Small Business Capital Gains Tax Concessions

What is Capital Gains?

If you sell a capital asset, such as real estate or shares, you usually make a capital gain or a capital loss. This is the difference between what it costs you to acquire the asset and what you receive when you dispose of it. A capital gains tax (CGT) is the tax you pay on the profit you receive when you sell an asset or investment.

As a small business owner, you may be eligible for a range of tax concessions on capital gains when you sell your business. You may also contribute a portion of the business asset into your superannuation to save for retirement.

What are the Benefits?

How does Capital Gains Tax work?

Instead of saving for retirement while working, many small business owners employ surplus funds to grow their business. There is a CGT cap that lets small business owners make large contributions into their superannuation once their business assets have been sold.

You must first be eligible for a CGT tax concession before you are eligible for a CGT cap.

How do I qualify for a CGT concession?

In order to be eligible for the small business CGT concessions, some requirements must be met, such as:

Concessions

There are four concessions that let you disregard or defer some or all of a capital gain from an active asset employed in a small business:

15 Year Exemption

When your business has owned an active asset for 15 years, the entire capital gain may be deferred from tax. All of the sale proceeds may be placed into your superannuation using the CGT cap. However, there is a lifetime limit.

50% Active Asset Reduction

You can reduce the capital gain on an active asset by 50 per cent. If you meet the relevant criteria, you may also be eligible for the small business retirement exemption and/or small business rollover relief. This will reduce the capital gain amount.

Retirement Exemption

Capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. If you're under 55, the exempt amount must be paid into a complying super fund or a retirement savings account.

A maximum amount of $500,000 of assessable capital gain can be exempt from tax. If you are under 55 years old, the exempt amount must be placed into superannuation. If you are over 55 years old, you can decide to take the capital gain. Alternatively, you can contribute it to your superannuation fund. The money is contributed under the CGT retirement cap, and will reduce your remaining CGT lifetime cap.

Rollover

A person or entity can defer a capital gain from a sale of one or more small business asset(s). This is if a replacement asset is acquired within a certain timeframe.

Reminder

The eligibility rules for CGT concessions are very complex and specialist advice is recommended to understand the rules and requirements for your situation. Contact Wagtail Wealth today for advice on CGT concessions for small businesses.

IMPORTANT NOTE: This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information. This blog post is not financial advice. You should consider seeking independent financial, taxation or other advice to check how the website information relates to your specific circumstances. Wagtail Wealth is not liable for any loss caused, whether due to negligence or the reliance on the information provided directly or indirectly, by use of this website.

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