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Capital gains tax concessions for small business

Small business 15-year exemption

Section: 12.4

The 15-year exemption is the most favourable of a the concessions. This is because:

  • the entire capital gain is disregarded
  • claiming the 15 year exemption does not utilise any capital losses
  • the entire proceeds from the sale of the asset up to $1.565 million (lifetime limit, indexed) may be contributed to superannuation and be exempt from the non-concessional contribution cap

Additional conditions for 15-year exemption

To qualify for this exemption, specific conditions must be met in addition to the basic conditions. These are:

  • the entity must continuously own the asset for the 15-years before the sale
  • if an individual owns the assets:
    • they are at east age 55 and the sale of the asset is 'in connection with their retirement' or they are permanently incapacitated at the time the asset is sold, and
    • if the asset is a share in a company or interest in a trust, the company or trust must have a significant individual for a total period of 15 years (does not need to be the same significant individual
  • If a company or trust own the asset:
    • the company or trust must have a significant individual for a total period of 15 years (does not need to be the same significant individual), and
    • the individual who was a significant individual just before the asset is sold was at least age 55 and the sale occurred 'in connection with their retirement' or they were permanently incapacitated at the time the asset is sold.

'In connection with retirement'

The sale of an asset is in connection with an individual's retirement if there is a significant:

  • reduction in the individual's working hours; and
  • change in the nature of the activities undertaken by the individual.

An asset sold either before (e.g. as part of winding down the business) or after the individual's retirement may still be considered to be in connection with their retirement.

Distribution of 15-year exemption amount from a company or trust:

If a company or trust claims the 15 year exemption or sells a pre-CGT asset (acquired before 20 September 1985), the proceeds from sale are payable to the company or trust. The company or trust may distribute the sale proceeds to individuals who are CGT concession stakeholders, who will not include the amount in their assessable income if certain conditions are met: They are:

  • the company or trust must make the payment(s) within 2 years of the asset being sold to an individual who is a CGT concession stakeholder individual who is CGT concession stakeholder just before the asset is sold.
  • the amount distributed to each CGT concession stakeholder does not exceed their control or participation percentage multiplied by the exempt amount.

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: Monday, September 28, 2020