additional basic conditions that must be met depending on whether the taxpayer is an Individual or a Company/Trust.

  • Individual – Be a CGT Concession Stakeholder in the company or trust, in that you’re a significant individual (Small Business Participation percentage in the company or trust of at least 20%) or the spouse of a Significant Individual and you have a small business participation percentage greater than zero in the company or trust
  • Company/Trust – CGT Concession Stakeholders in the company or trust had a total small business participation percentage of at least 90%.

If the above requirements are met you may be eligible for the small CGT concessions.

This is an extremely complex area and before acting or relying on entitlement to the concessions, specialist advice should be sought.

Article by Lawrence Abdullkarim, April 2019

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