Small business CGT concessions: when do I qualify?

The small business CGT concessions are a great way for small business owners to transfer wealth into super. There are two essential requirements you must first meet in order to access any of the concessions.

These concessions allow you to reduce or in some cases eliminate the capital gain from the sale of a business asset, whether it’s held directly by your business entity or in another related structure.

The concessions also allow you to make extra super contributions, sometimes up to $1,515,000 in connection with the sale of business assets. A great opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. However, there are two basic conditions you must meet before you can access any of the concessions. 

Business size

The first requirement is a test to determine if your business is “small” enough to qualify. There are two alternative tests: a turnover test and a net assets test.

The turnover test is met where you carry on a business and have annual “aggregated turnover” under $2 million.

This includes not just your business turnover, but also the business turnover of any entities that are “connected” or “affiliated” with you, which broadly means related entities that you control or influence. So, if you have another trust or company that carries on a separate business, its turnover will often be taken into account.

In terms of timing, you’ll satisfy the test if your aggregated turnover last income year was under $2 million. Alternatively, it’s also sufficient if your aggregated turnover this year is likely to be under $2 million, provided it was not $2 million or more in the previous two years.

The alternative test is the net assets test. You meet this test if the combined net assets of you and certain assets of your “connected” and “affiliated” (ie related) entities is no more than $6 million in total. Being a “net” assets test, you can subtract the liabilities related to the assets. You can also ignore assets like your main residence (provided it’s not used to produce income), personal use assets, superannuation entitlements, and shares or units in your related entities.

Asset requirements

The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an “active” asset. This means it must have been used or held in a business carried on by you or one of your “connected” or “affiliated” entities for the following periods:

• if you owned the asset for 15 years or less – for at least half the ownership period; or

• if you owned it for more than 15 years – for at least 7.5 years.

What about property?

Property can be tricky because of a rule that specifically excludes assets where the asset owner’s main use is to derive rent or other passive income. However, where the property is used by your “connected” or “affiliated” entity in its business, it will generally qualify as an active asset.

If you’re planning to sell shares in a company (or interests in a trust), contact your Mazars advisor about the special rules that apply to these types of assets, or alternatively.

Brisbane – Jamie Towers

Melbourne – Michael Jones

Sydney – Gaibrielle Cleary

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

Published: 28/11/2019

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.

 

Source: https://ato.gov.au/Business/Small-business-entity-concessions/Concessions/CGT-concessions/.