Small Business CGT Concessions May Offer Substantial Tax Savings

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What are the small business CGT concessions?

The small business CGT concessions can provide significant tax relief for eligible businesses, making it an attractive option for those looking to sell their business. However, it is important to seek professional advice to ensure that you maximise the benefits of these concessions.

How do the small business CGT concessions work?

If you’re a small business owner looking to sell your business, there’s good news: the small business CGT concessions can significantly reduce the amount of tax you pay.

Here’s how they work.

When you sell a business, any capital gain is subject to capital gains tax (CGT). However, if you qualify for the small business CGT concessions, you may be able to pay substantially less tax.

To qualify for the concessions, your business must meet certain criteria. Firstly, it must be a ‘qualifying’ small business – generally speaking, this means it must have an annual turnover of less than $2 million. Secondly, you must have owned the business for at least 12 months prior to sale. And finally, you must satisfy one of a number of other conditions – such as actively working in the business or having no more than 20 employees.

If you do qualify for the concessions, they can provide significant tax relief. For example, if you’ve owned your business for 15 years or more, you may only have to pay CGT on half of any capital gain. And if you reinvest your sale proceeds into another qualifying small business within 12 months, you may not have to pay any CGT at all!

What are the eligibility requirements for the small business CGT concessions?

The small business CGT concessions such as small business capital gains tax CGT concessions are a set of tax concessions that can potentially reduce the capital gains tax (CGT) payable on the sale of certain small business assets.

To be eligible for the concessions, you must:

-have owned your business for at least 12 months prior to selling the assets; and

-meet the maximum net asset value test; and

-meet the active asset test; and

-be either an individual, a trust or a company that is a ‘qualifying small business corporation’.

If you satisfy all of the above criteria, you may be able to access one or more of the following CGT concessions:

-the ‘small business 15-year exemption’, which exempts from CGT any capital gains accruing during a period of up to 15 years in which you held your small business assets; or 

-the ‘small business 50% active asset reduction’, which applies a 50% discount to any capital gains accruing on active assets that you have held for more than 12 months; or 

-‘the retirement exemption’, which can exempt from CGT any capital gains accruing upon the sale of your small business assets after you reach 55 years of age, provided that you reinvest

What assets are eligible for the small business CGT concessions?

The small business CGT concessions are a set of four concessions that can potentially reduce the amount of capital gains tax (CGT) payable on the sale of certain business assets. The four concessions are:

1. The Small Business 15-Year Exemption

2. The Small Business 50% Reduction

3. The Small Business Retirement Exemption

4. The Small Business Rollover relief

To be eligible for any of the small business CGT concessions, the asset must be used in a small business and must be owned for at least 12 months prior to sale. In addition, the owner must satisfy a number of other conditions in order to access each concession. 

The first concession, the small business 15-year exemption, provides that any capital gain made on the sale of a qualifying asset will be exempt from CGT if the asset is sold after being held for 15 years or more. This concession can be particularly beneficial for businesses that have been passed down through generations, as it effectively exempts these assets from CGT altogether. 

The second concession, the small business 50% reduction, allows eligible taxpayers to apply a 50% discount to their capital gains when calculating their tax liability. This concession can only be accessed once every five years.

How can I maximise my chances of getting the small business CGT concessions?

If you are a small business owner looking to maximise your chances of getting the small business CGT concessions, there are a few things you can do.

First, make sure that you have owned your business for at least 12 months before selling. This is one of the key eligibility requirements for the concessions.

Second, ensure that your total taxable capital gains for the year are less than $6 million. This is the maximum amount that can be eligible for the concessions.

Third, make sure that you meet all of the other eligibility criteria for the concessions. These include requirements around being a sole trader or partnership, having an active and ongoing role in running the business and not being subject to any asset tests.

Fourth, seek professional advice to ensure that you are taking advantage of all relevant tax planning opportunities and structuring your affairs in the most tax-effective way possible.

By following these tips, you can maximise your chances of getting access to the small business CGT concessions and minimising your tax bill when selling your business.

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