Of the four small business capital gains tax (CGT) concessions available, the 15-year exemption provides the greatest potential tax savings, making it the “premier” concession. Long-term planning to ensure qualifying conditions for the 15-year exemption will be met is therefore recommended.
Where the conditions for the small business 15-year exemption are met, the entire capital gain on the sale of a business asset is free from CGT. In addition, qualifying individuals can make a contribution of the sale proceeds into super under the lifetime CGT cap.
Benefits of the 15-Year CGT Exemption
- The entire capital gain on the sale of a business asset is free from capital gains tax.
- Qualifying individuals can contribute sale proceeds into super under the lifetime CGT cap ($1.65 million in 2022/23).
- This contribution is in addition to the non-concessional cap ($110,000/$330,000 under the bring-forward rule).
Who Can Benefit?
This strategy is suitable for business owners who:
- Are approaching or already over age 55.
- Intend to retire soon or have already retired.
- Are selling a business asset in connection with their retirement.
- Want to make super contributions exceeding the non-concessional cap.
Eligibility Criteria
To be eligible for the lifetime CGT cap:
- The asset must be a business asset that is being disposed of.
- The owner must meet the basic conditions for small business CGT concessions and specific conditions for the 15-year exemption.
- The individual must be eligible to contribute to super.
- A valid ATO form NAT 71161 must be lodged before or with the contribution.
Key Considerations for Companies and Trusts
If the business asset is owned by a company or trust, additional conditions apply:
- The entity must have had a significant individual for at least 15 cumulative years.
- The asset must be sold in connection with the retirement of at least one significant individual.
- CGT exempt amounts must be paid to stakeholders within two years of the CGT event.
- The cost base portion of the proceeds may still be taxable when distributed to shareholders or beneficiaries.
Case Study: Henry’s 15-Year CGT Exemption
Henry, aged 63, recently retired and sold his business assets (premises and goodwill) for $1 million. He had owned the assets continuously for over 15 years and met all the conditions for the small business 15-year exemption.
- His accountant confirmed that the entire capital gain was CGT-free.
- He was able to contribute the proceeds to super using the lifetime CGT cap.
- To qualify for the CGT cap, Henry had to make the contribution before his tax return due date or within 30 days of receiving the proceeds.
Final Thoughts
The small business 15-year CGT exemption offers significant tax benefits but requires careful planning to ensure eligibility. Business owners looking to maximise tax savings and boost their super should seek professional financial and tax advice.