CGT Small Business Concessions
Capital Gains Tax (CGT) relief is being provided in many countries worldwide. Australia is in the list of countries who like to support the people when financial assistance is required. CGT relief is only available for small business taxpayers who qualify after meeting a specific criterion. CGT relief is provided upon disposing certain assets. Majority of the people misunderstand concept of CGT small business concessions. There is a difference in CGT small business concessions and CGT discounting reliefs which are already being provided. This is a special concession relief for small business taxpayers and should be reflected in tax return Sydney.
Latest Offered CGT Small Business Concessions
Here is a list of different CGT concessions currently being offered by Government of Australia to its small business taxpayers:
- 50% concession discount on all active assets plus the general individual 50% discount already provided
- CGT retirement exemption which can be up to $500,000 capital gains
- Complete exemption on gain of active assets which are held for at least 15 years in case you are 55years plus and retiring
- In case of replacement gain, deferral of total capital gain
Qualifying for CGT Small Business Concessions
There are 3 basic conditions which you must be fulfilling in order to gain CGT small business concessions. We have briefly mentioned the 3 conditions below:
- Disposal of asset must raise capital gain
- Disposed asset can only be an active asset
- Business should be producing no more than $2 million turnover, or net value of the assets of entities linked with you plus your business assets must not be more than $6 million excluding your personal assets
Let us guide you in detail about the “disposal of asset” concept. You should be “Significant Individual” in the company or trust. It means that minimum 20% ownership belongs to you. Asset could be interest in a trust or a share of the company. In this case, you must have significant individual status or spouse of significant individual while having ownership interest.
Explaining The Active Asset Concept
It is important to understand what kind of assets can be considered “active”. Any business asset which is being used or stored for future usage purpose is known as an active asset. On the other hand, this asset can be included in goodwill of the owner. Some people get wrong idea of the concept. Assets leading to passive income are not considered active assets. Rent can be classified as passive income. To develop further understanding, you must have owned the asset for minimum seven and a half years or half the total time. This is a must condition for an asset to qualify for being an active asset.
Four Types of CGT Small Business Concessions
We have discussed the 4 types of concessions below. Remember, the basic conditions must be fulfilled in order to apply for any type of concession. Contact the professional CPA accountants Sydney for more assistance.
Exemption of 15 Years – You can apply for capital gain concession if owning a business asset or whole business for the time period of 15 years while you are about to retire at age of 55 years plus. For this type, permanently incapacitated individuals can also apply. For exemption purpose, it is a must for you to have owned the asset minimum seven and a half years. On the basis of 15 years exemption, the whole capital gain is completely disregarded.
Small Business Rollover – Gaining this type of concession requires you to purchase a replacement asset for active asset’s disposal within two year time frame. The individual might be allowed to defer capital gain till the time newly purchased replacement asset is disposed. Meeting the above mentioned condition is necessary.
50% Active Asset Reduction – This is a type of concession which can only be applied after finding that you don’t qualify for 15 year exemption. After gaining usual CGT discount, the capital gain which remains can be reduced to half which is 50% of the total. Companies, trusts and individuals can apply for this concession type. Just to remind, meeting the mentioned requirements is a must to gain this concession.
Retirement Exemption CGT – This is the type of concession which you must be looking forward to if you are 55 years plus. Gaining retirement exemption can ease the rest of your life. Capital gain amount will be left even after gaining usual 50% discount and availing the active asset 50% optional concession. You can eliminate the remaining amount by availing retirement exemption CGT. Government of Australia has set a $500,000 limit for an individual’s life time.
Contribute the amount of money into superannuation which is same to remaining capital gain amount. It will help you gain retirement exemption when you will be 55 years plus. This is an option for those who currently don’t meet the age condition. On the other hand, there are is no compulsion to submit any amount into superannuation if you meet the age criterion. If this is your case then simply choose to disregard the CGT which can be up to $500,000.
We have explained the conditions and types of concession in detail. However, we recommend you to consult your tax agent Sydney when you plan to go ahead for applying any type of CGT small business concession.