February 28, 2022

How To: Get the most out of Small Business CGT concessions

These generous concessions allow you to reduce, defer or even disregard some or all of a capital gain from the sale of a small business.

The ATO understands that many small business owners essentially treat their business as their superannuation; they use their surplus funds to reinvest back into the business, and for many, it is their end plan to a happy retirement. Because of this, the ATO allows the business owner to reduce, defer or even disregard any capital gain from the sale of their business, sometimes using a helpful contribution into superannuation to kickstart those retirement plans.

Who is eligible?

Whilst these conditions can be rather complex – and we always recommend obtaining specific taxation advice – here is a little snapshot of who is in and who is out.

– First thing’s first, it needs to be a ‘small business’:

this means the(aggregated) turnover of the business is less than $2 million each year.
If you don’t pass this, you may be able to rely on the ‘net assets test’ – which you pass if the net value of assets owned by the business and related entities is less than $6million.

– The asset being sold must be an ‘active asset’ – in short, the asset must be used in running a business. The ATO has a few rules of what is ‘active’ and what is not so it’s always best to obtain specific advice here. Plant & machinery in running a business are examples of an active asset, but something like a loan owing from the director is ruled out.

– There are additional rules if the asset being sold is a share in a company or an interest in a trust – such as the ‘significant individual’ and ‘CGT concessional stakeholder’ tests. These rules make sure the person benefiting from the concessions are major stakeholders of the business. Again, always best to check with a professional here!

What are the concessions?

Concession	Details
15-year exemption	If the business asset has been owned for at least 15 years, the entire capital gain can be completely tax free! The entire sale proceeds can also be contributed into super (subject to certain caps and limits).
Small business 50% active asset reduction	This lets you reduce the capital gain by a further 50%. You can apply this after you already reduce the gain by the general 50% discount.

Retirement exemption	Up to $500,000 (this is a lifetime limit) of the assessable capital gain can be fully exempt from tax under this concession. If you are under 55, the money must be contributed to super. If you are over 55, you can take it in cash or choose to contribute into super.
Small business rollover relief	This allows you to defer a capital gain arising from the sale of a small business where a replacement asset is acquired within two years. If you don’t buy a new asset or business, the gain is simply deferred until the time period is up.

Whilst the words generous and the ATO don’t always go hand in hand, these concessions really are some of the best ones out there! It pays to make sure you or your business is eligible in the lead up to a sale, so be sure to consult your trusted advisor to assess your eligibility and if there is anything you can do to prepare.

It could be the difference in tens of thousands of dollars in tax, and a much more comfortable retirement. You have worked hard growing your business so now it is time to make the most of it.

For help understanding the ins-and-outs of the Small Business CGT concessions, speak with one of our team. Having the right strategy in place now can make all the difference later. Call us on 1300 866 113 or send us an email to start the conversation here.

‍

ATO

Australian Taxation

Business Advisory

Business Strategy