As a small business owner in Australia, it’s essential to be aware of the various taxes and levies that apply to your business. One tax that may be of concern is the capital gains tax (CGT), which can significantly impact the profitability of your business. Fortunately, the Australian Taxation Office (ATO) offers several CGT small business concessions that can help reduce the burden of this tax. In this article, we’ll discuss the different CGT small business concessions available and how they can benefit you.
Table of Contents
Overview of CGT Small Business Concessions
ATO CGT small business concessions are a set of tax laws designed to provide relief from capital gains tax for eligible small businesses. These concessions can help reduce the amount of CGT payable on the sale of a business or the disposal of certain assets used in running a business. There are four primary concessions available to eligible businesses, which we’ll discuss below.
The 50% Active Asset Reduction
This concession allows eligible taxpayers to halve their taxable capital gain if they owned the assets continuously from 21 September 1999 until the time it was sold or disposed of. To qualify for this concession, you must meet several criteria. First, you must be an individual, trust, or partner in a partnership that owns a small business. The business must have an annual turnover of less than $2 million, and the asset sold must have been used in running the business. Additionally, the asset must have been held for at least 12 months.
The Retirement Exemption
Under this exemption, eligible taxpayers aged 55 or over can exempt up to $500,000 from their assessable income when they sell an active asset used in their business. To qualify, the taxpayer must have owned the asset for at least 15 years and have been a small business owner for at least ten of those years. The asset must also have been actively used in the business for at least half of the ownership period.
The 15-Year Exemption
This exemption provides full CGT exemption for eligible taxpayers who have owned the asset for at least 15 years and are aged 55 or over and retiring or permanently incapacitated. The asset must have been actively used in the business for at least half of the ownership period.
The Small Business Rollover
This concession allows eligible taxpayers to defer CGT when they dispose of an active asset and use the proceeds to acquire a replacement asset for their small business. To qualify for this concession, you must meet several criteria. First, the asset sold must have been an active asset used in your small business. Additionally, the replacement asset must also be an active asset that is used in the same business.
Eligibility Requirements for CGT Small Business Concessions
To be eligible for CGT Small Business Concessions, you must meet certain criteria. Firstly, you must own an active small business with an annual turnover of less than $2 million (or $6 million if you are part of a consolidated group). Secondly, you must have held your asset continuously for at least 15 years and have used it solely in your business over this period. Finally, you must not be listed as a public company or controlled by one.
Benefits of the CGT Small Business Concessions
The CGT Small Business Concessions can provide significant financial benefits for small business owners in Australia. These concessions can help make owning a business more profitable and can be used in conjunction with other tax strategies to minimize the overall cost of running a business. By taking advantage of these concessions, you can potentially save a significant amount of money on your taxes, freeing up resources to invest back into your business.
