If you are running a business as a sole trader, partnership, company or trust and your business has an aggregated turnover of less than $2 million, there are five CGT related tax concessions that may be relevant to you. These exemptions, and the records that you need to keep to take advantage of them, are outlined below.
Small business 15-year exemption
If you are at least 55 years old and, in connection to your retirement you disposed of a CGT asset that you have owned for 15 years, you may be able to claim the 15 year exemption. This exemption allows you to disregard capital gain you may have made on the disposed asset. It also applies in the circumstance that you were permanently incapacitated at the time the asset was disposed of.
You may be able reduce the capital gain arising from the disposal of a CGT asset by 50 per cent by using the CGT discount. While this tax concession is available to individuals, partners in a partnership and trusts, it is not available to companies.
Small business 50% reduction
If you meet all the basic conditions set by the ATO, you can reduce your capital gain by 50 per cent. This reduction may only be made after you have applied your current year capital losses and any unapplied net capital losses from a previous year. If you are an individual or a trust, you can use this tax concession in conjunction with the active asset reduction. In doing so you can reduce your capital gain by 75 per cent.
Small business retirement exemption
The small business retirement exemption provides an exemption of capital gains up to a life time limit of $500,000. If you are under 55 years old when you choose the exemption, you must pay the amount into a complying superannuation fund or a retirement savings account.
Small business rollover
Using the small business rollover, part or all of a capital gain associated with a business asset can be deferred for two years or longer in the instance you either replace the asset or make improvements to it.
The records that you need to claim the CGT exemptions
To claim any of the above CGT exemptions, you do need to pass the relevant tests posed by the ATO. It is therefore critical that you have clear and concise records of CGT events. A failure to keep proper CGT records may result in you incurring costs and paying more tax than you need to.
The CGT records you keep must be able to clearly show whether you made a capital gain or loss when a particular CGT event occurred. Such records can be made up of valuations, legal fees, contracts and details of any commissions paid relevant to the purchase and disposal of a CGT asset.
To successfully claim a CGT concession, you will need to be in a position to produce;
• Evidence of the market value of CGT assets just prior to any relevant CGT event occurring
• Evidence that you are in fact carrying on a business
• A calculation of your turnover
• documentation of how any capital losses have been calculated and carried forward; and
• any other relevant documents, such as your company’s constitution, or any relevant trust deed or trust minutes.
To avoid confusion and to simply the process when it comes to claiming a CGT concession, it is a good idea to keep a CGT asset register separate from your CGT record. While this register may seem burdensome as it may contain information that already forms part of your CGT records, if you do keep an asset register, you may be able to dispose of your CGT records five years after the asset is recorded rather than five years after you dispose of the asset, which is the norm.
If you do decide to start a CGT asset register, it must include the following information about the CGT asset;
• the date the asset was acquired
• it’s cost
• a description, an amount, and a date for every cost incurred in relation to purchasing the asset, such as stamp duty and legal fees
• the amount you received when you disposed of the asset
• any other information relevant
In any event, when a CGT event occurs, it is imperative that you record the nature of the event and the date it happened. If you need assistance in claiming exemption from CGT contact our tax lawyers and tax accountants at The Quinn Group. We can provide advice in an easy to understand way and assist with the CGT calculations. Contact us on 02 9223 9166 or submit an online enquiry.