Understanding the Four Small Business CGT Concessions

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For small business owners, managing capital gains tax (CGT) when selling business assets is a key consideration. The Small Business CGT Concessions provide significant tax relief, allowing eligible business owners to reduce, defer, or eliminate CGT while also providing opportunities to boost retirement savings through superannuation contributions.

The Four Small Business CGT Concessions

When selling business assets, eligible small business owners may apply one or more of the following CGT concessions:

1. 15-Year Exemption

  • Full CGT exemption for business assets held for at least 15 years.
  • The business owner must be 55 or older and selling the asset in connection with retirement.
  • If applicable, the entire sale proceeds can be contributed to superannuation under the CGT cap.

2. 50% Active Asset Reduction

  • Provides an additional 50% discount on the capital gain, after the general CGT discount (if applicable).
  • The business asset must have been actively used in the business.
  • This reduction is optional, and business owners can choose not to apply it if they wish to use other concessions more effectively.

3. Small Business Retirement Exemption

  • Exempts up to $500,000 of capital gains per individual.
  • Despite its name, actual retirement is not required.
  • If under age 55, the exempt amount must be contributed to superannuation.
  • A written election must be made to claim this exemption.

4. Small Business CGT Rollover Relief

  • Allows deferral of a capital gain if a replacement asset is acquired within two years.
  • If the replacement asset is later sold, the deferred gain will be included in that sale.

Maximising Superannuation Contributions Using the CGT Cap

One of the major benefits of these CGT concessions is the ability to contribute proceeds from a business sale to superannuation beyond standard contribution caps. This is possible using the CGT cap, which allows contributions of up to $1.65 million (2022-23).

Example: Using the 15-Year Exemption and CGT Cap

Scenario:

Ken, aged 56, sells a business asset he has owned for 15 years for $750,000, generating a $300,000 capital gain.

Applying the 15-Year Exemption:

  • Ken meets all conditions for the 15-year exemption, so the entire $300,000 gain is disregarded.
  • Ken can contribute the full $750,000 into super under the CGT cap.

Example: Using Multiple CGT Concessions

Scenario:

Ken sells a business asset he has owned for 10 years for $750,000, generating a $300,000 capital gain.

Applying the CGT Concessions:

  1. Capital loss: Ken offsets a $4,000 capital loss, reducing the gain to $296,000.
  2. 50% General CGT Discount: Reduces the gain to $148,000.
  3. 50% Active Asset Reduction: Further reduces the gain to $74,000.
  4. Small Business Retirement Exemption: The remaining $74,000 is fully exempted, reducing Ken’s taxable capital gain to nil.

Superannuation Contributions:

  • Ken can contribute $74,000 to super under the CGT cap.
  • If he had chosen not to apply the 50% active asset reduction, he could have contributed $148,000 instead.

Final Thoughts

The Small Business CGT Concessions provide powerful tax-saving opportunities for business owners selling active assets. By understanding how these concessions interact and structuring the sale correctly, business owners can minimise CGT liabilities while also boosting retirement savings. Professional tax and financial advice is essential to ensure the best possible outcome.

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