Small business capital gains tax concession, 15-year exemption, does your business qualify?

One of the most generous tax concessions available to business owners is the 15-year exemption under the small business CGT concessions.

Simply put, business owners who meet the criteria can sell a business asset tax free, with the option to contribute up to $1.565 million of the proceeds into superannuation.

These rules draw a line to determine the business owners who qualify and those who don’t.  It’s a tough outcome for those that just miss out on the tax concessions. Your business ownership structure and your profit distribution decisions could determine whether you access the concessions or not – so it is important to be alert to the rules and plan ahead.

5 Basic qualification criteria for a business owner

Here is a quick outline of the qualification criteria:

1. There is a sale of a business asset (not share or trust interest) for a gain.  For example, the goodwill of a business, or the business warehouse or office.  

2. Either:

  • The business owner, and its related entities, must have an aggregated turnover of less than $2 million; or 
  • The net value of the assets of the business owner, including related entities must not exceed $6 million.  This excludes the family home, superannuation and personal use assets. 

3. The business asset must be owned continuously for the 15 years leading up to the sale.

4. If the sale is made by a company or trust, that entity must have had a significant individual, being an individual holding at least 20% interest in the entity, for at least 15 years

5. At the time of the sale, the individual seller, or a significant individual of the entity seller, must be aged 55 years or over and the sale is made in connection with the business owner’s retirement.

Note that where the asset sold is a share in a company or interest in a trust the exemption may still be available but rules become very complicated and you will need to work through the structure to ensure there is sufficient participation in the business by the owner and the entity in which the shares are sold satisfies additional conditions in relation to annual turnover or net business assets.  For example, the owner must have at least 20% of the interest in the entity.  It’s also worth noting, the rules are further complicated if there are two layers of ownership, for example the common structure of a trust owning a company. 

Next Steps

This generous tax concession has stringent rules attached which must be carefully assessed. If you would like further information or require assistance determining your eligibility, please speak with your usual Mazars or alternatively one of our specialists below.

A Podcast on the topic is also available here .

 

Brisbane – Jamie Towers

Melbourne – Michael Jones

Sydney – Gaibrielle Cleary

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

 

Published: 30/9/2020

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