A Comprehensive Guide to Small Business CGT Concessions
The Capital Gains Tax CGT small business concessions offer significant opportunities for business owners to reduce or eliminate capital gains tax liabilities when selling business assets. These concessions also enable you to enhance your retirement savings through strategic superannuation contributions. This guide provides an in-depth overview of these concessions and how to maximise their benefits.
Overview of Small Business CGT Concessions
Small business CGT concessions can reduce or eliminate tax liabilities arising from the sale of eligible business assets. The four primary concessions include:
15-Year Exemption: Eligibility: The asset must be owned for at least 15 years. The owner must be aged 55 or over and retiring or permanently incapacitated.
Benefit: Disregard 100% of the capital gain on the sale of the asset. Allows up to $1.78 million (2024/25 cap) to be contributed to superannuation under the CGT cap.
50% Active Asset Reduction: Eligibility: Applies to active business assets held for at least 12 months. Benefit: Reduces the assessable capital gain by 50%.
Retirement Exemption: Eligibility: A lifetime limit of $500,000 applies. Owners under 55 must contribute the exempt amount to superannuation. Benefit: Disregard up to $500,000 of capital gains per individual.
CGT Rollover: Eligibility: Applies when proceeds are used to purchase replacement business assets. Benefit: Defer the capital gain until a later disposal of the replacement asset.
Basic Eligibility Requirements To qualify for any of the small business CGT concessions, the following conditions must be met:
Small Business Entity Status: The entity must have an annual aggregated turnover of less than $2 million or meet the $6 million net asset value test. Active Asset Test: The asset must be actively used in the business for at least 50% of the ownership period (or 7.5 years if held for over 15 years). CGT Event: A capital gains tax event must occur (e.g., sale of the asset).
Contributions to Superannuation Under the CGT Cap When selling business assets, eligible owners can contribute proceeds to superannuation without impacting their concessional or non-concessional contribution caps. These contributions are subject to a lifetime CGT cap, which is indexed annually and set at $1.78 million for the 2024/25 financial year.
Key Points: The CGT cap election form must be submitted to your superannuation fund at or before the time of contribution. Contributions exceeding the CGT cap will count towards non-concessional contributions.
Strategic Considerations Maximize Use of Concessions: Combine multiple concessions to reduce taxable gains further (e.g., use the 50% active asset reduction and the retirement exemption). Plan Contributions Strategically: Optimize timing to align with broader financial and estate planning goals. Consider how contributions affect your Total Superannuation Balance (TSB) and future eligibility for non-concessional contributions.
Seek Professional Advice: Engage with tax agents and financial advisers to navigate the complex eligibility requirements and maximize benefits.
Case Study: Effective Use of Small Business CGT Concessions Scenario: Sarah, aged 60, sells her business premises for $1.2 million, realizing a $900,000 capital gain.
Strategy: Sarah’s tax adviser determines she qualifies for: A 50% active asset reduction, reducing the gain to $450,000. A $450,000 retirement exemption, eliminating her remaining taxable gain. Sarah contributes $450,000 under the CGT cap into her superannuation.
Outcome: Sarah avoids any immediate capital gains tax liability. She transitions the proceeds into a tax-advantaged super account and begins a retirement phase income stream, providing a tax-free income in retirement.
