If you are an Australian business owner looking to sell your business, you may be eligible for small business capital gains tax (CGT) concessions.
These concessions are designed to provide tax relief to small business owners by reducing the amount of CGT they must pay when selling their businesses.
What are Small Business CGT Concessions?
Small business CGT concessions are a set of tax concessions available to small business owners who sell their businesses. These concessions allow business owners to reduce or completely eliminate the CGT they would normally have to pay on the sale of their business.
There are four types of small business CGT concessions available:
- 15-year exemption: If you have owned your business for at least 15 years consecutively and you are over 55 years old or permanently incapacitated, you may be eligible for a complete exemption from CGT on the sale of your business.
- 50% active asset reduction: This concession allows you to reduce the CGT payable on the sale of an active asset (such as a business or a share in a business) by 50%.
- Retirement exemption: If you are under 55 years old, you may choose to eliminate any CGT of the sale of an asset to the limit of $500,000. However, the exempt amount must be paid into a superannuation fund or a retirement savings account.
- Rollover relief: This concession allows you to defer the CGT payable on the sale of an active asset if you use the proceeds to purchase another active asset from one year before or up to 2 years after.
Who is Eligible for Small Business CGT Concessions?
To be eligible for small business CGT concessions, you must meet the following criteria:
- Your business must have an aggregated turnover of less than $2 million.
- The sale of your business must be a CGT event, which means that you are making a capital gain or loss.
- The asset being sold must be an active asset, which means that it is used or held for use in the course of carrying on a business.
- You must have owned the asset being sold for at least 12 months before the CGT event occurs.
- Your net assets must be less than $6 million before the CGT event occurs.
Pros and Cons of Small Business CGT Concessions
Like any tax concession, small business CGT concessions have pros and cons.
Here are some of the key advantages and disadvantages to consider:
Pros: | Cons: |
| Tax relief: Small business CGT concessions can provide significant tax relief to business owners, reducing the amount of CGT payable on the sale of their business. | Complex rules: The rules around small business CGT concessions can be complex, meaning that business owners may need to seek professional advice to ensure they are eligible and understand how the concessions work. |
| Boost to retirement savings: The retirement exemption and 15-year exemption can boost retirement savings for business owners, helping them to retire comfortably. | Limited eligibility: Small business CGT concessions are only available to small business owners, which means that larger businesses are not eligible for these concessions. |
| Encourages entrepreneurship: Small business CGT concessions can encourage entrepreneurship by reducing the tax burden on small business owners, making starting and growing a business easier. | Can encourage business owners to hold on to their businesses: The retirement exemption and 15-year exemption can encourage business owners to hold on to their businesses for longer than they might otherwise, which could prevent them from taking advantage of other opportunities. |
What is the Best Small Business Capital Gains Tax Concession for Your Business?
Small business CGT concessions can provide significant tax relief to Australian business owners selling their businesses.
However, they may not always be the best option for every business owner.
Depending on your individual circumstances, it may be more beneficial to structure the sale of your business in a different way, such as using a trust arrangement.
Whatever the case may be, before deciding to use small business CGT concessions, it is important to seek professional advice to ensure you are eligible and understand how the concessions work.
Contact us to discuss the best option for your business.
