These concessions can be extremely effective in reducing your tax liability. It is in the interests of all business owners to be aware of the compliance issues surrounding these CGT concessions as it may help to form astute decisions relating to the use and disposal of business assets.
Detailed below are the four CGT concessions that are available to small business owners.
15 year exemption
If your business has held an asset for over 15 years and you are over the age of 55 then there will be no CGT liability on the sale of that asset. The 15 year exemption is the most generous of the CGT concessions. In certain circumstances it can allow a person to completely disregard the tax payable on a capital gain.
To be eligible for the 15 year exemption, the asset must have been held for a minimum of 15 years, and the owner must be selling due to retirement or permanent incapacitation.
Small business active asset reduction
If the asset is considered to be active then your CGT is reduced by 50%. In order to qualify as active, an asset must be used in the day to day running of the business.
Active assets may be tangible or intangible. It must have been used in the day to day running of the business for over half the period of ownership, or over 7.5 years where the ownership exceeds 15 years. Only active assets qualify any of these four CGT concessions.
Small business retirement exemption
Small business owners may be exempt from up to $500 000 of capital gains over their lifetime. However, if you are under the age of 55 then the money must be directed into a superannuation account.
Small business rollover
This allows you to defer your capital gain on an asset for up to a year. The capital gain may be deferred for two years or longer if you plan to acquire a replacement asset or you incur expenses in the process of making improvements to an existing asset.
To qualify for the small business CGT discounts your business must be classified as a small business entity (SBE). This means that your annual income cannot exceed $2 million.
If the business does not qualify as an SBE, then the CGT discounts may still be applied if the owners hold less than $6 million dollars in total assets.
The concession may also apply where the assets are owned by an entity which you control, such as a company or trust, but the rules are complex and advice from Oculus should be sought.