Tips for claiming the small business CGT concessions
The capital gains tax (CGT) concessions reduce the capital gain on business assets that you must include in your assessable income. You can apply for as many concessions as your business is entitled to, until the capital gain is reduced to nil. This choice allows you to achieve the best tax results for your circumstances. There are four types of small business CGT concessions:
Small business 15-year exemption – If your business has owned an asset for 15 years and you are aged 55 years or over and are retiring, or if you are permanently incapacitated, you won’t have an assessable capital gain when you sell the asset.
Small business 50% active asset reduction – You can reduce the capital gain on an eligible business (active) asset by 50%.
Small business retirement exemption – A capital gain from the sale of a business asset will be exempt up to a lifetime limit of $500,000. If you are under 55 years of age, the exempt amount must be paid into a complying superannuation fund or a retirement savings account to obtain the exemption.
Small business roll-over – If you sell a small business asset, you can defer your capital gain until a later year.
TIPS FOR CLAIMING
• Find out the value of your maximum net assets by taking the ATO’s test. In order to pass the test and meet one of the basic conditions to be entitled to the small business CGT concessions, you should use each asset’s market value, not its historical value or cost. You should also ensure the test includes all assets you hold and any goodwill of your business.
• Make sure you correctly calculate the time periods in which your assets were considered active assets by utilising the active asset test. There are strict rules around whether company shares und units in trusts are active assets. Often taxpayers fail to correctly calculate or provide insufficient information to confirm the test is met for the required time period.
• Sometimes the 15-year exemption is applied to assets that have not been owned for 15 years, usually concerned with when assets have been transferred between related parties. It is important to be aware of these special rules.
• For disposals of assets the concessions should be applied at the time the contract was signed, not at the settlement date. When the contract and settlement dates cross over financial years, the capital gains should be declared in the financial year the contract was signed.
• Often, the sale of a business includes a clause for further payments to be made in respect to future earnings. The market value of rights to further payments (referred to as earn-out rights) must be included in the capital proceeds of the CGT event.
To find out if you are eligible for the small business CGT concessions or for more advice on reducing your CGT liability contact our experienced team of accountants here at The Quinn Group. For more information submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.