Unlocking Small Business CGT Concessions: What Every Business Owner Should Know
If you’re a small business owner preparing to sell your business or some of its key assets, understanding Capital Gains Tax (CGT) concessions could save you a significant amount of money.
The Australian Taxation Office (ATO) recognises that small businesses face unique challenges compared to larger corporations and offers several CGT concessions designed to ease the tax burden on qualifying businesses.
Navigating these concessions can be complex, but with the right guidance, you could minimise (or even eliminate) your capital gains tax liability.
This article breaks down the essentials of small business CGT concessions, helping you know which ones you may be eligible for and how they might benefit your business.
Understanding Capital Gains Tax (CGT)
Capital Gains Tax applies to profits made from selling certain assets, including business property or shares. Essentially, if you sell a business asset for more than you originally paid for it, the profit (capital gain) is subject to income tax.
However, the ATO offers special concessions for small businesses to reduce the CGT payable when they sell assets used in their business.
The 50% Capital Gains Tax Discount
Before we look at the small business CGT concessions, it’s important to understand a key rule that applies to many capital gains — the general 50% CGT discount.
When you sell an asset that you have owned for more than 12 months, such as property, shares, or business assets, the Australian Tax Office (ATO) allows you to reduce your capital gain by 50%. This means only half of the profit you made on the sale is subject to capital gains tax. This rule applies to partnerships, sole traders and family trusts. It does not apply to companies.
For example, if you bought a business asset for $100,000 and sold it later for $160,000, your capital gain is $60,000. With the 50% discount, only $30,000 of that gain will be added to your taxable income.
This general discount helps reduce your tax liability, but for small business owners, there are additional concessions that can reduce it even further — sometimes eliminating the tax altogether.
Who Qualifies for Small Business CGT Concessions?
To access these concessions, your business must meet specific requirements, including:
- Having an aggregated turnover of less than $2 million per year, or total net assets (including related entities) of $6 million or less.
- The asset sold must be an active asset, meaning it was used in your business from day to day. For example, a shop or office used to operate your business would qualify.
If you own shares or interests in trusts, there are extra rules you’ll need to meet.
The Four Main Small Business CGT Concessions Explained
1. The 15-Year Exemption
This is one of the most generous concessions, resulting in zero CGT. If you have owned the asset continuously for at least 15 years, you might be able to disregard the entire capital gain, meaning no CGT is payable.
You must also be over 55 and retiring, or permanently incapacitated at the time of sale.
2. The 50% Active Asset Reduction
If you don’t qualify for the 15-year exemption, this concession lets you reduce your capital gain by 50%, provided the asset was actively used in your business and you meet the turnover or net asset criteria.
This reduction can be combined with the general 50% CGT discount for assets held over 12 months, further reducing your taxable gain.
3. The Retirement Exemption
Under this concession, you can disregard capital gains up to a lifetime limit of $500,000.
If you’re under 55, the exempt amount must be contributed into a complying superannuation fund or retirement savings account. This helps reduce your tax bill while boosting your super.
4. The Small Business Rollover
The rollover concession lets you delay paying capital gains tax on the sale of a business asset if you replace it or improve an existing asset used in your business within two years of the sale. This means you have up to two years to buy a new asset or make significant improvements to an asset you already own. By doing this, you can postpone the capital gain until you eventually sell or stop using the replacement or improved asset. If you don’t replace or improve the asset within that two-year period, then the capital gain from the original sale is taxed as usual.
Important Considerations
While these concessions offer excellent tax relief, they come with detailed eligibility criteria and conditions. The rules can get complicated depending on your business structure and asset type.
That’s why it’s crucial to consult with a qualified accountant who specialises in small business taxation to ensure you make the most of these opportunities while staying compliant.
Ready to Maximise Your Small Business CGT Benefits?
At Bonerath & Co., we help small business owners understand and apply the right CGT concessions tailored to their unique situations.
If you’re considering selling business assets or retiring, contact us for a personalised consultation to explore your options and protect your hard-earned wealth.
