When you sell your business, you may be liable for capital gains tax on the sale. However, there are four small business CGT concessions that can be used to reduce your capital gain on business assets. So long as you meet certain conditions, you can apply for as many concessions as you’re entitled to, until the capital gain is reduced to nil.
The four CGT concessions are:
- Small business 15-year exemption
This concession results in no assessable capital gain, when you sell a business asset that has been owned for 15 years, and if you’re aged 55 years or over and are retiring. This exemption also applies if you’re permanently incapacitated. - Small business 50% active asset reduction
By using this concession, you can reduce your capital gain on a business (active) asset by 50%. - Small business retirement exemption
A capital gain from the sale of a business asset will be exempt up to a lifetime limit of $500,000. If you’re under the age of 55, you must pay the exempt amount into a complying superannuation fund or retirement savings account. - Small business roll-over
Defer your capital gain on a small business asset for a year. Under this method, you don’t include the gain in your income until a change in circumstances causes a CGT event to happen – which ‘crystallises’ the gain. For example, when you don’t buy a replacement asset within the required time or you sell the replacement asset.
An active asset may be a tangible asset (such as land) or an intangible asset (such as goodwill). A tangible or intangible asset is a CGT active asset if it is used, or held ready, for use in the course of carrying on a business by: you, your spouse or child under 18 years or your affiliate.
You should assess any capital gains that may be payable by you before you sell your business. We can help you with these calculations, and the steps that you need to take, to get your paperwork in order and ensure that you minimise the tax you pay. Talk to us today!