The small business CGT concessions are designed to reduce the tax burden on small business taxpayers.
With less CGT to pay, small business taxpayers can:
Small business taxpayers can trigger CGT when they dispose of an asset, for example:
The 15-year exemption provides a full exemption for the entire capital gain. This type of small business CGT concession applies where, among other things:
It is possible to use this type of small business CGT concession for superannuation benefits. Where the 15-year exemption applies, small business taxpayers can contribute up to “$1,705,000 (for FY2024) to superannuation outside the general contribution caps (specific financial advice should be sought as to whether this is appropriate in their particular circumstances).
If the 15-year exemption is not available, small business taxpayers can apply the 50% active asset reduction, which reduces the capital gain by 50%.
The 50% active asset reduction applies in addition to the general 50% CGT discount (where available) for a net 75% reduction in the capital gain, for example:
Gross Capital Gain $1,000,000
General 50% CGT Discount $500,000
50% Active Asset Reduction $250,000
Net Capital Gain $250,000
The small business active asset reduction is optional and there may be circumstances where it is beneficial to forgo this concession and utilise more of the small business retirement exemption (up to the relevant lifetime cap outlined below).
Unlike the 15-year exemption, and despite its name, the small business retirement exemption does not require that the relevant individual actually retires.
The small business retirement exemption can apply to shelter a capital gain from tax, subject to a lifetime limit of $500,000, however:
Returning to the example above, after applying the general 50% CGT discount and the 50% active asset reduction, the small business taxpayer could apply the small business retirement exemption to reduce the net capital to nil (subject to the $500,000 lifetime cap).
The small business rollover allows small business taxpayers to:
Where small business rollover applies, the tax on the original gain is generally deferred until the disposal of the replacement asset.
If and to the extent that a replacement asset is not acquired within the specified period up to 2 years after the original disposal, a capital gain is triggered at the end of the 2-year period.
The small business CGT concessions are subject to common basic conditions, with particular concessions having additional conditions over and above these common requirements.
The basic conditions for small business CGT concessions include:
There are additional basic conditions for small business CGT concessions where the relevant disposal relates to shares in a company or interests (including units) in a trust.
There are various defined terms in relation to the eligibility conditions of small business CGT concessions, such as:
However, notwithstanding the general meaning of an active asset above, certain assets are specifically excluded from being active assets, such as assets whose main use is to derive rent.
This sounds problematic as it would appear to exclude the common structuring scenario whereby a small business operates from premises leased from a related party (e.g., a company leasing a factory or office space owned by its shareholders).
However, the ATO takes the view that the “passive rent” exclusion does not apply (and, therefore, the relevant premises can constitute an active asset) where the premises are leased to a connected entity carrying on the relevant business.
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