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Capital gains tax concessions for small business

Overview

Section: 12.1

12.1 Overview

When a business is sold, the profit would normally be subject to capital gains tax (CGT). However, there are several CGT concessions that apply to small businesses. One or more of these concessions may be used to reduce or eliminate the CGT on the sale of business assets.

There are two standard CGT provisions that are generally available to individuals and/ or businesses. In addition, there are four CGT small business concessions that specifically apply to the sale of CGT assets used in a small business.

The standard CGT provisions: 

  • Assets acquired before 20 September 1985 are exempt from CGT. 
  • Individuals are taxed on only 50% of realised gains if the asset has been held for at least one year. 

Small business CGT concessions:

To qualify for the small business CGT concessions, the business must first satisfy the basic conditions that apply to all the CGT concessions. They must then satisfy any additional conditions that apply specifically to the individual concessions.

Further, there are rules about the order in which the CGT small business concessions are applied, and about how any current or prior year capital losses are dealt with.

The four  CGT small business concessions are:

  1. Small business 15-year exemption
  2. Small business 50% active asset reduction
  3. Small business retirement exemption
  4. Small business rollover.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Thursday, August 5, 2021