Did you know the Capital Gains Tax (CGT) concessions for small businesses aren’t just for selling up? These concessions can be used in a variety of situations, from planning for retirement to restructuring your business or even setting things up for the next generation.
Understanding how they work could save you a significant amount of tax and help you achieve your long-term goals.
Who Qualifies for Small Business CGT Concessions?
To be eligible for these concessions, your business needs to meet certain conditions:
- Turnover / Assets Test: Your business turnover must be less than $2 million a year OR the business and related entities need to have less than $6 million of net assets.
- Asset Use Test: The assets in question must be actively used in the business, such as business property or goodwill.
- Connected Assets: Even if the asset isn’t directly owned by the business, it may qualify if it’s used by a small business you’re connected with.
If you meet these criteria, you may be eligible for one or more of the following CGT concessions. Whilst we have simplified the above criteria, the concessions are notoriously complex and you should always get professional advice before transacting with an intention to use them.
The Four Small Business CGT Concessions
- 15-Year Exemption
If you’ve owned your business for at least 15 years and are aged 55 or older, you could potentially disregard 100% of the capital gain.- This is particularly useful if you’re retiring or scaling back due to permanent incapacity.
- You can also usually contribute some proceeds to superannuation, which doesn’t count towards standard contribution limits.
- 50% Active Asset Reduction
This concession allows you to reduce the capital gain on an active business asset by 50%.- This applies to most business assets, but there are extra conditions if the asset is a share or interest in a trust.
- Retirement Exemption
You can exclude up to $500,000 of capital gains over your lifetime using this exemption.- If you’re under 55, the proceeds must be paid into a superannuation fund.
- If you’re 55 or over, the proceeds can be paid directly to eligible individuals
- Rollover Concession
Instead of paying CGT immediately, you can defer it by rolling the capital gain into another eligible business asset.
Beyond Selling: How Can These Concessions Work for You?
While these concessions are often thought of in the context of selling a business, they can also be used in other ways to help you achieve your goals.
- Approaching the $2 Million Turnover Threshold: If your business structure is not ideal and you are looking to restructure, it might be attractive to restructure before becoming ineligible due to turnover increases.
- Retirement Planning: The 15-Year Exemption and Retirement Exemption are particularly helpful for those planning to scale back or retire.
- Restructuring: Concessions can be used to refinance personal debt or create a new business structure for growth or succession planning.
Expert Guidance to Get It Right
Timing and strategy are everything when it comes to using these CGT concessions. Knowing which one to use, and when, can make a big difference. That’s where we come in.
At Hoffman Kelly, we specialise in helping small business owners navigate the tax system. We’ll work with you to make sure you’re making the most of these opportunities and setting yourself up for a secure financial future.
Get in touch with us today to discuss how we can help. Whether you’re looking to retire, restructure, or plan ahead, we’re here to make the process straightforward and stress-free.
Article by Donna Fisher, Manager at Hoffman Kelly
