Small business capital gains tax concessions

30 Oct

Small business owners are eligible for concessions to reduce the capital gain on business assets upon their disposal.

However there are basic conditions that must be met before a taxpayer can access these concessions.

These conditions are –

  1. You must be a small business entity.

You will be a small business entity if you are an individual, partnership, company or trust that is carrying on a business and has an aggregated turnover of less than $2 000 000. This includes the turnover of any businesses that are connected with you or are your affiliates.

  1. You must satisfy the maximum net asset value test.

This means that the total net value of your capital gains tax assets must not exceed $ 6,000, 000.  Net value means the market value of the assets less any liabilities relating to the asset. It also includes assets of any entities connected with you or your affiliates. Capital gains assets are generally assets used in your business.

  1. The asset must be active.

An active asset can be a tangible asset such as land or an intangible asset such as goodwill that is used or held ready for use in the course of carrying on a business by you, your spouse or child under 18 years, your affiliate or an entity connected with you.

Also the asset must be active for 7 ½ years if owned for more than 15 years or half of the period of ownership if owned for 15 years or less.

A share in a company or an interest in a trust can also be an active asset but there are more stringent tests to meet before this is the case.

Once the above has been considered, the concessions are as follows –

Small business 15 – year exemption

If your business has owned an asset for 15 years and you are aged 55 years or older and are retiring, or you are permanently incapacitated, you won’t have an assessable gain when you sell the asset.

Small business 50% active asset reduction

You can reduce the capital gain on an active business asset by 50%.

Small business retirement exemption

A capital gain form the sale of  a business asset will be exempt up to a lifetime limit of $500 000. However, if you are under 55 years of age, the exempt amount must be paid into a complying superannuation fund or a retirement savings account.

Small business rollover

If you sell a small business asset you can defer your capital gain until a later year. This means you must acquire a replacement asset within the required period (two years) and you don’t realise  the capital gain until you dispose of that replacement asset.

The above is a very brief summary of the concessions available. You should always seek advice from us that relates specifically to your circumstances.

Small business accounting tips & information

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Additional business services include tax minimisation structuring, business valuations and due diligence, business restructuring and audits.  We also provide professional bankruptcy and insolvency advice to Accountants, Financial and Legal Advisers, Corporations and Individuals. Our primary goal is to ensure all parties are treated with respect.

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