CGT Small Business Concession

CGT Small Business Concessions

Applying the Rules

Basic Conditions

· CGT event resulting in capital gain

· Maximum net asset value test of business and connected entities less than $6M or if turnover less than $2M

· Asset is an active asset

· Further conditions for each concession

Active Asset

· Used in carrying on business by

Ø The Taxpayer

Ø Entity connected with taxpayer

· Intangible asset connected with business

· Must be active asset for lesser of

Ø Half the relevant period

Ø Seven and a half years

Significant Individual Test

· Company or trust to access

Ø 15 year asset exemption

Ø Retirement exemption

· Asset is a share or unit

Ø For all concessions

· Taxpayer must be a significant individual – at least 20% direct or indirect holding in asset

Four CGT Small Business Concessions

· 15 year asset exemption

· 50% active asset reduction

· Retirement exemption

· Rollover

15 year exemption

· Ensure individual or significant individual

Ø At least 55

Ø Asset sold in connection with retirement or permanent incapacity

· If a company or trust

Ø Was there a significant individual at all times?

50% active asset reduction

· Reduce capital gain by 50%

· For companies may be better not applied - use retirement exemption. Distribute via shareholder loans or liquidation

· Individuals, partners or trusts would normally apply the concession.

Retirement

· Up to $500,000 gain exempt if proceeds used in connection with retirement

Ø Under 55 rollover to super fund

Ø 55 or over no need to rollover

· Written election required

· Payment must be made within 7 days of election

· ETP requirements to ATO

Small business rollover

· Allows deferral of capital gain

· Replacement asset must be acquired within two years or original gain becomes assessable

· Disposal or replacement asset

Ø To crystalise gain

Ø Remember can apply retirement exemption or further rollover

Structuring a new business

· Consider objectives

Ø Asset Protection

Ø Flexibility to distribute income

Ø Simplicity

Ø Minimise CGT on sale of business

· Discuss relative importance of each competing objective

Structuring the business sale

· Consider value assigned to various assets in sale

· Consider whether share/units can be sold rather than selling business of the entity

· Seek professional advice before committing to a contract