1. What Are Small Business CGT Concessions?
Small Business Capital Gains Tax (CGT) Concessions are tax benefits that allow eligible small businesses to reduce, defer, or eliminate the capital gains tax payable on the sale of assets. These concessions are part of the Australian tax system and aim to support small business owners during asset disposal or retirement.
2. Can a Company Claim Small Business CGT Concessions?
Yes, companies can claim small business CGT concessions, provided they meet the eligibility criteria outlined by the Australian Taxation Office (ATO). While many concessions are commonly associated with sole traders and partnerships, companies and trusts may also qualify under certain conditions.
3. Eligibility Criteria for Small Business CGT Concessions
To claim the concessions, a company must satisfy the following:
1. Basic Conditions
- The business must qualify as a small business entity (SBE) with an aggregated annual turnover of less than $2 million, or
- The company’s net asset value (NAV) must not exceed $6 million.
2. Active Asset Test
- The asset being sold must be an active asset, meaning it is used in the course of carrying on a business.
3. Significant Individual Test
- At least one individual must own 20% or more of the company’s shares or voting rights.
4. Capital Gain Applicability
- The CGT concessions apply only to capital gains, not ordinary income or revenue.
4. Types of Small Business CGT Concessions Available
1. 15-Year Exemption
- If the company has owned an active asset for 15 years or more, the entire capital gain may be exempt from CGT.
- Additional requirement: The individual significant owner must be aged 55 or older and retiring or permanently incapacitated.
2. 50% Active Asset Reduction
- Reduces the capital gain by 50% if the asset qualifies as an active asset.
- This reduction applies automatically once eligibility is established.
3. Retirement Exemption
- Companies can disregard up to $500,000 of capital gains if the proceeds are paid to shareholders as eligible termination payments.
4. Rollover Concession
- Allows the company to defer the capital gain by purchasing a replacement active asset within two years.
5. Steps to Claim Small Business CGT Concessions
Step 1: Assess Eligibility
- Determine if your company meets the small business entity or net asset value test.
Step 2: Identify Qualifying Assets
- Ensure the asset being sold qualifies as an active asset.
Step 3: Choose Relevant Concessions
- Apply the 15-year exemption, active asset reduction, or retirement exemption as appropriate.
Step 4: Maintain Accurate Records
- Keep documentation such as asset purchase details, financial statements, and evidence of business use.
Step 5: Consult a Tax Professional
- Work with an accountant to ensure compliance and maximize benefits.
6. Benefits of Claiming Small Business CGT Concessions
- Reduced Tax Liability: Minimize or eliminate CGT on qualifying asset sales.
- Cash Flow Retention: Rollover concessions allow businesses to reinvest proceeds.
- Retirement Planning: Tax-free benefits for retiring business owners.
7. Common Mistakes to Avoid
- Failing Active Asset Tests: Ensure assets meet the usage requirements for business purposes.
- Exceeding NAV Limits: Include all connected entities when calculating net asset value.
- Incorrect Records: Poor documentation can lead to denied claims.
Frequently Asked Questions (FAQs)
1. Can all companies claim small business CGT concessions?
No, only companies that meet the small business entity criteria and other conditions are eligible.
2. What is an active asset?
An active asset is property or equipment actively used in running a business, such as premises or machinery.
3. Do CGT concessions apply to shares sold by a company?
Yes, provided the shares qualify as active assets and meet the criteria.
4. Are small business CGT concessions automatic?
No, you must apply for them when lodging your company’s tax return.
5. Can companies use multiple CGT concessions for the same asset?
Yes, you can combine multiple concessions, such as the 50% reduction and retirement exemption, to maximize tax benefits.
Conclusion
Small business CGT concessions offer valuable opportunities for companies to reduce or eliminate their capital gains tax liabilities. By understanding eligibility requirements and choosing the right concessions, companies can maximize their tax savings and reinvest in their growth. For personalized advice, consult a tax professional or visit the ATO website.
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