Small business CGT concessions
With proper planning, the SBC will allow you to significantly minimise any capital gains tax (CGT) that you might pay on the sale of your business. Before selling your business, it’s important that you’re aware of the conditions for accessing Small Business Concessions (SBC). If you satisfy the conditions, there are four types of concessions available.
1. The small business 15 year exemption
This is available where the CGT asset has been held for a continuous 15 year period. In addition, the individual is over 55 years of age and the disposal of the asset is connected with the individual’s retirement or their permanent incapacity. Where the CGT asset is a share in a company or an interest in a trust there must have been a significant individual (at least 20% interest) for the entire ownership period.
2. The small business 50% active asset exemption
Under this exemption net capital gains are reduced by 50% (in addition to the 50% General Discount). This is only calculated after the application of all current and prior year capital losses and also after the application of the 50% General Discount.
3. The small business retirement exemption
This exemption does not require the taxpayer to have actually retired. However, where the taxpayer is an individual and under 55, the exempt amount must be rolled into a superannuation fund. There are significant complexities and timing requirements so care is needed here. The retirement exemption allows $500,000 per stakeholder to be tax free on top of the other discounts above.
4. The small business roll-over concession
This allows the taxpayer to roll over a gain made into a replacement asset. This must occur during the period between one year prior to and two years after the occurrence of the CGT event in the income year of the roll over. Under this option the cost base of the replacement asset is reduced by the capital gain rolled over.
In part three of this series, we’ll explore how to structure your CGT concessions so that you can access more than one of these concessions and take full advantage of the benefits.
The only way to be sure of accessing the SBC is to plan ahead. If you plan to sell your business in the next 5 years you should be looking at your structure, business affairs and asset levels with the help of your accountant now. There are legitimate planning strategies that can be put in place to enable you to access the concessions but you must plan ahead.
Questions on small business income tax and other issues can be emailed to email@example.com.
By Preston Foster, Senior Financial Planner, APT Wealth and Michael Goodrick, Managing Partner, Stanley & Williamson