CGT Concessions for Small Businesses
The ATO outlines 4 CGT Concessions that Members with small businesses (turnover of less than $2 million or net value of assets connected to the business is less than $6 million) can capitalise on. To qualify for any of the CGT Concessions you must meet the basic eligibility requirements.
Small Business 15-year Exemption
To qualify for the small business 15-year exemption you will need to meet the eligibility requirements:
- Be at least 55 years old and retiring, or permanently incapacitated
- Have owned the asset for 15 years of continuous ownership
- Significant individual test satisfied for the whole 15 years
If you meet all the above conditions, then if you dispose of an active asset you will get the full CGT exemption without using capital losses. The CGT cap is limited to $1.78m (indexed).
You may also qualify for CGT based on these modified rules:
- You can include the ownership period of the former spouse (for example in the event they passed away).
- The ownership period can be from when the asset was transferred to you regarding replacement assets.
Small Business Retirement Exemption
On the basis that you are ineligible to apply for the small business 15-year exemption, the CGT concession stakeholder can choose to disregard up to the lifetime limit of $500,000 per individual of capital gains from the disposal of an active asset.
If you are either a beneficiary of a deceased estate, legal personal representative or a trustee/beneficiary of a testamentary trust and you received the asset within 2 years of the deceased then you are eligible for the small business retirement exemption and will not need to make contributions to your Super even if you are under 55. Please see more on the ATO Website.
Small Business 50% Active Asset Reduction
The small businesses’ 50% active asset reduction halves the CGT amount required.
The 50% active asset reduction applies automatically as long as you meet the eligibility requirements unless you choose it to not apply in favour of the other two CGT Concessions; small business retirement exemption and small business rollover. Please see more on the ATO Website.
Small Business Roll-over
This concession allows you to defer the CGT required when you dispose of an active asset in the case you roll it over into a replacement asset. Essentially you are allowed to roll over the CGT liability into the replacement asset and once you sell the replacement asset will you incur the CGT liability. Please see more on the ATO Website.
The CGT concessions are one of the strategies to contribute large amounts into Super without being limited by the contribution caps. Another way to contribute large amounts to your SMSF is by making a downsizer contribution.
