CGT concessions for small business

Business owners planning to sell their business need to consider the tax implications involved and the capital gains tax (CGT) concessions available to them.

To prevent a hefty tax bill and maximise profit, careful planning is required.  Owners need to be mindful of the business business CGT breaks available to them as they can reduce or eliminate the tax payable on the profit from the sale.

Planning ahead is important, especially for those looking to exit the business in a few years as the time leading up to the business’s sale can be used to review its structure.  The ATO is monitoring those businesses who restructure close to sale.

Restructuring well ahead of the sale provides owners with the opportunity to access small business CGT concessions.  For example, the mix of business assets versus non-business assets in a company or trust can drastically affect eligibility for the tax concessions.

Family-owned businesses who are passing onto the next generation may want to consider a review of the current structure.  If the older generation is over 55 years of age, they may have a wider access to the small business CGT concessions.

The four concessions available to small business owners include;

1.  The 15 year exemption

Business owners aged 55 or older and retiring or permanently incapacitated and have owned the business asset for at least 15 years are exempt from paying CGT when the asset is disposed of.

2.  The 50% active asset reduction

An active asset is a tangible or intangible asset that is used or held ready for use in the course of carrying on a business.  The capital gain from the disposal of an active business asset is only subject to tax on 50% of the gain.

3.  The retirement exemption

There is a lifetime limit of $500,000 CGT exemption for the sale of an active business asset.  For those who are under 55, the proceeds from the sale of the asset must be paid into a superannuation fund or retirement savings account.

4.  The small business rollover

For business owners who sell an active asset, the capital gain may be deferred as long as a replacement asset is acquired within a two year time frame.